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

                                  FORM 10-KSB/A

                                 AMENDMENT No. 1

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

                 For the fiscal year ended: December 31, 2000 or

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

For the transition period from -----  to -------

Commission File Number:    0-12806

                           DYNATEC INTERNATIONAL, INC.
                           ---------------------------
               (Exact name of registrant specified in its charter)

             UTAH                                          87-0367267
--------------------------------------         ---------------------------------
 (State or other jurisdiction of               (IRS employer identification no.)
 incorporation or organization)

      3820 Great Lakes Drive
      Salt Lake City, Utah                                   84120
---------------------------------------          -------------------------------
(Address of principal executive offices)                    (Zip Code)

                                 (801) 973-9500
                                 --------------
              (Registrant's telephone number, including area code)

--------------------------------------------------------------------------------
Securities registered pursuant to Section 12(b) of the Act:
None

Securities registered pursuant to Section 12(g) of the Act:
Common Stock (Par Value $0.01 per share)
--------------------------------------------------------------------------------

         Check whether the issuer (1) filed all reports  required to be filed by
Section 13 or 15(d) of the  Securities  Exchange  Act of 1934 during the past 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. X Yes No

         Check if  disclosure  of  delinquent  filers in response to Item 405 of
Regulation  S-B is not  contained  in  this  form,  and no  disclosures  will be
contained,  to the  best of  registrant's  knowledge,  in  definitive  proxy  or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB.[X]

         Registrant's  revenues  for the  year  ended  December  31,  2000  were
$8,693,639

         The aggregate  market value of the voting stock held by  non-affiliates
of the Registrant, based upon the closing price of the Common Stock on March 13,
2001 was $1,320,395.

         The Company had 5,745,640  shares of common stock  outstanding at March
13, 2001.

         Transitional small business disclosure format.        Yes   X  No


                                     Page 1
<PAGE>
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                                TABLE OF CONTENTS

                                  INTRODUCTION

         This Amendment No. 1 to the Annual Report on form 10-KSB for the period
ended  December 31, 2000,  of Dynatec  International,  Inc.  (the  "Company") is
submitted to amend the company's  disclosure regarding Staff Accounting Bulletin
101 Revenue Recognition in Financial Statements found in the following items:

       Part II-
              Item 6. Management's Discussion and Analysis or Plan of Operation
              Item 7. Financial Statements


<S>                                                                                                       <C>

PART I.

Item 1.   Description of Business.........................................................................3

Item 2.   Description of Property.........................................................................12

Item 3.   Legal Proceedings...............................................................................13

Item 4.   Submission of Matters to a Vote of Security Holders.............................................16

PART II.

Item 5.   Market for Common Equity and Related Stockholder Matters........................................17

Item 6.   Management's Discussion and Analysis or Plan of Operation.......................................18

Item 7.   Financial Statements............................................................................24

Item 8.   Changes In and Disagreements With Accountants on Accounting and Financial Disclosure............55


PART III.

Item 9.   Directors and Executive Officers; Compliance With Section 16(a) of the Exchange Act.............56

Item 10.  Executive Compensation..........................................................................59

Item 11.  Security Ownership of Certain Beneficial Owners and Management..................................60

Item 12.  Certain Relationships and Related Transactions..................................................62

Item 13.  Exhibits and Reports on Form 8-K................................................................64
</TABLE>



                                     Page 2
<PAGE>


                                     PART I

Item 1.   Description of Business

General

         Dynatec  International,  Inc.,  a Utah  corporation  ("Dynatec"  or the
"Company"),  is a Salt Lake City,  Utah based  manufacturer  and  distributor of
consumer  products.  The Company has four wholly  owned  subsidiaries:  Softalk,
Inc.,   Arnco   Marketing,   Inc.,   Nordic   Technologies,   Inc.  and  Softalk
Communications,  Inc.  During  the year  ended  December  31,  2000 the  Company
conducted most of its operations through its subsidiaries.

         The Company is engaged primarily in the manufacture and distribution of
various consumer products in two major product lines: telecommunication headsets
and amplifiers and other  telephone  accessories  and premium  flashlights.  For
information  about the Company's  industry  segments and operations in different
geographical  areas,  see  Note  13  to  the  Company's  consolidated  financial
statements, entitled "Business Segment Information."

         On November 22, 2000, the Company  completed the sale of  substantially
all of the  assets  it has  used in the  operation  of its  unincorporated  Neat
Things!(TM)   home   organization   and  storage  division  to  Expandable  Home
Organizers,  Inc., a California corporation ("EHOI"). Assets of the Neat Things!
Division sold to EHOI include  intellectual  property  rights either owned by or
licensed  to the  Company,  inventory,  fixed  assets,  and other  tangible  and
intangible  assets such as contract rights with  suppliers,  customers and sales
representatives.

Seasonality

         The Company's business is seasonal.  The Company typically  experiences
its highest  sales volume in the fourth  quarter of each year as a result of the
retail environment in which most of its customers conduct business.  Because the
Company sells its products  primarily to major  retailers,  the Company's  sales
performance is  significantly  dependent on the performance of those  retailers.
Accordingly,  the  fourth  quarter  is a key  factor  in the  Company's  overall
financial performance for the year.

Telecommunication Headsets and Amplifiers and Telephone Accessories

         Historically,  the telephone  accessories  product line  (including the
manufacture and sale of various products through the Softalk,  Inc.  subsidiary)
has been the principal  source of revenues for the Company.  The Company's  lead
product in this line has been a group of soft  plastic  shoulder  rests that are
attached  to a  telephone  handset  by  use  of  a  proprietary  adhesive  strip
manufactured  for the Company by 3M.  These  products  are designed to ease neck
strain  suffered by people who,  needing  both hands free while they talk on the
telephone, hold the handset between their ear and shoulder by bending their neck
toward their  shoulder.  These  telephone  shoulder  rest products are currently
manufactured  and  distributed  by the Company under the trade names  SoftalkTM,
Mini-SoftalkTM,  Softalk IIR, and Universal Phone RestR,  and are available in a
variety of colors, sizes and styles. The Company owns or has licensed the patent
rights used in the manufacture of the telephone  shoulder rest product line, and
manufactures these products at its Salt Lake City, Utah headquarters.

         The  Company's  telephone  accessory  product  line also  includes  the
"Twisstop" and "Cord  Manager(R)"  products.  The Twisstop  product is a plastic
connector  that plugs into a telephone  handset and allows the telephone cord to
twist  around the axis of the  connector so the  telephone  cord does not become
tangled.  The  Company  licenses  the  patents  used in the  manufacture  of the
Twisstop  product from a third party.  The Cord Manager product is a disk-shaped
device approximately two inches in diameter that plugs into a telephone handset.
Coiled inside the Cord Manager is a telephone cord of  approximately  25 feet in
length.  The product is designed to allow the telephone user to have the benefit
of a relatively  long telephone  cord, but avoid the hassles  associated  with a
normal cord of such length.

                                     Page 3
<PAGE>

         The Company's  line of telephone and computer  headset  amplifiers  and
headset telephones are designed to supplement or replace  traditional  telephone
handsets allowing increased flexibility for the user, particularly users who can
benefit from having their hands free while they use the telephone.  The Company,
through its Softalk  Communications,  Inc. subsidiary currently distributes such
products under the trade names Tele-LinkTM,  Computer-LinkTM,  Power-LinkTM, and
Power PhoneTM.

         For  the   year   ended   December   31,   2000,   revenues   from  the
telecommunication headsets and amplifiers and telephone accessories product line
accounted  for 70% of the Company's  total  revenues.  Major  customers for this
product line include United  Stationers,  SP Richards,  Boise Cascade,  Staples,
Corporate Express,  and Advanced American  Telephone.  In addition,  the Company
sells  these  products   through  several  catalogs  of  major  office  products
providers.

Flashlights

         Through  its  Nordic  Technologies,   Inc.   subsidiary,   the  Company
manufactures  and markets a broad  range of  specialty  and  premium  flashlight
products and  accessories  under the trademark  "Nordic  Lites." These  products
include water and impact  resistant  aluminum  flashlights that operate on "AA",
"C"  and "D"  batteries,  specialty  flashlights  that  have  such  features  as
focusable beams and flexible  handles,  and ordinary  plastic  flashlights.  The
Company also offers  flashlight  packages  containing  multiple  flashlights and
related  accessories  bundled  together  in a  convenient  storage  and  display
container.  The Company's flashlight product line, including such package units,
is presently marketed to major retailers and warehouse shopping customers. Major
customers  for the  flashlight  products  in the year ended  December  31,  2000
included Aladdin  Industries,  Radio Shack,  Giga, Inc., Tractor Supply and Home
Depot.

         The Company entered the flashlight business in December 1996, when it's
Nordic Technologies, Inc. subsidiary acquired substantially all of the assets of
Nordic  Lights,  Inc., a Texas  corporation.  In July 1997, the Company sold the
manufacturing assets it acquired from Nordic Lights, and moved the manufacturing
of the  Company's  core line of aluminum  flashlights  entirely to the  offshore
facilities of an  unaffiliated  party.  In the latter part of 2000,  the Company
moved the manufacturing to a different  unaffiliated offshore party that will be
providing the Company's  flashlights in 2001.  The Company  believes that it has
been able to take  advantage  of more  economical  and  efficient  manufacturing
relationships  with Asian  sources.  Although the Company does some packaging of
its flashlight  products,  it intends to continue to outsource the manufacturing
of its flashlight products to Asian suppliers.  Sales of flashlight products for
the year ended December 31, 2000 were $1,818,708 or 20.9% of the Company's total
revenues.

Hardware/Houseware

         The  Company's  hardware/houseware  product line includes the following
products:

                  "Sofstop (TM)"                     "The Wedge(TM)"
                  "Cover-Up"                         "Super Wedge"
                  "Hide It"                          "Spring Wedge"

         The products in this line are typically custom manufactured for Dynatec
by offshore,  nonaffiliated  manufacturers using proprietary third party designs
that the Company licenses.

         For the year ended  December 31, 2000,  this product line accounted for
9.1% of the Company's total revenues,  compared to 7.7% of Company  revenues for
the year ended  December 31, 1999.  These  products  generally  are  distributed
directly  to  retail  stores  and  distributors   including  Walmart,   National
Manufacturing and others.

                                     Page 4

<PAGE>

Subsidiaries of the Company

         During the year ended December 31, 2000, the Company  conducted most of
its  operations  through  its  subsidiaries.  The name of each of the  Company's
subsidiaries,  the  date of  organization  and the  date of  acquisition  by the
Company is set forth in the following table. Dynatec owns 100% of the voting and
other equity securities of each of its subsidiaries.

                                                    Date           Date Acquired
                       Subsidiary                 Organized          By Company
         ----------------------------------    ---------------    --------------
         Softalk, Inc. (1)                         7/15/82              4/18/83
         Arnco Marketing, Inc. (2)                 7/22/86              9/30/91
         Nordic Technologies, Inc. (3)            10/25/96             10/25/96
         SofTalk Communications, Inc. (4)         12/23/96             12/23/96
--------------

         (1) Engaged in the  manufacturing,  sourcing  and  distribution  of the
             telephone accessory, and doorstop products of the Company.
         (2) Arnco Marketing  imports and markets Twisstop to Softalk and others
             under a license agreement with Recoton Inc.
         (3) Involved in the research,  development  and marketing of flashlight
             products.
         (4) Engaged   in   the   research,   development   and   marketing   of
             telecommunications products.

Raw Material and Supplies

         The Company uses a premixed plastisol to manufacture the Softalk,  Mini
Softalk, Universal Phone Rest, Sofstop, and Softalk II products.  "Plastisol" is
a  generic  term for the  petroleum  based  raw  material  from  which the vinyl
substance forming the Softalk products is manufactured.

         Other than the Softalk products,  the Company's  products are purchased
in finished  form and  packaged  according to  Dynatec's  specifications  by the
supplier.  In some cases,  Dynatec  purchases  finished product and packages the
product for  distribution at its Salt Lake City  headquarters.  The Company,  to
date, has relied upon  approximately  fifteen primary  suppliers for plastic and
other materials  ordered to specification for its assembly,  manufacturing,  and
marketing  processes.  The Company has not  experienced  any shortage of plastic
products or of Plastisol in the past year,  and does not anticipate any shortage
in the future.  With  respect to finished  products the Company  purchases  from
domestic or foreign manufacturers, The Company intends to continue to source its
telecommunicaton headsets and amplifier products from its Asian supplier through
2001.  The Company  replaced  its supplier of  flashlights  in 2000 with another
offshore supplier. The Company believes that it could replace that supplier with
a domestic source or another offshore supplier if necessary.

         The Company anticipates usual,  inflationary  increases in the price of
plastic  products,  the raw  materials  used  to  manufacture  its  flashlights,
freight, and packaging in 2001. In 2000, costs associated with freight increased
significantly,  primarily as a result of increased fuel costs, and the Company's
increased  use of  air  freight.  The  Company  anticipates  that  these  usual,
inflationary  increases will not materially impact the results of operations for
the year 2001,  although  there can be no  assurance  that the Company  will not
encounter  raw  material  or other  manufacturing  delays,  price  increases  or
shortages,  or material  increases in shipping costs associated with rising fuel
prices,  any of which could adversely affect the Company's  financial  condition
and operations.



                                     Page 5
<PAGE>








Trademarks and Patents

         The Company  currently  owns or licenses the following U.S. and foreign
trademarks.

--------------------------------------------------------------------------------

Trademarks

<TABLE>
<CAPTION>


                                                                                                     Year of
                                                                                                    Trademark
                                                                               Trademark           Expiration
         Product                                Country                      Granted/Filed         or Renewal
--------------------------------------------------------------------------------------------------------------------

<S>                                             <C>                            <C>                <C>
     Softalk                                    U.S.A.                         07/20/99           Each 10 Years
                                                Canada                         04/20/99           Each 15 Years
     Sofstop                                    U.S.A.                         08/04/92           Each 10 Years
     The Wedge                                  U.S.A.                         10/20/92           Each 10 Years
     Wall Saver                                 U.S.A.                         07/15/97           Each 10 Years
     Phoneworks & Design                        U.S.A.                         05/10/96              Pending
     Audio Works & Design                       U.S.A.                         05/10/96              Pending
     Video Works & Design                       U.S.A.                         05/10/96              Pending
     Wallsaver & Design                         U.S.A.                         05/10/96              Pending
     Tele Link                                  U.S.A.                         07/20/99           Each 10 Years
     Computer Link                              U.S.A.                         04/10/97              Pending
     Power Link                                 U.S.A.                         11/23/99           Each 10 Years
     Pace Setter                                U.S.A.                         04/10/97              Pending
     Power Phone                                U.S.A.                         04/10/97              Pending
     Smart Sound                                U.S.A.                         10/05/99           Each 10 Years
     Softalk Design (Shape)                     U.S.A.                         04/09/96           Each 10 Years
     Mini Softalk Design (Shape)                U.S.A.                         11/16/95           Each 10 Years
     Cord Manager                               U.S.A.                         09/16/97           Each 10 Years
                                                Canada                         10/27/97           Each 15 Years
                                                European Community             08/31/98           Each 8 Years
                                                Japan                          08/07/98           Each 10 Years
     NordicLite                                 U.S.A.                         04/03/96              Pending
     Nordic Helmet Design                       U.S.A.                         07/15/97           Each 10 Years
     Smoke Cutter                               U.S.A.                         12/23/97           Each 10 Years
     Nite-Site-Lite                             U.S.A.                         04/25/97           Each 10 Years
     Zoom Switch                                U.S.A.                         09/21/99           Each 10 Years
     Color Splash                               U.S.A.                         04/17/98              Pending

</TABLE>


                                     Page 6
<PAGE>




         The Company owns or licenses the following U.S. and foreign patents.

<TABLE>
<CAPTION>



Patents                                                                                              Year of
-------                                                                                              Patent
                                                                                Patent             Expiration
Product                                         Country                      Granted/Filed         or Renewal
--------------------------------------------------------------------------------------------------------------------
     <S>                                        <C>                            <C>                    <C>

     Universal Softalk                          U.S.A.                         09/06/94               2008
     Softalk II                                 U.S.A.                         02/11/92               2006
     Door Protector                             U.S.A.                         02/18/97               2015
     Interchangeable Doorstop                   U.S.A.                         02/18/97               2015
     Zoom Light                                 U.S.A.                         10/27/98               2016
     Slide Focus Flashlight                     U.S.A.                         02/02/99               2016
     Switch w/Spare Bulb Carrier                U.S.A.                         11/14/89               2009
     Flashlight w/Switch Assembly               U.S.A.                         06/27/89               2007
     Flashlight w/Nite-Site-Lite                U.S.A.                         05/07/91               2009
     Cord Manager                               U.S.A.                         02/17/98               2016
                                                Canada                         05/02/00               2018
     Spring Wedge                               U.S.A.                         12/11/90               2007
     Mini Softalk                               U.S.A.                         02/11/92               2006
     Combination Flashlight & Area Lights       U.S.A.                         01/29/99              Pending
     Magnetic Door Stop & Holder                U.S.A.                         05/16/93               2011
     Cover Up                                   U.S.A.                         03/03/87               2001

</TABLE>

Inventory Supply and Backlog Orders

         The Company has followed a standard  policy of shipping within 24 hours
of receipt of payment on orders, or within 48 hours of orders on approved credit
lines  with the  exception  of  large  orders  for  flashlight  products,  which
typically  have lead times before  shipment of between 45 and 90 days.  In 2000,
the Company  experienced  some shipping delays and had backorders as a result of
limited cash flow to pay foreign vendors in advance of shipments.

Major Customers

Telecommunication Headsets and Amplifiers and Telephone Accessories
-------------------------------------------------------------------

         For the year ended  December 31, 2000,  25.3% of telephone  headset and
accessories   products  were  distributed   through  United  Stationers,   whose
headquarters are at 2200 E. Golf Road, Des Plaines,  IL 60016.  Another 14.3% of
sales in this product line were to Boise Cascade,  whose headquarters are at 800
West Bryn Mawr Road, Itasca, IL 60143. S.P. Richards,  whose headquarters are at
P.O. Box 1266,  Smyrna,  GA 30082  accounted  for another 13.8% of sales in this
product line.

Flashlights
-----------

         For the year ended December 31, 2000, 21.7% of the flashlight  products
were distributed through Aladdin Industries,  LLC, whose headquarters are at 703
Murfreesboro  Road,  Nashville,  TN 37224. No other customer  accounted for more
than 10% of the sales in the  flashlight  product line. In the fourth quarter of

                                     Page 7

<PAGE>

2000,  Aladdin  Industries  notified  the Company  that it would  terminate  its
distribution  agreement with the Company due to price increases in the Company's
flashlight product line.

Hardware/Housewares
-------------------

         During   the   year   ended   December   31,   2000,   57.8%   of   the
houseware/hardware  products were distributed  through  National  Manufacturing,
whose headquarters are at 1 First Avenue,  Sterling, IL 61081. No other customer
accounted for more than 10% of the sales in this product line.

Competitive Conditions in the Market

         The Company  believes that it is engaged in highly  competitive  market
segments for each of its product  lines.  The generic  design or function of the
telephone  accessory  products  such as Softalk could  probably be  functionally
replicated  without  great  difficulty.  Although  the Company  owns or licenses
patents  covering  certain  aspects of its Twisstop  and Cord Manager  products,
competing products having similar functionality are readily available.

         The  telephonic  headset  market is also very  competitive,  with large
manufacturing companies offering a broad range of products. However, the Company
believes that its proprietary rights for its headsets and amplifiers, as well as
the innovative features of those products, will enable the Company to compete in
each of these markets.

         The premium  aluminum  flashlight  business in which the Company's core
"AA",  "C"  and  "D"  flashlights  compete  is  extremely   competitive  and  is
characterized  by  significant  market  penetration  by a few  number  of larger
companies that have significant market share. The Company nevertheless  believes
its patent portfolio will enable it to compete with these other companies.

         In  all  of  the  markets  in  which  it  operates  the  Company  faces
competition  from a  number  of  sources,  many,  if not  most  of  which,  have
substantially more financial and other resources than the Company.

Environmental Regulation

         The Company  believes that it is in compliance  with all  environmental
quality  regulations  pertaining  to such matters as emission,  waste  disposal,
safety equipment, and like procedures.  The Company believes it is in compliance
with all state and local environmental  statutes. The Company also believes that
it is in compliance with all  Occupational,  Safety,  and Health  Administration
standards in its work place.

Employees

         The Company employs a full-time  executive,  sales,  administrative and
clerical staff of 19 people.  The Company also has an average monthly  assembly,
warehouse  and  distribution  staff of  approximately  31 people.  The number of
assembly,  warehouse and  distribution  employees is subject to adjustment based
upon production  demand, and ranged from a high of approximately 40 employees to
a low of  approximately  31 employees  during the year ended  December 31, 2000.
During 2000, in an effort to restructure, to cut costs, and to improve financial
performance the Company's work force was reduced by approximately 25%.


                                     Page 8
<PAGE>


Risk Factors

         The following  information about many of the more significant risks the
Company  faces should be considered  in  connection  with the other  information
contained in this report.

         Recent Net Losses

         The Company had significant net operating losses in all of fiscal years
1996, 1997, 1998, 1999 and 2000. The Company's reported net losses for the years
ended December 31, 2000 and 1999 were $3,158,931 and  $3,477,545,  respectively.
As a result, the Company had accumulated  deficits of $11,000,757 and $7,103,300
at December 31, 2000 and 1999, respectively.  During the year ended December 31,
2000,  the  Company's  management  adopted  a number  of  restructuring  efforts
designed  to  improve  the  Company's  financial   condition,   including  staff
reductions and other decreases in administrative expenses. Nevertheless,  during
2000, the Company's  borrowing  availability on its revolving line of credit was
decreased from $1,948,828 at December 31, 1999 to $440,000 at December 31, 2000.
This decreased borrowing  availability  diminished the Company's ability to fill
all of its customer orders and to aggressively market its products, resulting in
significant  net losses during 2000.  There can be no assurance that the Company
will be able to overcome its current cash flow challenges,  achieve growth, that
significant net losses will not be incurred in future operating periods, or that
the Company will become profitable in the foreseeable future, if at all.

         Need for Additional Funding

         The Company has operated  with  negative  cash flow for several  fiscal
years  and has  substantial  accumulated  operating  deficits.  To  finance  its
operations, the Company will require additional financing. In February 2000, the
Company  completed a private  placement of restricted  common stock that yielded
proceeds  of  $1,600,000,  $1,500,000  of  which  was  used  to  retire  certain
convertible debentures issued by the Company, and $100,000 of which was used for
general working capital.  Also, in May 2000 the Company  completed an additional
private  placement of restricted  common stock that yielded proceeds of $775,000
which money was used for general  working  capital.  On November 22,  2000,  the
Company  completed the sale of substantially  all of the assets  associated with
its Neat  Things!(TM)  home  organization and storage product line which yielded
the Company $847,553,  of which $430,000 was used to pay down the Company's line
of  credit  and the  remainder  was  used  for  general  working  capital  - See
"Management's  Discussion  and  Analysis -  Liquidity  and  Capital  Resources."
Notwithstanding  these  transactions,  by  December  31,  2000,  the Company was
experiencing  significant cash flow challenges which caused the Company,  during
the first  quarter of 2001, to seek debt  financing  from  alternative  sources,
including related parties.  The Company  anticipates that such alternate sources
of financing  will not be available  over the long term, and the Company will be
required to seek a replacement  source of commercial  credit,  as well as future
offers  and  sales  of its  equity  or debt  securities  to  private  investors.
Securities  issued in future  private  offerings of equity or  convertible  debt
securities could substantially dilute the holdings of other shareholders.  There
can be no assurance  that the Company will be successful in obtaining  alternate
or replacement commercial credit, in completing private sales of its securities,
or that any of such  financing  will be available to the Company on terms and at
rates that are  favorable  to the Company.  Absent such  funding,  however,  the
Company's ability to continue its operations may be adversely  affected,  and it
may have to seek protection under bankruptcy laws.

         Limited Market and Volatility of Stock Price

         The trading price of the Company's  common stock has been and is likely
to continue to be subject to wide fluctuations in response,  among other things,
to variations in the Company's operating results,  material announcements by the
Company or its competitors,  governmental regulatory actions,  conditions in the
Company's  industry,  or other  events or factors,  many of which are beyond the
Company's control.  In addition,  the stock market has historically  experienced
extreme  price and volume  fluctuations  which have  particularly  affected  the
market prices of many public  companies  and which often have been  unrelated to
the operating performance of such companies. Moreover, the Company has a limited
public market,  and sales of a relatively small number of shares of common stock
may adversely affect the prevailing  market price of shares currently issued and

                                     Page 9

<PAGE>

outstanding  and make the  Company's  common stock even more prone to volatility
than the  securities  of other  businesses  in  similar  industries.  Given  the
relatively small amount of trading in the Company's securities,  there can be no
assurance  that  the  prevailing  market  price  of  common  stock  will  not be
artificially inflated or deflated by trading even of relatively small amounts of
common stock. See "Price Range of Common Stock."

         Nasdaq SmallCap Market Delisting


         Until the fourth quarter of 2000, the Company's  common stock traded on
the Nasdaq  SmallCap  Market.  However,  on December 1, 2000,  the Nasdaq  Stock
Market delisted the Company's  common stock for failure to maintain the required
$1.00 per share  closing bid price.  The  Company's  common  stock is  currently
trading on the OTC Bulletin Board.  The long-term result of the Nasdaq delisting
could be a reduction in the liquidity of any investment in the Company's  common
stock,  even if the common stock  continues to trade on the OTC Bulletin  Board.
Further,  the  delisting  could  reduce the ability of holders of the  Company's
common stock to purchase or sell shares as quickly and as  inexpensively as they
have done  historically  and adversely  affect the Company's  ability to attract
additional equity financing.


         Possible Adverse Effect of Pending Litigation and Administrative
         Proceedings

         The Company is engaged in litigation outside the ordinary course of its
business, the effect of which on its business condition or results of operations
could be materially  adverse.  Such  litigation  is described  elsewhere in this
Report under the heading  "Legal  Proceedings."  There can be no assurance  that
such litigation and legal proceedings,  either  individually or in the aggregate
could have a material  adverse effect on the operations and financial  condition
of the Company.

         Foreign Operations Risks

         The  Company  outsources  most of its  manufacturing  to  manufacturers
located  outside the United  States.  There are numerous risks  associated  with
conducting business in foreign countries,  including the distance from corporate
headquarters,  problems associated with possible political risks, instability of
local governments, safety of personnel and equipment, the lack of spare parts or
adequate service assistance, the need for skilled labor and supervision, lack of
infrastructure  and  accessibility  to  sources  of  power  and  other  supplies
necessary for operations,  tariff  restrictions,  currency control  regulations,
competing or conflicting  manufacturing and production  standards,  governmental
approval,  licensing and permit requirements and procedures,  high inflation and
currency  fluctuations which may erode profitability  levels, and the difficulty
of obtaining and enforcing  judgments in foreign  courts and under foreign legal
systems that differ  substantially from the United States all add to the risk of
foreign  operations.  Difficulties  arising  out  of any of  these  risks  could
adversely affect the Company's financial condition and operations.

         Competition

         The Company's  current  products are divided into three primary product
lines:  telecommunications amplifiers, headsets and other telephone accessories,
flashlights and hardware/houseware  products.  Although certain of the Company's
products  in these  product  lines are  subject to patent or other  intellectual
property  protections,   barriers  to  entry  for  competing  manufacturers  and
distributors are relatively low for the majority of the Company's products.  See
"Description of Business - Competition"  Accordingly,  there can be no assurance
that competitors of the Company,  many of which are likely to have substantially
greater financial  resources,  experience and marketing ability will not be able
to successfully  compete with the Company,  which successful  competition  could
adversely affect the Company's operations and financial condition.


                                    Page 10

<PAGE>


         No Dividends

         The Company has never declared or paid any cash dividends on its shares
and does not anticipate paying cash dividends in the foreseeable future.

         Effect of Certain Anti-Takeover Provisions of Utah Law

         Utah,  the state in which the  Company  was  organized,  has  adopted a
"Control Shares  Acquisition Act" (the "Control Shares Act").  This act provides
that any person or entity that  acquires 20% or more of the  outstanding  voting
shares of a publicly held Utah  corporation is denied voting rights with respect
to the acquired shares,  unless a majority of the disinterested  stockholders of
the  corporation  elects to restore such voting  rights.  The  provisions of the
Control Shares Act may discourage companies or persons interested in acquiring a
significant  interest in or control of the Company,  regardless  of whether such
acquisition  may  be  in  the  interest  of  the  Company's  stockholders.   See
"Description of Securities."


                                    Page 11

<PAGE>


Item 2.   Description of Property

         The Company  occupies the  building  located at 3820 Great Lakes Drive,
Salt Lake City, Utah 84120, at which its corporate  headquarters,  manufacturing
and warehouse operations are housed. This facility was built in 1996 on property
purchased  by  the  Company  for  that  purpose.   The  Company's  facility  has
approximately 54,000 square feet, of which approximately 6,000 square feet (11%)
is used for office and  administrative  purposes and 48,000 square feet (89%) is
used for manufacturing, assembly and warehouse area.

         The Company owned the building until November 4, 1999, when the Company
closed a sale and  leaseback  transaction  for the  building.  The  buyer was an
unaffiliated third party and the parties negotiated the sale and leaseback as an
arms-length  transaction.   The  total  purchase  price  for  the  building  was
$2,865,000. The proceeds to the Company, after payment of the existing mortgage,
closing costs,  and brokerage fees associated with the sale, were  approximately
$831,000,  which the Company  used for general  corporate  purposes as operating
capital.  The lease is a triple net lease with a term of 20 years.  The  initial
base  rent is  $330,000  per year.  In  connection  with the sale and  leaseback
transaction,  and as additional consideration,  the Company issued 33,948 shares
of restricted common stock to the buyer.

         The Company  believes  that,  in light of the sale of its Neat  Things!
division  in the fourth  quarter of 2000,  and certain  reductions  in force and
other cost-cutting  efforts during 2000, the building and property are more than
adequate for its projected needs. Consequently,  the Company is working with the
owner of the building to identify an acceptable  replacement or  sub-tenant.  If
such a  replacement  or sub-tenant  is located,  the Company would  relocate its
corporate  headquarters  and  manufacturing  facility to a more  suitably  sized
building.

                                    Page 12

<PAGE>


Item 3.   Legal Proceedings

         On February 8, 2001, the Company waived service of summons with respect
to a complaint  filed in the U.S.  District court in the District of Utah by K&S
Flashlight,  Inc.  ("K&S"),  a Taiwan company that was the Company's  flashlight
supplier  from 1998 through 2000.  The lawsuit names as defendants  both Dynatec
and its  subsidiary,  Nordic  Technologies,  Inc.  The lawsuit  alleges that the
Company owes K&S in excess of $100,000 for the Company's  alleged failure to pay
amounts  due to K&S for  flashlight  products  shipped  during  2000,  and seeks
damages in an unspecified  amount.  The Company  intends to answer and otherwise
defend the lawsuit.

         On August 4, 2000,  the  Company  filed  suit (the  "Utah WAC  Action")
against WAC Research,  Inc., a Utah corporation  ("WAC"), in Utah state court in
Salt Lake City,  Utah.  WAC is a corporation  at least fifty percent of which is
owned by  Donald M. Wood  ("Wood"),  the  Company's  former  Chairman  and Chief
Executive  Officer.  The  dispute  with WAC  arose  out of a series  of  royalty
agreements  between the Company and WAC dated in 1990 and 1998 that purported to
obligate the Company to pay  perpetual  royalties to WAC on sales of products in
the Company's  telephone  accessories product line. In return for this perpetual
royalty  (which the Company paid for  approximately  10 years) WAC  purported to
assign and grant to the  Company the  intellectual  property  rights  underlying
certain of the Company's Softalk products.  At the times the WAC agreements were
negotiated,  Wood controlled  both WAC and the Company.  The Company amended its
complaint  in the Utah WAC Action on August 29,  2000 and on October  19,  2000.
After the Company was unable to negotiate a settlement of its disputes with WAC,
and after WAC filed its own  complaint  in state court in Phoenix,  Arizona (the
"Arizona WAC Action") on October 6, 2000, the Company served process in the Utah
WAC Action. The Company's  complaint in the Utah WAC Action, as amended to date,
seeks the court's  declaration that no further royalties are owed by the Company
to WAC because, among other reasons, (i) WAC never had any interest in or to any
of the intellectual  property rights  underlying the Company's Softalk products,
(ii) WAC breached its  representations  and  warranties  of ownership as to such
intellectual  property rights as set forth in the WAC agreements,  (iii) patents
covering certain of the key products in the Company's  Softalk product line have
expired,  and such products are not otherwise covered by enforceable  copyrights
or other  intellectual  property  rights,  (iv) the Company  owns all  trademark
rights with  respect to its Softalk  products,  (v) WAC has no right to continue
forcing the Company to pay royalties under expired  patents,  (vi) WAC's ongoing
attempts to enforce the WAC royalty  agreements  constitute  patent misuse,  and
(vii) as a consequence of WAC's patent misuse,  WAC is liable to the Company for
royalties paid under a 1998 agreement between WAC and the Company. The complaint
in the Utah WAC Action  also  includes  claims for damages  stemming  from WAC's
alleged  patent  misuse,   failure  of  consideration,   unjust  enrichment  and
additional declaratory relief. WAC's complaint in the Arizona WAC Action alleges
that WAC made unspecified loans to the Company that were never repaid,  and that
the  Company  is in  breach of its  royalty  payment  obligations  under the WAC
royalty agreements.  In the Arizona WAC Action, WAC sought declaratory  judgment
that the  Company  is  required  prospectively  to pay  royalties  under the WAC
agreements and for money damages in the amount of $308,841. The Company moved to
dismiss the Arizona WAC Action for lack of  jurisdiction  or, in the alternative
to stay the Arizona WAC Action  pending a resolution of the Utah WAC Action.  On
February 26,  2001,  the court in the Arizona WAC Action  granted the  Company's
motion to dismiss  that  action.  On March 27,  2001,  WAC filed a  counterclaim
against the Company in the Utah WAC Action.  This  counterclaim  asserts  claims
that are  identical to those that were asserted by WAC in the Arizona WAC Action
before it was dismissed.  The Utah WAC Action is still pending,  and the Company
intends to vigorously prosecute it.

         In February 1999, Mag Instrument,  Inc., a manufacturer and distributor
of flashlights  and one of the Company's  competitors  ("Mag"),  filed a lawsuit
against the Company's  subsidiary,  Nordic  Technologies,  Inc.  ("Nordic"),  of
infringing  certain of Mag's patents and committing false advertising and unfair
competition.  The lawsuit was filed in the U.S.  District  Court for the Central
District of  California.  The Company and Mag  attempted to settle that lawsuit,
and  entered  into an  agreement  whereby  the  lawsuit  was  dismissed  without
prejudice, with Mag having the express right to refile the complaint in the same
court and venue. No settlement was ever reached.  On October 30, 2000, Mag filed
a new complaint in the same federal  district court that it subsequently  served
on the Company.  The new Mag  complaint  alleges that Nordic has  infringed  two
patents  and  related  trademarks  owned by Mag,  and also has engaged in unfair
competition  arising out of Nordic's alleged use of a flashlight  design that is
confusingly  similar  to the  shape,  style  and  overall  appearance  of  Mag's
miniature  "AA" light,  all in  violation of various  provisions  of federal and

                                    Page 13

<PAGE>

California state law. Mag seeks unspecified money damages,  punitive damages and
injunctive relief. The Company does not believe that any of Nordic's  flashlight
products  have  infringed  any  patents or  trademarks  of Mag,  and  intends to
vigorously defend the suit.

         On May 4, 2000, Grandur, Inc., a Taiwan corporation  ("Grandur"),  sued
the Company in the United States  District Court for the District of New Jersey.
The summons and complaint were served on the Company in Salt Lake City,  Utah on
May  12,  2000.   The  complaint   alleges  that  the  Company  has  breached  a
manufacturing  agreement  between the Company and Grandur  pursuant to which the
Company  is  alleged  to  have a  minimum  annual  purchase  requirement  and an
exclusive  manufacturing  arrangement  with Grandur for the  Company's  Twisstop
product.  The complaint further alleges that Grandur is entitled to recover,  in
addition to such damages as may be proved at trial,  liquidated  damages per the
terms of the  contract in the amount of  $500,000.  Grandur and the Company have
entered into an oral agreement to settle this  litigation and are making efforts
to memorialize  their  agreement.  On February 6, 2001,  Grandur and the Company
reported the terms as their  settlement to the court.  On February 7, 2001,  the
court entered an order  conditionally  dismissing  the lawsuit  subject to being
reopened if the  settlement is not  consummated.  In the event the settlement is
not consummated, the Company intends to vigorously defend the lawsuit.

         In February 2000,  Merrill Lynch & Co., Inc. ("Merrill Lynch") notified
the Company that American  Stock  Transfer & Trust Co., New York,  New York, the
Company's  stock  transfer  agent  ("AST"),   had  confiscated   three  separate
certificates  purporting  to represent a total of 208,000  shares of  restricted
common stock issued in the name of an entity affiliated with Donald M. Wood, the
Company's  former Chairman and Chief  Executive  Officer.  AST confiscated  such
certificates because they were not then shown as valid certificates representing
the  Company's   issued  and   outstanding   common  stock.   Based  on  further
investigation  by AST, the Company believes that its former stock transfer agent
had  transferred the shares  represented by such  certificates to third parties,
but had not received the original  certificates  representing such shares at the
time of those transfers.  Nor did the former transfer agent obtain documentation
indicating that such certificates had been lost, stolen or destroyed. In January
2000,   several  years  after  the  shares   represented  by  such  certificates
purportedly had been  transferred,  the original  certificates  were tendered to
Merrill  Lynch  with  instruction  to  sell  the  shares   represented  by  such
certificates.  Merrill Lynch then sold such shares and tendered the certificates
to AST for transfer,  at which time AST confiscated the  certificates.  On March
28, 2000, the Company  received a letter from counsel for Merrill Lynch. In that
letter,  Merrill  Lynch  advised  the  Company of its  intention  to enforce its
clients'  rights to compel the Company to recognize  the transfers of the shares
represented by the certificates tendered to it in January 2000 under the Uniform
Commercial  Code as  adopted by the State of Utah.  The  Company  complied  with
Merrill Lynch's  demand.  The net effect of this action was that the Company was
required to recognize as having been previously  issued 208,000 shares of common
stock that were not then shown as being issued and  outstanding on the books and
records of the Company.  On March 29, 2000,  the Company filed a lawsuit in Utah
state court  against Mr.  Wood,  WAC  Research,  Inc.  ("WAC") and Muito Bem Ltd
Partnership  ("Muito  Bem"),  Alpha Tech Stock  Transfer  & Trust  Company,  the
Company's former stock transfer agent ("Alpha Tech"). Both WAC and Muito Bem are
entities affiliated with Wood. The case sought damages from all defendants,  and
specifically  asked the court to award to the Company the  proceeds of the sales
by WAC  and/or  Muito  Bem of the  shares  that the  Company  was  compelled  to
reinstate  on the  basis  that  those  entities  and their  principals  had been
unjustly enriched. In a settlement, dated April 12, 2000, among Wood, WAC, Muito
Bem,  Merrill Lynch and the Company,  the Company received cash in the amount of
$200,714,  in  exchange  for which it released  its claims for  further  damages
against Wood,  WAC,  Muito Bem and Merrill Lynch.  The Company's  claims against
Alpha Tech are still pending.

         On  December 7, 1999,  Donald M. Wood,  the former  Chairman  and Chief
Executive  Officer of the  Company,  and the Stith Law Office  (Wood's  personal
legal counsel) filed a lawsuit in the District Court of Salt Lake County,  State
of Utah (Case No. 990912153).  In that lawsuit, Wood and Stith asserted that the
Company has  breached a  Settlement  Agreement  executed by the Company and Wood
upon Wood's  resignation as the Company's  Chairman and Chief Executive Officer,
effective  as of January 14,  1999.  The lawsuit  includes  claims for breach of
contract,  fraud and  intentional  infliction of emotional  distress,  and seeks
money damages and punitive  damages in the aggregate  amount of  $1,162,246.  On
February 7, 2000, the Company filed its answer to the Wood litigation,  in which
the Company asserted that its payment obligations under the Settlement Agreement

                                    Page 14

<PAGE>

were excused by repeated breaches by Wood of various covenants of the Settlement
Agreement.  Simultaneously,  the Company filed a  counterclaim  against Wood for
money damages  incurred by the Company as a result of Wood's various breaches of
the  Settlement  Agreement.  The Company also  simultaneously  filed  motions to
dismiss the fraud and intentional  infliction of emotional  distress claims. The
Company's  management  believes the Wood litigation is without merit and intends
to vigorously defend.

         On March 19, 1999,  Alpha Tech Stock  Transfer  Company  ("Alpha Tech")
filed a lawsuit against the Company in Utah state court in Salt Lake City, Utah.
Alpha Tech was the Company's stock transfer agent for a period of  approximately
ten years  until the  Company  terminated  its  relationship  with Alpha Tech in
January 1999 and instructed  Alpha Tech to transfer the Company's stock transfer
records to American Stock  Transfer,  New York, New York. The complaint  alleges
that the Company breached its service contract with Alpha Tech by failing to pay
$132,165 to Alpha Tech for transfer  agent services  rendered and  reimbursement
for  legal  expenses  incurred  by Alpha  Tech.  Alpha  Tech  never  served  the
complaint;  the Company  learned about the complaint  through an unrelated third
party. In March 2000, Alpha Tech refiled essentially the same complaint, thereby
commencing  another  lawsuit  against the Company.  The March 2000  complaint is
virtually  identical  to the March 1999  complaint.  In April 2000,  the Company
accepted  service of  process,  and has filed a motion to dismiss the March 2000
complaint. The Company disputes the claims of Alpha Tech's complaint and intends
to vigorously defend this action.

         On April 27,  1998,  the  Enforcement  Division of the  Securities  and
Exchange Commission notified the Company that the SEC was anticipating filing an
administrative  proceeding  in the latter  part of  calendar  year 1998  against
various individuals and entities who had engaged in transactions with a Canadian
corporation. The SEC Enforcement Division further indicated that the Company may
be named as a defendant in such administrative action. In July 1998, the Company
submitted a Wells  Submission  to clarify why, in the Company's  estimation,  it
should  not be named  in the  administrative  proceeding,  if any.  The  Company
suggested  in  the  Wells  Submission  that  it  should  not  be  named  in  any
administrative  proceeding  because the Company never consummated  either of the
two  transactions  with  the  subject  Canadian  company  that the  Company  was
considering,  and the Company received no consideration in connection with those
aborted  transactions.  Moreover,  the  Company  believes  that its  conduct  in
connection  with those proposed but aborted  transactions  met applicable  legal
requirements. As of December 31, 2000, the Company had received no response from
the Enforcement  Division about whether the SEC plans to name the Company in any
administrative action.

         In addition,  the Company has previously  disclosed  that, in the first
quarter of 1999, it was informed of an investigation by the Enforcement Division
of  the  Securities  and  Exchange   Commission.   The  Company   believes  this
investigation  concerns  certain trading  activity in the Company's common stock
and other transactions involving the Company's securities,  however, the Company
has not been  informed of the specifics of such  investigation.  The Company has
cooperated  fully with these  administrative  proceedings.  The  Company  had no
contract from the Enforcement  Division regarding this investigation  during the
entirety of 2000.

         On  February  12,  1998,  Fuji  Corporation  filed  a  claim  with  the
International  Trade  Commission  seeking  a  cease  and  desist  order  against
approximately  30  entities.  Fuji sought to enlist the aid of the U.S.  Customs
Department  in  preventing  the  importation  of  single-use  cameras  which are
manufactured by any of the defendant  entities and which infringe the patents of
Fuji. The Company does not manufacture  single-use  cameras,  but previously has
distributed  single-use  cameras  which have been  refurbished  and  reloaded in
mainland China. The Company was therefore  involved in the Fuji proceeding.  The
Company  engaged  intellectual  property  counsel and  vigorously  defended  its
position until December 1998,  when the Company sold its remaining  inventory of
single-use  cameras  to  another  entity.  In  connection  with that  sale,  any
liability of the Company in connection with the Fuji  proceeding,  including the
costs of further  defending  the action,  were  assumed by the  purchaser of the
Company's  single-use camera  inventory,  although the Company nominally remains
part of that litigation.

         The  Company is  involved  in various  other  claims and legal  actions
arising in the ordinary  course of business.  In the opinion of management,  the
ultimate  disposition  of these other  matters will not have a material  adverse
effect on the Company's operations or financial condition.

                                    Page 15

<PAGE>


Item 4.   Submission of Matters to a Vote of Security Holders.

         No matter was  submitted  to a vote of  security  holders  through  the
solicitation  of proxies or  otherwise  during the fourth  quarter of the fiscal
year covered by this report.


                                    Page 16

<PAGE>


                                     Part II

Item 5.   Market for Common Equity and Related Stockholder Matters


         Market  Information and Number of  Stockholders.  The Company's  common
stock is  listed  on the OTC  bulletin  board  under the  symbol  "DYNX".  As of
December 31, 2000 there were 1,144  shareholders  of the Company's  common stock
and 5,745,640 shares of common stock were outstanding.

         Price Range of Common Stock.  The  following  table sets forth the high
and low sale prices of the Company's common stock as quoted on the Nasdaq (until
December 1, 2000) and on the OTC bulletin  board  thereafter  for the  indicated
periods. The referenced  quotations do not reflect  inter-dealer prices,  dealer
retail markup,  markdown,  or  commissions,  and may not  necessarily  represent
actual transactions.

                           PRICE RANGE OF COMMON STOCK

======================= ==================== ====================

Quarter & Year          Market High           Market Low
----------------------- -------------------- --------------------

1st 1999                $4.31                $2.25
----------------------- -------------------- --------------------

2nd 1999                $3.00                $1.63
----------------------- -------------------- --------------------

3rd 1999                $1.86                $0.81
----------------------- -------------------- --------------------

4th 1999                $1.25                $0.88
----------------------- -------------------- --------------------

1st 2000                $4.34                $1.00
----------------------- -------------------- --------------------

2nd 2000                $2.63                $0.94
----------------------- -------------------- --------------------

3rd 2000                $1.06                $0.38
----------------------- -------------------- --------------------

4th 2000                $1.25                $0.06
======================= ==================== ====================


         Dividends. During the year ended December 31, 2000, the Company did not
declare or pay cash  dividends.  The  Company  has no history of  declaring  and
paying  cash  dividends  to its  common  stockholders  and has no  intention  of
declaring such dividends into the foreseeable future.




                                    Page 17


<PAGE>


Item 6.   Management's Discussion and Analysis or Plan of Operation

Results of Operations

         The  following  table sets forth,  for the periods  indicated,  certain
information  relating  to the  operations  of the Company  expressed  in dollars
(rounded)  and  percentage  changes  from  period to  period.  Data in the table
reflects the  consolidated  results of the Company for the years ended  December
31, 2000 and 1999,  respectively.  As supplemental  information,  the table also
segregates the Company's revenues by product line type.

                                              For the Year Ended
                                      ------------------------------------
                                                                  % of
                                                                  chg
                                                                  from
                                        December     December   1999 to
                                        31, 2000     31, 1999    2000
                                        --------     --------   -------

  Statement of Operations Data:
         Product sales.............     $ 8,694,000 $10,967,000     (20.7)%
         Cost of sales.............       5,470,000   6,969,000     (21.5)
                                        ----------- -----------
                 Gross margin......       3,224,000   3,998,000     (19.4)
                                        ----------- -----------

  Operating Costs and Expenses:
         Selling expenses..........       3,331,000   3,385,000      (1.6)
         General and administrative       3,272,000   3,459,000      (5.4)
         Research and development..         221,000     170,000      30.0
                                        ----------- -----------
                 Total operating
                 costs and expenses       6,824,000   7,014,000      (2.7)
                                        ----------- -----------

  Other Income (Expense), net:
         Interest expense..........        (622,000)   (889,000)    (30.0)
         Interest income...........           1,000       5,000     (80.0)
         Other income (expense)....        (361,000)      3,000  (12133.3)
                                        -----------  ----------
                  Total other income
                  (expense)                (982,000)   (881,000)     11.5

         Loss from continuing
            operations.............      (4,582,000) (3,897,000)     17.6


  Discontinued Operations:
      Income from discontinued
        operations                          314,000     419,000     (25.1)
      Gain on sale of discontinued
        operations                        1,109,000           -         -
                                         ----------   ---------
        Income from discontinued
           operations..............       1,423,000     419,000     239.6

               Net loss..............   $(3,159,000)$(3,478,000)     (9.2)
                                        =========== ===========


  Supplemental Information:

  Revenue by product line type:
      Telecommunication headsets and
            amplifiers and telephone
            accessories............     $ 6,084,000 $ 7,320,000     (16.9)
      Flashlights..................       1,819,000   1,810,000       0.5
      Hardware/houseware...........         791,000     845,000      (6.4)
      Miscellaneous/Mass market....               -     992,000         -
                                        ----------- -----------

               Total product sales
                 and other..........     $8,694,000 $10,967,000     (20.7)
                                         ========== ===========


Following are explanations of significant period to period changes for the years
ended December 31, 2000 and 1999:

Revenues

         Total Product Sales.  Total product sales  decreased by $2,273,000,  or
20.7%,  from  $10,967,000  to  $8,694,000  for the year ended  December 31, 2000
compared to the year ended December 31, 1999.

         Telecommunication  Headsets and Amplifiers  and Telephone  Accessories.
Sales of  telecommunication  headsets and amplifiers  and telephone  accessories
decreased $1,236,000, or 16.9%, from $7,320,000 to $6,084,000 for the year ended
December 31, 2000  compared to the year ended  December 31, 1999.  This decrease
was primarily attributable to a $510,000 decrease in sales of telephone shoulder
rests as well as a decrease in sales of $249,000 in telephone  accessories and a
decrease  of $477,000  in sales of  telephone  headsets  and  amplifiers.  These
decreases are  primarily a result of lower sales to the Company's  office supply


                                    Page 18
<PAGE>

catalogue customers. Overall gross margins for these products increased to 53.9%
from 53.1% for the years ended  December 31, 2000 and 1999,  respectively,  as a
result of the sales mix.

         Flashlights.  Flashlight  revenues  increased  $9,000,  or  0.5%,  from
$1,810,000  to $1,819,000  for the year ended  December 31, 2000 compared to the
year ended  December  31,  1999.  Overall  gross  margins  for  products in this
category decreased from 6.8% to (7.3)% for the year ended December 31, 2000 as a
result of an increase in costs related to upgrading the retail packaging of this
product  line and an increase in freight  costs to expedite  the delivery of the
product  from the  Company's  overseas  vendors in order to meet sales ship date
requirements. The decrease in gross margin was also attributable to an inventory
write-down of $178,841.

         Hardware/Houseware.  Hardware/houseware  revenues  decreased $54,000 or
6.4% from $845,000 to $791,000 for the year ended  December 31, 2000 compared to
the year ended December 31, 1999. This decrease is attributable to a decrease in
sales of the Company's doorstop product line. Overall gross margins for products
in this category  decreased  from 13.2% to 9.8% for the year ended  December 31,
2000.

         Miscellaneous and Mass Market. Mass market revenues decreased $992,000,
from  $992,000 to -0- for the year ended  December 31, 2000 compared to the year
ended December 31, 1999. This decrease was the result of the Company's  decision
to discontinue  its efforts in this product line and the resulting  December 24,
1998 agreement with Grandway China ("Grandway").  The agreement provided for the
transfer  of  inventory,  distribution  and sales  rights of  products  that the
Company was then supplying to Dolgencorp.  Upon  execution,  Grandway  agreed to
purchase  approximately  $1,800,000  of inventory  that had been acquired by the
Company and  earmarked  for sale to  Dolgencorp.  Management  does not presently
anticipate future sales in this product line.


Operating Costs and Expenses

         Selling Expenses.  Selling expenses  decreased  $54,000,  or 1.6%, from
$3,385,000  to $3,331,000  for the year ended  December 31, 2000 compared to the
year ended  December  31,  1999.  This  decrease is due in part to a decrease of
$190,000 in  commissions  paid to outside  sales  representatives,  as well as a
decrease in  consulting  fees of $85,000.  The decrease was offset in part by an
increase in salaries  for sales  personnel of $94,000 due to the addition of the
Executive  Vice  President  of  Sales  and a  European  sales  manager  for  the
flashlights  product line, as well as increases in freight  expenses of $127,000
due to increased fuel prices.

         General  and  Administrative   Expenses.   General  and  administrative
expenses decreased $187,000, or 5.4%, from $3,459,000 to $3,272,000 for the year
ended  December  31, 2000  compared to the year ended  December  31,  1999.  The
decrease in general and  administrative  expenses was  primarily the result of a
decrease of $88,000 in  salaries  paid as a result of the  Company's  August 11,
2001  reduction  in force,  as well as a decrease  in employee  recruitment  and
education of $74,000, a decrease in legal and accounting fees of $60,000,  and a
decrease  of $59,000 in travel  expenses.  This  decrease  was offset in part by
increases in Directors  and  Officers  and group  health  insurance  premiums of
$87,000.

         Research and Development. Research and development expense increased by
$51,000,  or 30.0%,  from  $170,000 to $221,000 for the year ended  December 31,
2000  compared to the year ended  December 31, 1999.  The increase was primarily
attributable  to  the  Company's  increased  research  and  development  efforts
associated  with the  Company's  flashlight  line to improve  the  function  and
appearance of the products.

         Total Operating Costs and Expenses.  Total operating costs and expenses
decreased by $190,000, or 2.7%, from $7,014,000 to $6,824,000 for the year ended
December 31, 2000 compared to the year ended  December 31, 1999, for the reasons
discussed above.

         Interest Expense.  Interest expense decreased $267,000,  or 30.0%, from
$889,000 to $622,000 for the year ended  December 31, 2000  compared to the year
ended  December  31,  1999.  This  decrease was  primarily  associated  with the
retirement  of the  Convertible  Debentures  on February  23,  2000.  The normal
non-cash  interest that was recognized on the Convertible  Debentures at 12% per
annum for the year ended December 31, 1999 was $165,177 and  liquidated  damages
were assessed against the Company in the amount of $258,387 due to the Company's
failure to have effective a registration statement covering the shares of common

                                    Page 19

<PAGE>

stock issuable upon  conversion of the  Convertible  Debentures  within the time
specified in a registration  rights  agreement  executed in connection  with the
sale of the  Convertible  Debentures.  These decreases were offset in part by an
increase  in interest  expense  related to the  capital  lease on the  Company's
office  building and an increase in the interest  rate on  borrowings  under the
Company's line of credit.

         Interest  Income.  Interest  income  decreased  $4,000,  from $5,000 to
$1,000 for the year ended  December 31, 2000 compared to the year ended December
31, 1999.  This increase was  primarily the result of the Company  utilizing its
revolving credit facility,  under which "draws" are made by the Company. After a
draw is  made a  corresponding  payable  is  established,  when  collections  of
outstanding accounts receivable are received,  collections are swept, daily, and
re-applied  against  outstanding  draws.  As a result the Company  does not keep
excess cash on hand to invest.

         Other Income/expense.  Other income (expense) increased $364,000,  from
$3,000 to ($361,000)  for the year ended  December 31, 2000 compared to the year
ended  December 31, 1999.  The increase is due in part to the one time  non-cash
expense  related  to the April 4, 2000  recognition  as having  been  previously
issued of 208,000 shares of the Company's common stock. This non-cash expense is
equal to the  difference  between the fair market value of the 208,000 shares on
April 4, 2000 and the funds  recovered from the  settlement  (see note 12 to the
accompanying  consolidated financial statements).  As well as an increase in the
loss on sale of assets of  $190,000  related to the  disposition  of  flashlight
production  equipment  due to the  company's  decision to change its  flashlight
manufacturer.

         Discontinued operations.  Income from discontinued operations increased
$1,004,000,  or 239.6% from $419,000 to $1,423,000  for the year ended  December
31,  2000  compared  to the year ended  December  31,  1999.  This  increase  is
primarily  attributable  to a  $1,109,000  gain  on sale  of the  assets  of the
Company's Neat Things!(TM) home  organization and storage product line (see note
14 to the accompanying consolidated financial statements).

         Net Loss.  Net loss  decreased  by  $319,000,  or 9.2%,  from a loss of
$3,478,000 to a loss of $3,159,000 for the year ended December 31, 2000 compared
to the  year  ended  December  31,  1999  due to a  combination  of the  factors
described above.

Liquidity and Capital Resources

         General

         The Company's  principal  sources of liquidity  historically  have been
cash flows  from  operations,  cash on hand and  borrowing  under the  Company's
existing  secured  revolving  credit  facility.  On May 27,  1998,  the  Company
obtained  its  secured  revolving  credit  facility  from a  regional  financing
institution for up to $5,000,000,  bearing  interest at a rate of prime plus one
percent,  with interest  payable monthly.  In previous  amendments to the credit
agreement the maximum line was decreased to $2,200,000 and the interest rate was
increased to a rate of prime plus five percent.  The credit  facility is secured
by the Company's assets, including accounts receivable and inventories. The note
underlying the revolving  credit line is due May 26, 2001.  Notwithstanding  the
extent of the maximum  borrowing  under the note, the covenants of the agreement
limit the  Company's  borrowing  availability  based on  percentages  of current
inventory and accounts receivable.  Because of cash flow challenges faced during
2000, the Company  experienced  decreases in inventories and accounts receivable
that, in effect, limited its borrowing availability to approximately $440,000 as
of  December  31,  2000,  all of which was used by the  Company to fund  ongoing
operations.  Under the terms of the loan  agreement,  the Company is required to
maintain  financial  covenants and ratios,  including book net worth, net income
and debt service coverage. As of December 31, 2000 the Company was in default of
certain of these financial covenants.  Although the Company's secured lender has
not indicated its intention to  accelerate  payment of the  outstanding  balance
payable under the note because of such defaults, the Company does not anticipate
that the secured  lender will extend the payment  deadline  for the note or that
the  lender  will  extend  additional  credit to the  Company.  The  Company  is
therefore attempting to locate an alternate source of commercial lending.

                                    Page 20

<PAGE>

         In February  2000,  the Company  completed a private  placement  of its
restricted common stock to seven offshore  investors.  The private placement was
accomplished  pursuant  to a  Stock  Purchase  Agreement  (the  "Stock  Purchase
Agreement") between the Company and the investors dated as of February 11, 2000,
which closed on February  23,  2000.  Under the Stock  Purchase  Agreement,  the
Company  issued a total of 1,222,811  shares of  restricted  common  stock.  The
consideration  paid by the  investors  was the greater of (i) $1.00 per share or
(ii) 100% of the average of the closing bid prices of the Company's common stock
as quoted by the Nasdaq  Stock  Market  for the five  trading  days  immediately
preceding the date the investors paid the purchase price or any portion thereof.
The total proceeds to the Company from the private placement were $1,600,000, of
which $1,500,000 was used to retire convertible  debentures that had been issued
by the  Company  in May  1998.  The  remaining  $100,000  was used  for  general
corporate purposes.

         In  February  2000,  the  Company  received  $200,714  as proceeds of a
partial  settlement of a lawsuit  involving Merrill Lynch & Co., Inc., Donald M.
Wood, the Company's  former  Chairman and Chief  Executive  Officer,  Alpha Tech
Stock Transfer & Trust Co., the Company's former stock transfer agent, and James
Farrell,  Alpha  Tech's  principal,  WAC  Research,  Inc.,  and  Muito  Bem  Ltd
Partnership.  As a result of the settlement,  the Company  recognized a one time
non-cash  expense of $169,733.  The Company used the cash received in settlement
of the litigation for operating capital.

         On May 18, 2000 the Company  entered  into a Stock  Purchase  Agreement
(the "May 2000 Stock Purchase  Agreement") with three offshore investors.  Under
the May 2000 Stock Purchase Agreement, the offshore investors agreed to purchase
and acquire from the Company  shares of the Company's  common  stock,  having an
aggregate purchase price of at least $775,000 (the "Minimum  Investment Amount")
and a maximum  aggregate  purchase  price of  $1,000,000.  The  number of shares
issuable to the  investors  in  consideration  of their  payment of the purchase
price was  calculated  as follows (i) as to the Minimum  Investment  Amount,  by
dividing the total dollar  amount of the Minimum  Investment  Amount paid to the
Company as of closing,  by $1.3125,  which was 100% of the fair market  value of
the  Company's  common  stock  as of the  date of the May  2000  Stock  Purchase
Agreement,  and (ii) as to any  additional  amount  invested  over  the  Minimum
Investment Amount, by dividing the total dollar amount of such additional amount
paid to the  Company  by 100% of the  average of the  closing  bid prices of the
Company's common stock for the five trading days immediately  preceding the date
of actual payment of such additional  amount.  The Company received  $700,000 of
the Minimum  Investment  Amount in the second  quarter and the  remainder of the
Minimum  Investment  Amount was  received  by July 11,  2000.  Accordingly,  the
Company  issued a total of  590,476  shares of  restricted  common  stock to the
investors

         Based on current  operations and, after accounting for anticipated cost
savings through  operating  efficiencies and reductions in selling,  and general
and  administrative  expenses,  the Company believes that its present sources of
liquidity  will not be adequate to meet its projected  requirements  for working
capital,  capital  expenditures,  scheduled debt service  requirements and other
general  corporate  purposes  during the year  2001.  The  Company is  currently
pursuing  additional  sources of liquidity in the form of  commercial  credit or
additional  sales  of  the  Company's  debt  or  equity  securities  to  fund  a
combination  of short-term  working  capital  requirements  and growth.  If such
additional   financing  is  not  obtained,   the  Company  may  be  required  to
significantly curtail its operations or seek protection under bankruptcy laws.

December 31, 2000 Compared to December 31, 1999

         As of December 31, 2000,  the Company had liquid  assets (cash and cash
equivalents,  accounts receivable - trade and other) of $935,000,  a decrease of
51.8%, or $1,005,000, from December 31, 1999 when liquid assets were $1,940,000.
Cash  decreased  $116,000  to $129,000  at  December  31, 2000 from  $245,000 at
December  31,  1999.  This  increase  in cash was  primarily  the  result of the
procedures involving use of the Company's revolving credit facility, under which
collections of outstanding  accounts  receivable are swept the day after receipt
and re-applied  against  outstanding  draws,  therefore amounts collected on the
last day of the year  would  not be swept  against  draws  until  January  2001.
Accounts  receivable  - trade  decreased  $890,000,  or 52.5%,  to  $806,000  at
December  31,  2000 from  $1,696,000  at December  31,  1999.  This  decrease is
primarily the result of the sale of the assets of the Company's Neat Things!(TM)
home  organization  and storage  product  line (see note 14 to the  accompanying
consolidated financial statements).

                                    Page 21

<PAGE>

         Current  assets  decreased by  $2,714,000,  or 52.4%,  to $2,466,000 at
December  31, 2000 from  $5,180,000  at December  31,  1999.  Of this  decrease,
$890,000 was primarily  the result of a decrease in accounts  receivable - trade
discussed above and $1,525,000 was the result of decreased inventory levels most
of which  relate  to the  sale of the Neat  Things!(TM)  home  organization  and
storage product line, as discussed above.

         Long-term  assets  decreased  $465,000,  or  10.9%,  to  $3,808,000  at
December  31, 2000 from  $4,273,000  at December  31,  1999.  This  decrease was
primarily  the result of the  reduction  in property & equipment  related to the
sale of the Neat  Things!(TM)  home  organization  and storage  product line, as
discussed  above,  and by normal  recurring  depreciation  of fixed  assets  and
amortization of deferred loan costs and other intangibles.

         Current liabilities decreased by $2,738,000, or 47.4%, to $3,038,000 at
December  31, 2000 from  $5,776,000  at December  31,  1999.  This  decrease was
primarily due to a decrease of $1,649,000 in convertible  debentures as a result
of  the  Company's  February  23,  2000  agreement  to  retire  the  convertible
debentures, as well as a decrease of $1,346,000 in short-term notes payable as a
result of  payments  made under the  company's  revolving  line of  credit.  The
Company's working capital deficit  decreased by $24,000,  or 4.0%, to ($572,000)
at December  31, 2000 from  ($596,000)  at December  31,  1999,  for the reasons
described above.

         The Company used cash of $619,000 from continuing  operating activities
during the year ended  December 31, 2000,  primarily as a result of the net loss
incurred  during  the  period,  offset  in  part  from a  decrease  in  accounts
receivable trade and decreased inventory levels.

         The  Company  received  $552,000  of  cash  from  continuing  investing
activities  during the year ended  December 31, 2000,  primarily  from  proceeds
received  from  the  November  22,  2000  sale  of  the  Neat  Things!(TM)  home
organization  and storage product line, which amounts were offset in part by the
expenditures incurred for the purchase of new equipment.

         The Company  used net cash of $414,000 in financing  activities  during
the year ended December 31, 2000,  primarily as a result of payments made on the
retirement  of the  convertible  debentures,  payments  made  on  the  Company's
revolving  line-of-credit  and payments made on long-term debt and capital lease
obligations,  off-set in part by  proceeds  from the  issuance  of common  stock
related  to  two  separate  private   placements  and  from  proceeds  from  the
re-issuance of common stock.


Inflation

         Most of the  Company's  products  are  purchased  in finished  form and
packaged by the supplier or at the  Company's  headquarters.  The Company uses a
premixed  plastisol (a petroleum  based raw material) to manufacture  certain of
its  telephone  accessory  products  at its  headquarters.  With  respect to its
products it purchased in finished  from,  inflation in the cost of raw materials
will be passed on to the  Company.  The  Company  also is  dependent  on freight
carriers that are sensitive to inflationary pressures on fuel costs. The Company
anticipates usual,  inflationary increases in the price of plastic products, the
raw materials used to manufacture  its  flashlights,  freight,  and packaging in
2001. In 2000, costs associated with freight increased significantly,  primarily
as a result of increased  fuel costs,  and the  Company's  increased  use of air
freight. The Company anticipates that these usual,  inflationary  increases will
not  materially  impact the  results  of  operations  for the year  ended  2001,
although  there can be no  assurance  that the Company  will not  encounter  raw
material  or other  manufacturing  delays,  price  increases  or  shortages,  or
material  increases in shipping costs associated with rising fuel prices, any of
which could adversely affect the Company's financial condition and operations.

Seasonality

         The Company's business is seasonal.  The Company typically  experiences
its highest  sales volume in the fourth  quarter of each year as a result of the

                                    Page 22

<PAGE>

retail environment in which most of its customers conduct business.  Because the
Company sells its products  primarily to major  retailers,  the Company's  sales
performance is  significantly  dependent on the performance of those  retailers.
Accordingly,  the  fourth  quarter  is a key  factor  in the  Company's  overall
financial performance for the year.

Recent Accounting Pronouncements

         The  Financial   Accounting   Standards  Board  issued  SFAS  No.  133,
Accounting for Derivatives Instruments and Hedging Activities, in 1998. SFAS No.
133 establishes  accounting and reporting standards for derivative  instruments,
including   certain   derivative   instruments   embedded  in  other   contracts
(collectively  referred  to as  derivatives),  and for  hedging  activities.  It
requires  that  an  entity   recognize  all  derivatives  as  either  assets  or
liabilities in the statement of financial position and measure those instruments
at fair value. For a derivative not designated as a hedging instrument,  changes
in the fair value of the  derivative are recognized in earnings in the period of
change. As a result of SFAS No. 137 the effective date for SFAS No. 133 shall be
in the first quarter of 2001.  The Company does not believe the adoption of SFAS
No.  133 will have a material  affect on the  financial  position  or results of
operations of the Company.

         SFAS No. 140,  Accounting  for  Transfers  and  Servicing  of Financial
Assets and  Extinguishments  of Liabilities,  was issued in September 2000. SFAS
No. 140 is a replacement of SFAS No. 125, Accounting for Transfers and Servicing
of Financial Assets and  Extinguishments of Liabilities.  Most of the provisions
of SFAS No. 125 were carried forward to SFAS No. 140 without  reconsideration by
the Financial  Accounting  Standards Board (FASB), and some were changed only in
minor ways. In issuing SFAS No. 140, the FASB included issues and decisions that
had been  addressed and  determined  since the original  publication of SFAS No.
125. SFAS No. 140 is effective for  transfers  after March 31, 2001.  Management
does not expect the adoption of SFAS No. 140 to have a significant impact on the
financial position or results of operations of the Company.

Forward Looking Statements

         The  foregoing  Management's   Discussion  and  Analysis  of  Financial
Condition and Results of Operations contains certain 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,  which are
intended to be covered by the safe harbors created thereby. Although the Company
believes  that  the  assumptions   underlying  the  forward-looking   statements
contained herein are reasonable, any of the assumptions could be inaccurate, and
therefore,  there can be no assurance that the  forward-looking  statements will
prove to be accurate.  Factors  that could cause  actual  results to differ from
results discussed in forward-looking statements include, but are not limited to,
potential increases in inventory costs,  competition,  and the Company's ability
to obtain additional working capital to fund future growth, as well as the other
factors  described  elsewhere in this Report under the heading  "Description  of
Business - Risk Factors".

                                    Page 23

<PAGE>


Item 7.   Financial Statements



                          Independent Auditors' Report


Report of Tanner +Co.:

To the Board of Directors and Stockholders of
Dynatec International, Inc. and Subsidiaries


We  have  audited  the  accompanying   consolidated  balance  sheet  of  Dynatec
International,  Inc. and  Subsidiaries  as of December 31, 2000, and the related
consolidated statements of operations, stockholders' deficit, and cash flows for
the  year  then  ended.   These  consolidated   financial   statements  are  the
responsibility of the Company's management.  Our responsibility is to express an
opinion on these consolidated financial statements based on our audit.

We conducted our audit in accordance with generally accepted auditing standards.
Those standards  require that we plan and perform the audit to obtain reasonable
assurance   about  whether  the  financial   statements  are  free  of  material
misstatement.  An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements.  An audit also includes
assessing the  accounting  principles  used and  significant  estimates  made by
management,  as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.

In our opinion, the consolidated  financial statements referred to above present
fairly,   in  all  material   respects,   the  financial   position  of  Dynatec
International, Inc. and Subsidiaries as of December 31, 2000, and the results of
their operations and their cash flows for the year then ended in conformity with
generally accepted accounting principles.

The accompanying  consolidated  financial statements have been prepared assuming
that the Company will continue as a going  concern.  As discussed in Note 3, the
Company  has an  accumulated  deficit,  a deficit  in  working  capital  and has
sustained  significant  losses.  These issues raise  substantial doubt about its
ability to continue as a going  concern.  Management's  plans in regard to these
matters are also described in Note 3. The  accompanying  consolidated  financial
statements do not include any  adjustment  that might result from the outcome of
this uncertainty.

                                    TANNER + CO.


Salt Lake City, Utah
February 2, 2001, except
for Note 21, which is dated
February 5, 2001


                                    Page 24


<PAGE>


Report of KPMG, LLP:

The Board of Directors
Dynatec International, Inc.:


We  have  audited  the  accompanying   consolidated  balance  sheet  of  Dynatec
International,  Inc.  and  subsidiaries  as of December 31, 1999 and the related
consolidated statements of operations,  stockholders' equity, and cash flows for
the  year  then  ended.   These  consolidated   financial   statements  are  the
responsibility of the Company's management.  Our responsibility is to express an
opinion on these consolidated financial statements based on our audit.

We conducted our audit in accordance with auditing standards  generally accepted
in the  United  States of  America.  Those  standards  require  that we plan and
perform the audit to obtain  reasonable  assurance  about  whether the financial
statements are free of material misstatement.  An audit includes examining, on a
test basis,  evidence  supporting  the amounts and  disclosures in the financial
statements.  An audit also includes assessing the accounting principles used and
significant  estimates  made by  management,  as well as evaluating  the overall
financial  statement  presentation.   We  believe  that  our  audit  provides  a
reasonable basis for our opinion.

In our opinion, the consolidated  financial statements referred to above present
fairly,   in  all  material   respects,   the  financial   position  of  Dynatec
International,  Inc. and subsidiaries as of December 31, 1999 and the results of
their operations and their cash flows for the year then ended in conformity with
accounting principals generally accepted in the United States of America.



/s/ KPMG LLP



Salt Lake City, Utah
March 1, 2000

                                    Page 25
<PAGE>


                  DYNATEC INTERNATIONAL, INC. AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEET
                           DECEMBER 31, 2000 AND 1999


                                     ASSETS

<TABLE>
<CAPTION>


                                                                                          2000                1999
                                                                                     ---------------     --------------
<S>                                                                                 <C>                 <C>

CURRENT ASSETS:
    Cash and cash equivalents                                                       $      128,536      $      244,755
    Trade accounts receivable, net of allowance for doubtful accounts
       of $56,800 in 2000 and $39,036 in 1999, respectively (note 7)                       806,421           1,695,897
    Inventories (notes 2, 4 and 7)                                                       1,251,052           2,776,507
    Prepaid expenses and other                                                             101,096             415,921
    Net assets of discontinued operations (note 14)                                        178,873              47,369
                                                                                    --------------      --------------

                Total current assets                                                     2,465,978           5,180,449
                                                                                    --------------      --------------

PROPERTY AND EQUIPMENT, at cost (notes 2, 8 and 9):
    Building and improvements                                                            2,865,000           2,865,000
    Furniture, fixtures, and equipment                                                   2,965,150           3,331,600
                                                                                    --------------      --------------
                                                                                         5,830,150           6,196,600
    Less accumulated depreciation and amortization                                       2,274,813           2,274,227
                                                                                    --------------      --------------

                Net property and equipment                                               3,555,337           3,922,373

GOODWILL AND OTHER IDENTIFIABLE INTANGIBLES, net                                           150,128             194,743
     (note 2, 5 and 6)

DEFERRED LOAN COSTS, net of accumulated amortization of $56,001 in 2000 and
    $30,452 in 1999, respectively (note 2)                                                  10,645              36,194

OTHER ASSETS                                                                                91,987             119,450
                                                                                    --------------      --------------

                                                                                    $    6,274,075      $    9,453,209
                                                                                    ==============      ==============


</TABLE>


          See accompanying notes to consolidated financial statements.

                                    Page 26
<PAGE>


                  DYNATEC INTERNATIONAL, INC. AND SUBSIDIARIES
                     CONSOLIDATED BALANCE SHEET (Continued)
                           DECEMBER 31, 2000 AND 1999

                      LIABILITIES AND STOCKHOLDERS' EQUITY

<TABLE>
<CAPTION>


                                                                                          2000                 1999
                                                                                       -------------        ------------
<S>                                                                                    <C>                  <C>

CURRENT LIABILITIES:
    Short-term note payable (note 7)                                                   $     485,250        $  1,831,622
    Current portion of long-term debt (note 8)                                                81,175              82,500
    Current portion of capital lease obligations (note 9)                                     71,848              60,739
    Accounts payable                                                                       1,369,958           1,427,384
    Accrued expenses                                                                         559,974             525,038
    Accrued advertising                                                                      365,000             150,000
    Accrued royalties payable                                                                105,127              49,468
    Convertible debentures (note 10)                                                               -           1,649,342
                                                                                       -------------        ------------

              Total current liabilities                                                    3,038,332           5,776,093

LONG-TERM DEBT, net of current portion (note 8)                                                    -              81,175

DEFERRED GAIN ON SALE OF ASSET (note 9)                                                      232,043             244,363

CAPITAL LEASE OBLIGATIONS, net of current portion (note 9)                                 2,887,526           2,957,740
                                                                                       -------------        ------------

              Total liabilities                                                            6,157,901           9,059,371
                                                                                       -------------        ------------

STOCKHOLDERS' EQUITY (note 12):
    Common stock, $.01 par value; 100,000,000 shares authorized and 5,745,640
       and 3,721,418 shares outstanding at December 31, 2000 and 1999,
       respectively                                                                           57,456              37,214
    Treasury stock, at cost, 91,515 shares at December 31, 1999                                    -            (915,150)
    Additional paid-in capital                                                            10,320,949           8,375,074
    Accumulated deficit                                                                  (10,262,231)         (7,103,300)
                                                                                       -------------        ------------

              Net stockholders' equity                                                       116,174             393,838
                                                                                       -------------        ------------

COMMITMENTS AND CONTINGENCIES ( note 7, 8, 9, 10,17 and 19)                            $   6,274,075        $  9,453,209
                                                                                       =============        ============

</TABLE>


          See accompanying notes to consolidated financial statements.

                                    Page 27

<PAGE>

                  DYNATEC INTERNATIONAL, INC. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENT OF OPERATIONS
                     YEARS ENDED DECEMBER 31, 2000 AND 1999


<TABLE>
<CAPTION>



                                                                                        2000                    1999
                                                                                  ----------------        ----------------

<S>                                                                               <C>                     <C>
PRODUCT SALES                                                                     $      8,693,639        $    10,967,484
COST OF SALES                                                                           (5,469,850)            (6,969,193)
                                                                                  ----------------        ---------------

       Gross Margin                                                                      3,223,789              3,998,291
                                                                                  ----------------        ---------------

OPERATING COSTS AND EXPENSES:
    Selling expenses                                                                     3,331,465              3,384,752
    General and administrative                                                           3,271,775              3,458,644
    Research and development                                                               220,993                170,247
                                                                                  ----------------        ---------------

       Total operating costs and expenses                                                6,824,233              7,013,643
                                                                                  ----------------        ---------------

          Operating loss from continuing operations                                     (3,600,444)            (3,015,352)
                                                                                  ----------------        ---------------

OTHER INCOME (EXPENSE):
    Interest expense (note 10)                                                            (622,212)              (888,992)
    Interest income                                                                          1,000                  4,534
    Other income (expense)                                                                (360,045)                 2,845
                                                                                  ----------------        ---------------

       Total other income (expense), net                                                  (981,257)              (881,613)
                                                                                  ----------------        ---------------

          Operating loss from continuing operations before income
              tax benefit                                                               (4,581,701)            (3,896,965)

INCOME TAX BENEFIT (note 11)                                                                     -                      -
                                                                                  ----------------        ---------------

          Loss from continuing operations                                               (4,581,701)            (3,896,965)
                                                                                  ----------------        ---------------

DICONTINUED OPERATIONS:
    Income from operations of discontinued home storage and organization
       segment net of income tax (note 14)                                                 314,033                419,420
    Gain on sale of assets of discontinued home storage and organization
       segment net of income tax (note 14)                                               1,108,737                      -
                                                                                  ----------------        ---------------

          Income from discontinued operations net of income tax                          1,422,770                419,420
                                                                                  ----------------        ---------------

                      Net loss                                                    $     (3,158,931)       $    (3,477,545)
                                                                                  ================        ===============

LOSS PER SHARE FROM CONTINUING OPERATIONS- BASIC AND DILUTED                      $           (.88)       $         (1.15)
                                                                                  ================        ===============

EARNINGS PER SHARE FROM DISCONTINUED OPERATIONS- BASIC AND DILUTED                $            .27        $           .12
                                                                                  ================        ===============

NET LOSS PER SHARE- BASIC AND DILUTED                                             $           (.61)       $         (1.03)
                                                                                  ================        ===============

WEIGHTED AVERAGE SHARES - BASIC AND DILUTED                                              5,210,176              3,384,598
                                                                                  ================        ===============

</TABLE>


          See accompanying notes to consolidated financial statements.


                                    Page 28

<PAGE>




                  DYNATEC INTERNATIONAL, INC. AND SUBSIDIARIES
                 CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
                     YEARS ENDED DECEMBER 31, 2000 AND 1999

<TABLE>
<CAPTION>

                                           Common Stock
                                     --------------------------
                                                                    Treasury      Additional                          Net
                                        Number of                    Stock         Paid-in        Accumulated    Stockholders'
                                          Shares       Amount       At Cost        Capital          Deficit          Equity
                                        ---------      ------       --------      ----------      -----------    -------------


<S>             <C>                       <C>            <C>        <C>            <C>            <C>               <C>
BALANCE JANUARY 1, 1999                   2,901,627      $29,016    $(915,150)     $ 7,041,590    $ (3,625,755)     $ 2,529,701
Shares issued pursuant to conversion
    of  deposit payable
      (note 12)                             500,000        5,000            -          995,000               -        1,000,000
Shares issued pursuant to conversion
    of  convertible debenture (note
    10)                                     285,843        2,858            -          303,824               -          306,682
Shares issued pursuant to
    sale/leaseback of company
    headquarters building (note 12)          33,948          340            -           34,660                -          35,000
Net loss                                          -            -            -                -      (3,477,545)      (3,477,545)
                                          ---------      -------    ---------      -----------    ------------      -----------

BALANCE DECEMBER 31, 1999                 3,721,418       37,214     (915,150)       8,375,074      (7,103,300)         393,838
                                          =========      =======    =========      ===========    ============      ===========

Shares issued pursuant to Stock
    purchase agreement (note 12)          1,222,811       12,228            -        1,587,772               -        1,600,000
Shares issued pursuant to retirement
    of Convertible debenture (note 10)       94,450          945            -          134,874               -          135,819
Shares recognized as having been
    previously issued (note 12)             208,000        2,080            -          368,368               -          370,448
Shares issued pursuant to Stock
    purchase agreement (note 12)            590,476        5,904            -          769,096               -          775,000
Retirement of treasury stock               (91,515)        (915)      915,150         (914,235)              -                -
Net loss                                          -            -            -                -      (3,158,931)      (3,158,931)
                                          ---------      -------    ---------      -----------    ------------      -----------

BALANCE DECEMBER 31, 2000                 5,745,640      $57,456    $       -      $10,320,949    $(10,262,231)     $   116,174
                                          =========      =======    =========      ===========    ============      ===========

</TABLE>


         See accompanying notes to consolidated financial statements.

                                    Page 29


<PAGE>


                  DYNATEC INTERNATIONAL, INC. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENT OF CASH FLOWS
                     YEARS ENDED DECEMBER 31, 2000 AND 1999

<TABLE>
<CAPTION>

                                                                                               2000                1999
                                                                                         -----------------    ----------------
<S>                                                                                      <C>                  <C>

CASH FLOWS FROM OPERATING ACTIVITIES:
   Net loss                                                                              $     (3,158,931)    $     (3,477,545)
   Net income from discontinued operations                                                       (314,033)            (419,420)
   Adjustments to reconcile net loss to net cash used in operating activities:
       Depreciation and amortization                                                              570,644              588,146
       Amortization of deferred loan costs                                                         25,549               25,549
       Amortization of deferred gain on sale of assets                                            (12,320)                   -
       Non-cash interest expense on convertible debentures (note 10)                                    -              423,945
       Non-cash expense on re-issuance of common stock shares (note 12)                           169,734                    -
       Forgiveness of liquidated damages related to convertible debenture (note 10)               (13,523)                   -
       (Gain) loss on sale of assets                                                              217,086               34,425
       Gain on sale of discontinued operations                                                 (1,108,737)                   -
       Provision for losses on accounts receivable                                                 17,764                8,846
       Changes in operating assets and liabilities:
               Trade accounts receivable                                                          871,712              524,524
               Inventories                                                                      1,525,455            1,970,492
               Prepaid expenses                                                                   314,825              (99,574)
               Other assets                                                                        27,463              (50,113)
               Accounts payable                                                                   (57,426)             364,036
               Accounts payable - other                                                                 -               (9,000)
               Accounts payable - related party                                                         -              (98,403)
               Accrued expenses                                                                    34,936             (112,013)
               Accrued advertising                                                                215,000              (20,000)
               Accrued royalties                                                                   55,659               14,760
                                                                                         ----------------     ----------------
            Net cash used in continuing operating activities                                     (619,143)            (331,345)
            Net cash provided by discontinued operating activities                                365,058               37,360
                                                                                         ----------------     ----------------
                  Net cash used in operating activities                                          (254,085)            (293,985)

CASH FLOWS FROM INVESTING ACTIVITIES:
  Net proceeds from the sale of assets                                                            928,808            2,693,698
  Purchase of building and equipment                                                             (376,459)            (252,219)
  Cash paid for asset acquisition (note 6)                                                              -              (85,000)
                                                                                         ----------------     ----------------
            Net cash provided by continuing investing activities                                  552,349            2,356,479
            Net cash used in discontinued investing activities                                          -              (37,360)
                                                                                         ----------------     ----------------
                  Net cash provided by investing activities                                       552,349            2,319,119
                                                                                         ----------------     ----------------

CASH FLOWS FROM FINANCING ACTIVITIES:
  Net borrowings (payments) on line of credit                                                  (1,346,372)             442,399
  Net payments on long-term debt                                                                  (82,500)          (2,089,698)
  Net principal payments on capital lease obligations                                             (61,325)             (35,348)
  Payment to retire convertible debenture (note 10)                                            (1,500,000)                   -
  Proceeds from the issuance of common stock related to private placement (note 12)             2,375,000                    -
  Proceeds from re-issuance of common stock (note 12)                                             200,714                    -
  Payment of liquidated damages related to convertible debenture (note 10)                              -             (135,000)
  Proceeds from issuance of common stock related to sale of  building (note 12)                         -               35,000
                                                                                         ----------------     ----------------
           Net cash used in continuing financing activities                                      (414,483)          (1,782,647)
           Net cash used in discontinued financing activities                                           -                    -
                                                                                         ----------------     ----------------
                  Net cash used in financing activities                                          (414,483)          (1,782,647)
                                                                                         ----------------     ----------------

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS                                             (116,219)             242,487
CASH AND CASH EQUIVALENTS AT BEGINNING OF THE PERIOD                                              244,755                2,268
                                                                                         ----------------     ----------------

CASH AND CASH EQUIVALENTS AT END OF THE PERIOD                                           $        128,536     $        244,755
                                                                                         ================     ================


</TABLE>


         See accompanying notes to consolidated financial statements.

                                    Page 30


<PAGE>



                  DYNATEC INTERNATIONAL, INC. AND SUBSIDIARIES
                CONSOLIDATED STATEMENT OF CASH FLOWS (Continued)
                      YEAR ENDED DECEMBER 31, 2000 AND 1999

<TABLE>
<CAPTION>



                                                                                        2000                1999
                                                                                      ---------          ----------
<S>                                                                                   <C>                <C>

SUPPLEMENTAL SCHEDULE OF CASH FLOW INFORMATION:
    Cash paid for interest                                                            $ 592,046          $  552,928

SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES:

    Building and equipment acquired under capital leases                                  2,220           3,007,292

    Conversion of Convertible Debentures and accrued interest for
         common stock (note 10)                                                         135,819             306,682

    Retirement of 91,515 treasury shares                                                915,150                   -

    Issuance of 500,000 shares of restricted stock (note 12)                                  -           1,000,000


</TABLE>



         See accompanying notes to consolidated financial statements.

                                    Page 31


<PAGE>


                  DYNATEC INTERNATIONAL, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           DECEMBER 31, 2000 AND 1999


(1)  DESCRIPTION OF BUSINESS AND NATURE OF OPERATIONS
     ------------------------------------------------

         Dynatec  International,  Inc.,  a  Utah  corporation  (Dynatec  or  the
Company),  is a manufacturer and distributor of consumer products comprising the
following  major product  lines:  telecommunication  headsets and amplifiers and
telephone  accessories,  and flashlights.  Dynatec is located in Salt Lake City,
Utah.  The Company  conducts  most of its  operations  through its wholly  owned
subsidiaries:  Softalk,  Inc.,  SofTalk  Communications,  Inc., Arnco Marketing,
Inc., and Nordic  Technologies,  Inc. Unless  specified to the contrary  herein,
references  to  Dynatec  or  to  the  Company  refer  to  the  Company  and  its
subsidiaries on a consolidated basis.

         The Company's business follows seasonal trends. As a result the Company
experiences  its  highest  revenues in the fourth  quarter.  Because the Company
sells its products primarily to major retailers, the Company's sales performance
is significantly dependent on the performance of those retailers.

(2)  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
     ------------------------------------------

Principles of Consolidation

         The  consolidated  financial  statements  include  the  accounts of the
Company  and  its  wholly  owned  subsidiaries.  All  significant  inter-company
balances and transactions have been eliminated in consolidation.

Use of Estimates

         The preparation of the consolidated  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,  and the
reported  amounts of revenue and expense for the period being  reported.  Actual
results could differ from those estimates.

Cash and Cash Equivalents

         The Company  considers  all highly  liquid  investments  with  original
maturities  at the  date  of  purchase  of  three  months  or  less  to be  cash
equivalents.

Inventories

         Raw materials,  work-in-process  and finished goods inventory is stated
at the lower of cost or market,  cost being determined on a first-in,  first-out
method.


Building and Equipment

         Depreciation on building and equipment is computed on the straight-line
method over the following useful lives:

                  Capital Leases                          3-20 years
                  Equipment                               5-10 years
                  Office Equipment & Fixtures             3-7 years
                  Vehicles                                5 years
                  Signs and Show Booths                   3-5 years

         Assets  held  under  capital  leases  and  leasehold  improvements  are
amortized  on a  straight-line  basis  over the  shorter  of the  lease  term or
estimated useful life of the asset.


                                    Page 32
<PAGE>



                  DYNATEC INTERNATIONAL, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           DECEMBER 31, 2000 AND 1999


(2)  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
     -----------------------------------------------------

Accounting for Impairment of Long-Lived Assets

         Long-lived assets,  goodwill, and certain identifiable  intangibles are
reviewed for impairment  whenever  events or changes in  circumstances  indicate
that the carrying amount of an asset may not be recoverable.  Recoverability  of
assets to be held and used is measured by a comparison of the carrying amount of
an asset to future net cash flows expected to be generated by the asset. If such
assets are  considered  to be  impaired,  the  impairment  to be  recognized  is
measured  by the amount by which the  carrying  amount of the assets  exceed the
fair value of the assets.  Assets to be disposed of are reported at the lower of
the carrying amount or fair value less costs to sell.

Intangible Assets

         Intangible assets include  purchased  patents,  product  licenses,  and
other  agreements  allowing  the Company  non-exclusive  rights to  manufacture,
produce, and sell various products.  Such costs are amortized on a straight-line
basis over  their  estimated  useful  lives of 5 to 40 years.  Other  intangible
assets  such  as  agreements  not to  compete  are  being  amortized  using  the
straight-lined method over five years.

Goodwill
         Goodwill represents the excess of the purchase price over the fair
value of the net assets acquired from Transworld Products, Inc. (Transworld) on
July 15, 1999. The goodwill, is being amortized using the straight-line basis
over two years (note 5).

Deferred Loan Costs

         Deferred loan costs totaling $66,646 resulted from issuance costs
related to the Company's revolving credit facility, and are being amortized as
interest expense over thirty-six months using a basis that approximates the
effective-interest rate method (note 7).

Revenue Recognition

         The Company recognizes revenue according to Staff Accounting Bulletin
101, Revenue Recognition in Financial Statements. Accordingly, revenue is
recognized when a sales order has been received, the price is fixed and
determinable, the order is shipped, collection is reasonably assured and the
Company has no significant obligations remaining.

Stock-Based Compensation

         The Company employs the footnote disclosure provisions of Statement of
Financial Accounting Standards (SFAS) No. 123, Accounting for Stock-Based
Compensation. SFAS No. 123 encourages entities to adopt a fair-value based
method of accounting for stock options or similar equity based compensation
using the intrinsic-value method of accounting prescribed by Accounting
Principles Board (APB) Opinion No. 25, Accounting for Stock Issued to Employees
(APB 25). The Company has elected to continue to apply the provisions of APB 25
and provide proforma footnote disclosures required by SFAS No. 123.

Concentrations of Credit Risk

         Financial   instruments  which  potentially   subject  the  Company  to
concentrations  of credit risk consist  principally  of trade  receivables.  The
Company  provides credit to its customers in the normal course of business,  and
accordingly  performs  ongoing credit  evaluations and maintains  allowances for
potential credit losses. Concentrations

                                    Page 35
<PAGE>

(2)      SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

of credit risk with respect to trade receivables are limited due to the
Company's large number of customers and their dispersion across many geographic
areas.

         The Company maintains its cash in bank deposit accounts which, at
times, may exceed federally insured limits. The Company has not experienced any
losses in such accounts and believes it is not exposed to any significant credit
risk on cash and cash equivalents.

         For the years ended December 31, 2000 and 1999, one customer accounted
for 12.1% and 11.3%, respectively , and no other customer accounted for more
than 10% of the Company's total revenues.

Income Taxes

         The Company uses the asset and liability method of accounting for
income taxes. Under this method, deferred tax assets and liabilities are
recognized for the future tax consequences attributable to differences between
the financial statement carrying amounts of existing assets and liabilities and
their respective tax basis. Deferred tax assets and liabilities are measured
using enacted tax rates expected to apply to taxable income in the years in
which those temporary differences are expected to be settled or recovered. The
effect on deferred tax assets and liabilities of a change in tax rates is
recognized in the period that includes the enactment date.

         The Company has recognized no tax benefit for the net operating losses
incurred during the years ended December 31, 2000 and 1999 due to uncertainties
about the Company's ability to generate future earnings to offset such losses.

Basic and Diluted Net Loss Per Common Share

         Basic net loss per common share is calculated based upon the weighted
average number of common shares outstanding during the periods presented.
Diluted loss per common share is the amount of loss for the period available to
each share of common stock outstanding during the reporting period and to each
share that would have been outstanding assuming the issuance of common shares
for all dilutive potential common shares outstanding during the period.
          In calculating net loss per share for the years ended December 31,
2000, and 1999, warrants and options to purchase 747,000, and 1,581,000
potential common shares, respectively, are not included in the computation of
diluted net loss per common share as their effect would have been anti-dilutive,
thereby decreasing the net loss per common share.

         A reconciliation between the basic and diluted weighted-average number
of shares outstanding as of December 31, 2000 and 1999 is summarized as follows:

<TABLE>
<CAPTION>
                                                                             December 31,
                                                                   ----------------------------------
                                                                          2000              1999
                                                                     ---------------    -------------
<S>                                                                 <C>              <C>
Basic weighted average number of common shares...................         5,210,000        3,384,000
Weighted average number of common stock options..................                 -                -
                                                                     ---------------    -------------
       Diluted weighted average number of shares..................        5,210,000        3,384,000
                                                                     ===============    =============
</TABLE>

                                    Page 36
<PAGE>

Advertising

         Advertising costs are expensed as incurred. The Company does not
participate in direct response advertising. Advertising expense amounted to
$1,045,590 and $956,106 in 2000 and 1999, respectively.

Comprehensive Loss

         Statement of Financial Accounting Standards No. 130, Reporting
Comprehensive Income establishes standards for reporting and display of
comprehensive loss and its components in financial statements. For the years
ended December 31, 2000 and 1999 comprehensive loss was equal to the net loss as
presented in the accompanying statements of operations.

(3)      GOING CONCERN

         At December 31, 2000, the Company has a working capital deficit and
negative cash flows from operations. In addition, the Company suffered a
significant loss during the year ended December 31, 2000. These conditions raise
substantial doubt about the ability of the Company to continue as a going
concern. The consolidated financial statements do not include any adjustments
that might result from the outcome of this uncertainty.

         Based on current operations and, after accounting for anticipated cost
savings through operating efficiencies and reductions in selling, and general
and administrative expenses, the Company believes that its present sources of
liquidity will not be adequate to meet its projected requirements for working
capital, capital expenditures, scheduled debt service requirements and other
general corporate purposes during the year 2001. The Company is currently
pursuing additional sources of liquidity in the form of commercial credit or
additional sales of the Company's debt or equity securities to fund a
combination of short-term working capital requirements and growth. If such
additional financing is not obtained, the Company may be required to
significantly curtail its operations or seek protection under bankruptcy laws.

(4)      INVENTORIES

          Inventories, consisting principally of telecommunication headsets and
amplifiers and telephone accessories, flashlights, and other miscellaneous
products as of December 31, 2000 and 1999, respectively, are summarized as
follows:
<TABLE>
<CAPTION>

                                                                    2000               1999
                                                                --------------     --------------
                                                                --------------     --------------
<S>                                                            <C>                <C>
                   Raw materials............................        $423,667           $801,026
                   Work-in-Process..........................          65,390            135,931
                   Finished Goods...........................         761,995           1,839,550
                                                                  $1,251,052         $2,776,507
</TABLE>


(5)      INTANGIBLE ASSETS

Intangible assets are comprised of the following as of December 31:
<TABLE>
<CAPTION>

                                                                                    Est. Useful
                                                     2000            1999          Life (years)
                                                  ------------    ------------    ----------------
<S>                                              <C>             <C>              <C>
          Goodwill                                     34,307          34,307            2
          License Agreement                           203,509         203,509           40
          Product rights                              160,000         296,262          5-10
          Non-compete agreements                       25,000         112,500            5
                                                      422,816         646,578
          Less accumulated amortization               272,688         451,835
                                                    $ 150,128       $ 194,743

</TABLE>
                                    Page 37
<PAGE>

(6)      ASSET ACQUISITION

         On July 15, 1999, the Company purchased certain assets of Transworld at
a purchase price of $85,000. The acquisition was accounted for by the purchase
method. Transworld is a manufacturer of telephone shoulder rests and was a main
competitor of the Company in that product line. In exchange for the purchase
price payment, the Company acquired machinery and equipment, inventory, and
intangible assets that include a non-compete agreement and goodwill.

     The allocation of the $85,000 purchase price among the tangible and
intangible assets is summarized as follows:
<TABLE>
<CAPTION>
                                                                              Amortization
                                                                                 Period
                                                                                (years)
                                                                           -------------------
                                                                           -------------------
         Purchase price allocation:
         Net tangible assets acquired $25,693 Intangible assets:
<S>                                                                <C>      <C>
             Non-compete agreement                                 25,000          5
             Goodwill                                              34,307          2
         Total purchase price                                     $85,000

</TABLE>

(7)      SHORT-TERM NOTE PAYABLE

              The short-term note payable consists of a revolving line-of-credit
obtained on May 27, 1998 from a regional financial institution that provides up
to $2,200,000 bearing interest at a rate of prime plus five percent with
interest payable monthly (14.5% and 11.5% at December 31, 2000 and 1999,
respectively). The note is secured by accounts receivable and inventory and is
due May 26, 2001. As of December 31, 2000 and 1999, direct outstanding
borrowings totaled $485,250 and $1,831,622, respectively. The amount of unused
borrowings under the Company's credit facility is limited to the then-current
levels of receivables discounted at 70% . Under the terms of the loan agreement,
the Company is required to maintain financial covenants and ratios, including
book net worth, net income and debt service coverage. At December 31, 2000 the
Company was in default of certain of these covenants.

          Maximum and average borrowings as well as weighted average interest
rate for the years ended December 31, 2000 and 1999 are as follows:

<TABLE>
<CAPTION>
                                                                   2000               1999
                                                               --------------     --------------
                                                               --------------     --------------
<S>                                                            <C>                <C>
        Maximum Outstanding                                       $2,058,176         $2,503,277
        Average Outstanding                                       $1,626,202         $2,048,824
        Weighted Average Interest Rate                                12.98%             10.83%

</TABLE>


                                    Page 38
<PAGE>



(8)      LONG -TERM DEBT

         Long-term debt consists of the following at December 31, 2000 and 1999:

<TABLE>
<CAPTION>
                                                                        2000           1999
                                                                     -----------    -----------
                                                                     -----------    -----------
             Term note payable to a bank, interest at prime plus
<S>                                                                  <C>           <C>
             5.25%, due May 26, 2001, secured by equipment               81,175        163,675

             Total long-term debt                                        81,175        163,675

             Less current portion                                        81,175
                                                                                        82,500

             Total long-term debt net of current portion                $     -       $ 81,175

</TABLE>

(9)      LEASES

         The following represents assets under capital lease at December 31,
2000 and 1999:

<TABLE>
<CAPTION>

                                                                         2000              1999
                                                                     --------------    --------------
                                                                     --------------    --------------
<S>                                                                 <C>               <C>
             Furniture and Equipment                                     $ 209,157         $ 206,938
             Building                                                    2,865,000         2,865,000
                                                                         3,074,157         3,071,938
             Less accumulated depreciation                                 253,975            71,172
             Net property and equipment under capital lease            $ 2,820,182       $ 3,000,766

</TABLE>

         On November 4, 1999, the Company sold its corporate headquarters
facility for $2,865,000. Simultaneously with the sale, the Company entered into
a 20-year leaseback agreement with the purchasing party. The party that
purchased the building is not affiliated with or related to the Company or any
of its officers or directors, and the terms of the transaction were the result
of arms-length negotiations. In connection with the sale/leaseback the Company
recorded a deferred gain of $246,417, which is being amortized on a
straight-line basis over the term of the related lease as a reduction to
interest expense.


                                    Page 39
<PAGE>



(9)  LEASES (continued)

     At December 31, 2000 the Company is obligated under the terms of
non-cancelable leases on the Company headquarters and warehouse building,
machinery and equipment, and automobiles. The leases have the following minimum
lease commitments:
<TABLE>
<CAPTION>
                                                                Capital          Operating
                                                                 leases           leases
<S>                                                        <C>            <C>
         Year ended December 31:     2001                       $408,771        $    6,501
                                     2002                        381,153             6,076
                                     2003                        330,915             6,076
                                     2004                        335,724             3,038
                                     2005                        364,344                -
                                     Later                     5,628,633                -
         Total minimum lease payments                          7,449,540         $  21,691
          Less amount representing interest (at rates
             ranging from 3.38% to 29.69%)                     4,490,166
         Present value of total minimum capital
             lease payments                                    2,959,374
         Less current portion                                     71,848
         Capital lease obligations net of
              current portion                                 $2,887,526
</TABLE>

     Amortization of assets held under capital lease is included with
depreciation expense. Rental expense for operating leases during the years ended
December 31, 2000 and 1999 was $11,170 and $31,189, respectively.

(10)     CONVERTIBLE DEBENTURES/EQUITY LINE-OF-CREDIT

         On May 22, 1998, the Company executed a Convertible Debenture and
Private Equity Line of Credit Agreement (the "Credit Agreement") between the
Company and five separate investors. Under the Credit Agreement, the Company
issued convertible debentures (the "Convertible Debentures") in the aggregate
principal amount of $1,500,000 due May 22, 2001. The Convertible Debentures were
convertible into shares of the Company's common stock at the lesser of: (i) 75%
of the average of the three lowest closing bid prices of the Company's common
stock during the 22-trading-day period immediately preceding the conversion date
or (ii) $6.50.

         In addition to the sale of the Convertible Debentures, under the Credit
Agreement, the Company also obtained the right to use a "put" mechanism to
periodically draw down up to $10,000,000 of additional equity capital (the
"Equity Line"). Under the terms of the Credit Agreement, the Company was
obligated to draw down a minimum of $1,000,000 of the Equity Line, and all
amounts were to have been drawn in increments of not less than $50,000. In
return for the payment of additional capital under the Equity Line, the Company
would have been required to issue shares of its common stock at a per share
purchase price equal to 80% of the average of the three lowest closing bid
prices of the common stock during a six day valuation period commencing three
days before the draw date and ending two days after the draw date. Additionally,
upon the effectiveness of a registration statement covering the shares of common
stock issuable under the Credit Agreement (the "Registration Statement"), the
Company was obligated to issue an additional $500,000 principal amount of
Convertible Debentures, pro rata to the investors. Also in connection with the
Credit Agreement, the investors and placement agent were issued Series A and
Series B warrants as follows:
<TABLE>
<CAPTION>
                                                                      Placement           Exercise
                                                 Investors              Agent              Price
                                              -----------------    ----------------    ---------------
<S>                                          <C>                  <C>                 <C>
   Series A Warrants.......................       150,000              150,000             $6.50
   Series B Warrants.......................       150,000              300,000             $7.15
</TABLE>
                                    Page 40
<PAGE>


(10)     CONVERTIBLE DEBENTURES/EQUITY LINE-OF-CREDIT (Continued)

     The Company also issued, under the Credit Agreement, 20,000 shares of its
common stock as a fee to the placement agent. These shares were delivered to the
placement agent at the time of the closing.

         On June 25, 1999, the Company and the Convertible Debenture investors
entered into a Modification Agreement (the "Modification Agreement"), under
which the parties agreed to cancel the Equity Line and all of the parties'
respective obligations thereunder. The parties to the Modification Agreement
also agreed to cancel the investors' obligation to purchase and the Company's
obligation to sell the additional $500,000 principal amount of Convertible
Debentures upon the effectiveness of the Registration Statement. Additionally,
the Modification Agreement provided for the modification and temporary abatement
of the Company's obligation to pay cash liquidated damages of $45,000 per month
resulting from the Company's inability to have the Registration Statement
declared effective on or before August 28, 1998. Pursuant to the terms of the
Credit Agreement, the Company paid liquidated damages from September 23, 1998
through and including February 23, 1999 in the aggregate amount of $210,000.
Under the Modification Agreement, the Company was to accrue a total of $180,000
of liquidated damages for the period from February 24, 1999 through and
including June 23, 1999, which accrued amount was to have been payable at any
time after October 1, 1999, upon request for payment therefore by the investors,
in shares of the Company's common stock. Additionally, the Company's obligation
to pay liquidated damages under the Credit Agreement was abated from June 24,
1999 through September 23, 1999, provided that the Registration Statement was
declared effective on or before October 31, 1999. Additional liquidated damages
in the amount of $45,000 were to have accrued for the period between September
24, 1999 and October 23, 1999 if the Registration Statement was not declared
effective on or before October 31, 1999. If the Registration Statement was not
declared effective on or before October 31, 1999, the Modification Agreement's
provisions providing for the payment of liquidated damages in stock and the
abatement of liquidated damages from June 23, 1999 to September 23, 1999 and the
provisions allowing the Company to pay liquidated damages in common stock rather
than cash were subject to rescission at the option of the investors.

         On November 12, 1999, the Company and the investors amended the
Modification Agreement to substitute February 15, 2000 for the October 31, 1999
deadline originally in the Modification Agreement. Consequently, the accrual of
liquidated damages was to have been deferred from June 24, 1999 until February
15, 2000, provided that the Registration Statement became effective and
shareholder approval of the transaction was obtained on or before that date.
Liquidated damages from February 24, 1999 through June 23, 1999 were not accrued
and continued to be payable by the Company as specified in the Modification
Agreement.

         The Company and the holders of the Convertible Debentures executed a
Convertible Debenture Retirement Agreement dated as of February 1, 2000, and
which closed on February 23, 2000 (the "Retirement Agreement"). Under the
Retirement Agreement, and in exchange for payment to the holders of the
Convertible Debentures, pro rata, of $1,500,000 cash, the holders agreed to
surrender for cancellation all but a small portion of the then unconverted
Convertible Debentures, to surrender for cancellation all of the A and B
warrants that were issued under the Credit

Agreement, and otherwise terminate all of the obligations of either party under
the Credit Agreement. At the closing of the Retirement Agreement, the holders
agreed to convert the remaining portion of the principal amount of the
Convertible Debentures into that number of shares that would have been issuable
had such portion been converted as of January 24, 2000, or 94,450 shares. In
light of the closing of the Retirement Agreement, the Company has no ongoing
obligations under the Credit Agreement, and has submitted a request to the
Securities and Exchange Commission to withdraw the pending Registration
Statement.



                                    Page 41
<PAGE>



(11)     INCOME TAXES

         Income tax benefit from continuing operations differed from the amounts
computed by applying the U.S. federal income tax rate of 34 percent to pretax
loss from continuing operations as a result of the following:

<TABLE>
<CAPTION>
                                                                             2000             1999

<S>                                                                   <C>             <C>
              Federal income tax benefit at statutory rates            $ (1,558,000)   $ (1,325,000)
              State income tax benefit at statutory rates, net
                of          federal tax effect                             (104,000)        (99,000)
              Discontinued operations                                       484,000         143,000
              Non-deductible financing costs                                (10,000)        153,000
              Other                                                          47,000          20,000
              Change in the valuation allowance for deferred tax
                 asset allocated to income tax expense                    1,121,000       1,108,000
              Total                                                    $      -          $    -

</TABLE>

         The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities at December 31,
2000 and 1999, are presented below.
<TABLE>
<CAPTION>

                                                                             2000           1999
             Deferred tax assets:
<S>                                                                    <C>           <C>
               Inventory capitalization                                     $35,000       $32,000
               Allowance for bad debts                                       21,000        15,000
               Compensated absences accrued for  financial
                  reporting purposes                                          9,000        14,000
               Net operating loss carry-forward                           2,792,000     1,814,000
               Intangibles, principally due to differences in
                  amortization                                               41,000        31,000
               Warranty and other reserve                                    34,000        56,000
               Gain from sale-leaseback of building                          86,000             -
               Research and experimentation credit                           47,000
                                                                                                -
               Gross deferred tax assets                                  3,065,000     1,962,000
                 Less valuation allowance                                 2,985,000     1,864,000
             Deferred tax assets                                             80,000        98,000

             Deferred tax liabilities:
               Property and equipment, principally due to
             differences                                                     80,000        98,000
                  in depreciation

             Net deferred tax assets (liabilities)                      $       -      $      -

</TABLE>


                                    Page 42
<PAGE>



(11)     INCOME TAXES-(continued)

         The net change in the total valuation allowance for the years ended
December 31, 2000 and 1999 was $1,121,000 and $1,108,000 respectively.

         Subsequently recognized tax benefits relating to the valuation
allowance for deferred tax assets as of December 31, 2000 will be reported as a
reduction of income tax expense from continuing operations.
         The Company has approximately $7,546,000 of net operating loss
carryforwards at December 31, 2000, which will begin to expire December 31,
2011.

         As measured under the rules of the Tax Reform Act of 1986, the Company
has undergone a greater than 50 percent change in ownership since 1986.
Consequently, use of the Company's net operating loss carryforward against
future taxable income in any one year may be limited. The maximum amount of
carryforwards available in a given year is limited to the product of the
Company's fair market value on the date of ownership change and the federal
long-term tax-exempt rate, plus any limited carryforward not utilized in prior
years. Management does not believe that these rules will adversely impact the
Company's ability to utilize the above losses in the aggregate. A valuation
allowance has been recorded against the deferred tax asset due to the
uncertainty surrounding its realization caused by the Company's recurring
losses.


(12)     STOCKHOLDERS' EQUITY

          On February 23, 2000 the Company completed a private placement of its
restricted common stock to seven offshore investors. The private placement was
accomplished pursuant to a Stock Purchase Agreement (the "Stock Purchase
Agreement") between the Company and the investors dated as of February 11, 2000.
Under the Stock Purchase Agreement, the Company issued a total of 1,222,811
shares of restricted common stock. The consideration paid by the investors was
the greater of (i) $1.00 per share or (ii) 100% of the average of the closing
bid prices of the Company's common stock as quoted by the Nasdaq Stock Market
for the five trading days immediately preceding the date the investors paid the
purchase price or any portion thereof. The total proceeds to the Company from
the private placement were $1,600,000.

         In February 2000, Merrill Lynch & Co., Inc. ("Merrill Lynch") notified
the Company that American Stock Transfer & Trust Co., New York, New York, the
Company's stock transfer agent ("AST"), had confiscated three separate
certificates purporting to represent a total of 208,000 shares of restricted
common stock issued in the name of an entity affiliated with Donald M. Wood, the
Company's former Chairman and Chief Executive Officer. AST confiscated such
certificates because they were not then shown as valid certificates representing
the Company's issued and outstanding common stock. Based on further
investigation by AST, the Company believes that its former stock transfer agent
had transferred the shares represented by such certificates to third parties,
but had not received the original certificates representing such shares at the
time of those transfers. Nor did the former transfer agent obtain documentation
indicating that such certificates had been lost, stolen or destroyed. Several
years after the shares represented by such certificates had been transferred,
Mr. Wood then tendered the original certificates to Merrill Lynch with
instruction to sell the shares represented by such certificates. Merrill Lynch
then sold such shares and tendered the certificates to AST for transfer, at
which time AST confiscated the certificates.

         On March 28, 2000, the Company received a letter from counsel for
Merrill Lynch. In that letter, Merrill Lynch advised the Company of its
intention to enforce its clients' rights to compel the Company to recognize the
transfers of the shares represented by the certificates tendered by Mr. Wood
under Article 8 of the Uniform Commercial Code as adopted by the State of Utah.
The Company complied with Merrill Lynch's demand. The net effect of this action
was that the Company was required to recognize as having been previously issued
208,000 shares of common stock that were not then shown as being issued and
outstanding on the books and records of the Company.

                                    Page 43
<PAGE>


(12)     STOCKHOLDERS' EQUITY-(continued)

         On March 29, 2000, the Company filed a lawsuit in Utah state court
against Mr. Wood, WAC Research, Inc. ("WAC") and Muito Bem Ltd Partnership
("Muito Bem"), Alpha Tech Stock Transfer & Trust Company, the Company's former
stock transfer agent ("Alpha Tech"). Both WAC and Muito Bem are entities
affiliated with Wood. The case sought damages from all defendants, and
specifically asked the court to award to the Company the proceeds of the sales
by WAC and/or Muito Bem of the shares that the Company was compelled to
reinstate on the basis that those entities and their principals had been
unjustly enriched. In a settlement, dated April 12, 2000, among Wood, WAC, Muito
Bem, Merrill Lynch and the Company, the Company received cash in the amount of
$200,714, in exchange for which it released its claims for further damages
against Wood, WAC, Muito Bem and Merrill Lynch. The Company's claims against
Alpha Tech are still pending.

         On April 4, 2000 the Company recognized as having been previously
issued the 208,000 shares of common stock. As a result, the Company recognized a
one time non-cash expense of $169,734, which is the difference between the fair
market value of the 208,000 shares as of the date of such recognition, or
$370,448, and the $200,714 cash received.

         On May 18, 2000 the Company entered into a Stock Purchase Agreement
(the "May 2000 Stock Purchase Agreement") with three offshore investors. Under
the May 2000 Stock Purchase Agreement, the offshore investors agreed to purchase
and acquire from the Company shares of the Company's common stock, having an
aggregate purchase price of at least $775,000 (the "Minimum Investment Amount")
and a maximum aggregate purchase price of $1,000,000. The number of shares
issuable to the investors in consideration of their payment of the purchase
price was calculated as follows (i) as to the Minimum Investment Amount, by
dividing the total dollar amount of the Minimum Investment Amount paid to the
Company as of closing, by $1.3125, which was 100% of the fair market value of
the Company's common stock as of the date of the May 2000 Stock Purchase
Agreement, and (ii) as to any additional amount invested over the Minimum
Investment Amount, by dividing the total dollar amount of such additional amount
paid to the Company by 100% of the average of the closing bid prices of the
Company's common stock for the five trading days immediately preceding the date
of actual payment of such additional amount. The Company received the Minimum
Investment Amount and subsequently issued a total of 590,476 shares of
restricted common stock to the investors.

         On February 4, 1999, the Company entered into a Deposit Payable
Conversion Agreement, whereby a $1,000,000 deposit received by the Company in
early 1998 was cancelled and the Company issued 500,000 shares of restricted
common stock under Regulation D to the depositor.

         On November 4, 1999, the Company sold its corporate headquarters
facility for $2,865,000. Simultaneously with the sale, the Company entered into
a 20-year leaseback agreement with the purchasing party. The net proceeds to the
Company were $831,000, after paying long-term debt secured by the building,
broker and legal fees, and other ancillary charges. The proceeds from the sale
were used for working capital purposes. As an additional inducement to the
purchaser, the Company issued a total of 33,948 shares of its restricted common
stock to the purchaser having a market value of $35,000 based on the fair market
value of the restricted stock on the date of issue. The party that purchased the
building is not affiliated with or related to the Company or any of its officers
or directors, and the terms of the transaction were the result of arms-length
negotiations.

(13)     BUSINESS SEGMENT INFORMATION

         Information as to the operations of the Company in different business
segments (rounded to the nearest thousandth) is set forth below based on the
nature of the products and services offered. Management evaluates performance
based on several factors, of which the primary financial measure is business
segment operating income before noncash amortization of intangible assets
("EBITDA"). The accounting policies of the business segments are the same as
those described in the summary of significant accounting policies.

                                    Page 44
<PAGE>

(13)     BUSINESS SEGMENT INFORMATION-(continued)

<TABLE>
<CAPTION>
                                                              YEARS ENDED DECEMBER 31,
                                                      -----------------------------------------
REVENUES:                                                      2000                 1999
-----------------------------------------------------     ---------------     ------------------
<S>                                                       <C>                 <C>
Telecommunication Headsets and
   Amplifiers and Telephone Accessories..........         $ 6,084,000         $ 7,320,000
Flashlights......................................           1,819,000           1,810,000
Hardware/Houseware...............................             791,000             845,000
Mass Market......................................                 -               992,000
                                                          ---------------     ------------------

       Total.....................................         $ 8,694,000         $10,967,000
                                                          ===============     ==================

</TABLE>

<TABLE>
<CAPTION>
                                                              YEARS ENDED DECEMBER 31,
                                                      -----------------------------------------
OPERATING INCOME (LOSS):                                       2000                  1999
-----------------------------------------------------     ----------------      ----------------
<S>                                                       <C>                   <C>
Telecommunication Headsets and
   Amplifiers and Telephone Accessories..........         $(1,318,000)          $(1,234,000)
Flashlights......................................          (1,882,000)           (1,251,000)
Hardware/Houseware...............................
                                                             (400,000)             (536,000)
Mass Market......................................               -                     6,000
                                                          ----------------      ----------------

       Total.....................................         $(3,600,000)          $(3,015,000)
                                                          ================      ================

</TABLE>

<TABLE>
<CAPTION>
                                                              YEARS ENDED DECEMBER 31,
                                                      -----------------------------------------
DEPRECIATION AND AMORTIZATION (1):                             2000                 1999
-----------------------------------------------------     ----------------    ------------------
<S>                                                       <C>                 <C>
Telecommunication Headsets and
   Amplifiers and Telephone Accessories..........           $ 342,000             $ 404,000
Flashlights......................................             123,000                77,000
Hardware/Houseware...............................              69,000                79,000
Discontinued operations..........................              37,000                28,000
                                                          ----------------    ------------------

       Total.....................................           $ 571,000             $ 588,000
                                                          ================    ==================
</TABLE>

(1) Amortization includes all amortization relating to product license rights,
goodwill, non-competes and purchased patents.

         Information as to the assets and capital expenditures of the Company is
as follows:
<TABLE>
<CAPTION>

                                                              YEARS ENDED DECEMBER 31,
                                                      -----------------------------------------
ASSETS (1):                                                    2000                 1999
----------------------------------------------------      ----------------    ------------------
<S>                                                       <C>                 <C>
Telecommunication Headsets and
   Amplifiers and Telephone Accessories..........        $  4,098,000          $  5,905,000
Flashlights......................................           1,111,000             1,943,000
Hardware/Houseware...............................             554,000               742,000
Discontinued operations..........................             179,000                47,000
                                                        ----------------    ------------------
       Total assets for reportable segments......           5,942,000             8,637,000

Other assets.....................................              92,000               119,000
Deferred loan costs and other assets not
   allocated                to segments..........             240,000               697,000
                                                        ----------------    ------------------
       Consolidated total........................        $  6,274,000          $  9,453,000
                                                        ================    ==================
</TABLE>

                                    Page 45
<PAGE>

(13)     BUSINESS SEGMENT INFORMATION-(continued)
<TABLE>
<CAPTION>

                                                             YEARS ENDED DECEMBER 31,
                                                      ----------------------------------------
CAPITAL EXPENDITURES:                                          2000                 1999
----------------------------------------------------      ----------------    -----------------
<S>                                                       <C>                 <C>
Telecommunication Headsets and
   Amplifiers and Telephone Accessories..........           $ 283,000             $ 222,000
Flashlights......................................              93,000                87,000
Hardware/Houseware...............................               -                     -
Discontinued operations..........................               -                    28,000
                                                          ----------------    -----------------

       Total.....................................           $ 376,000             $ 337,000
                                                          ================    =================
</TABLE>

         Information as to the Company's operations in different geographical
areas is as follows:
<TABLE>
<CAPTION>

                                                  YEARS ENDED DECEMBER 31,
                                           ----------------------------------------
REVENUES:                                           2000                 1999
------------------------------------------     ----------------    -----------------
<S>                                            <C>                 <C>
United States..........................        $   8,432,000        $ 10,793,000
Other (1)..............................              262,000             174,000
                                               ----------------    -----------------

       Total...........................        $   8,694,000        $ 10,967,000
                                               ================    =================
</TABLE>

(1)      Includes Canada, Europe and other miscellaneous.

<TABLE>
<CAPTION>

                                                  YEARS ENDED DECEMBER 31,
                                           ----------------------------------------
OPERATING LOSS:                                     2000                 1999
------------------------------------------     ----------------    -----------------

<S>                                             <C>                 <C>
United States..........................           $(3,600,000)        $(3,015,000)
                                               ================    =================


                                                  YEARS ENDED DECEMBER 31,
                                           ----------------------------------------
ASSETS:                                             2000                 1999
------------------------------------------     ----------------    -----------------
United States..........................          $  6,083,000        $  9,083,000
Asia...................................               191,000             370,000
                                               ----------------    -----------------

       Total...........................          $  6,274,000        $  9,453,000
                                               ================    =================
</TABLE>

(14)     DISCONTINUED OPERATIONS

         On November 22, 2000, the Company completed the sale of substantially
all of the assets associated with its Neat Things!(TM) home organization and
storage product line to Expandable Home Organizers, Inc., a California
corporation ("EHOI"). The consideration EHOI paid for such assets at closing was
$1,498,717 consisting of cash payments of $847,553 and the assumption by EHOI of
liabilities of the Company incurred in connection with the Neat Things! Division
to the primary outside supplier of that division.

         In addition to the consideration received at closing, EHOI agreed to
purchase additional inventory related to the Neat Things! Division located at
the Company's Salt Lake City, Utah headquarters. The purchase price of $77,780
paid by EHOI for the inventory was the Company's actual costs of purchasing such
inventory. EHOI is unaffiliated with the Company. The financial terms of the
transaction were negotiated by management of the Company and EHOI.

                                    Page 46
<PAGE>

(14)     DISCONTINUED OPERATIONS-(continued)

         Assets of the Neat Things! Division sold to EHOI include intellectual
property rights either owned by or licensed to the Company, inventory, fixed
assets, and other tangible and intangible assets such as contract rights with
suppliers, customers and sales representatives. Excluded from the assets sold to
EHOI are the accounts receivable of the Company related to the Neat Things!
Division.

         Net assets of discontinued operations are as follows:
<TABLE>
<CAPTION>

                                                          Year ended           Year ended
                                                         December 31,         December 31,
                                                             2000                 1999
                                                        ----------------    -----------------
           Assets:
<S>                                                      <C>                 <C>
                           Receivables, Net                 $ 309,707            $       -
                           Inventory, Net                      40,356              186,557
                           Equipment, Net                           -              195,573
                                                            $ 350,063            $ 382,130

           Liabilities:
                           Accounts payable                 $       -            $ 154,079
                           Accrued advertising                150,000              150,000
                           Accrued royalties                   21,190               30,682
                                                            $ 171,190            $ 334,761

           Net assets of discontinued operations            $ 178,873              $47,369

         Condensed discontinued operations are as follows:

                                                          Year ended          Year ended
                                                         December 31,        December 31,
                                                            2000                1999
                                                        ----------------    ---------------
           Revenue                                        $ 4,018,502          $ 3,802,760
           Costs and expenses                               3,704,469            3,383,340
           Net income before income taxes                     314,033              419,420
           Income taxes
                                                                    -                    -
           Net income                                     $   314,033          $   419,420
</TABLE>

(15)     RELATED PARTY TRANSACTIONS

       Since prior to 1990, the Company's subsidiary Softalk, Inc., has been a
party to a series of royalty agreements with WAC Research Inc., a Utah
corporation ("WAC"). The WAC agreements purported to obligate the Company to
pay, in perpetuity, royalties on all sales of Softalk shoulder rest products in
exchange for the sale to Dynatec of unspecified intellectual property rights
associated with the Softalk products. At the time the WAC agreements were
negotiated and executed, Donald M. Wood, served as both the Company's Chairman
and Chief Executive Officer, and was a shareholder and the president of WAC. The
Company believes that WAC obtained rights to the design patents employed in the
Softalk products in 1986, when WAC purchased them from the inventor of Softalk
and related products in a private transaction. Documents manifesting the
assignment to Softalk or Dynatec of the patents were subsequently executed and
filed in the U.S. Patent and Trademark Office. Softalk originally filed for and
has continued to maintain the registrations of the Softalk trademarks.
Notwithstanding the expiration of the design patent

                                    Page 47
<PAGE>

(15)     RELATED PARTY TRANSACTIONS (Continued)

covering the original Softalk shoulder rest product in 1990, WAC continued to be
paid royalties on all Softalk products. When, in January 1999, Mr. Wood resigned
from Dynatec, the Company continued to pay the WAC royalties until, in August
2000, the Company advised WAC that in light of the expiration of the patent for
the Softalk product in 1990 the Company would no longer pay royalties for
products incorporating expired patents, would not agree to pay royalties on
other products in perpetuity, and was seeking reimbursement for royalties paid
with respect to the core Softalk product after the expiration of the patent in
1990. WAC disagreed with the Company's position. Litigation ensued. See "Legal
Proceedings." Pending resolution of the litigation, the Company has discontinued
the payment of all royalties to WAC. Prior to August 2000, and during the years
ended December 31, 2000 and 1999, the Company paid WAC $94,677 and $298,420,
respectively, in royalties.

         In July 1998, the Company's Board of Directors commenced an internal
investigation into the facts and circumstances of a number of transactions
between the Company and certain of its officers and directors as well as several
general corporate and management concerns brought to the attention of the
Company's independent directors. The Company engaged an unrelated third party to
conduct the investigation, which concluded in January 1999. Thereafter, the
Company's former Chairman and CEO resigned and retired from the Company. The
Company does not anticipate taking further action, legal or otherwise, with
respect to the matters and individuals investigated, although the Company,
through its new management, has identified several areas in which new corporate
governance policies have been adopted or old policies changed. In connection
with the investigation, several of the Company's directors engaged independent
legal counsel. An aggregate of $112,938 of such legal fees were reimbursed by
the Company pursuant to action by the Company's Board of Directors at the
commencement of the investigation.

 (16)    FAIR VALUE OF FINANCIAL INSTRUMENTS

         The fair value of a financial instrument is the amount at which the
instrument could be exchanged in a current transaction between willing parties.
Financial instruments are included in the consolidated balance sheets at
carrying cost. The carrying amounts approximate fair value for cash, trade
accounts receivable, prepaid expenses and other current assets, other assets,
accounts payable, and accrued expenses because of the short maturity of these
instruments.
Because the blended interest rate of debt approximates the current interest
rates available, the carrying value of debt instruments also approximates fair
market value.

(17)    STOCK OPTIONS

         The Company has established three stock option programs under which it
has granted both non-qualified and incentive stock options to employees, board
members, and certain related entities. Under the Company's 1996-1997
non-qualified stock option program ( the "Non-Qualified Plan"), the Company
granted options to acquire 1,640,000 shares of common stock. The 1996 Incentive
Option Plan ("1996 Plan") provides for grants of qualified stock options to
acquire a maximum of 300,000 shares of common stock, of which 200,000 options
have been granted to date. The exercise price of options granted to employees
under either option program equals the market price on the date of grant, and as
a result no compensation expense has been recognized in the accompanying
financial statements.

                                    Page 48
<PAGE>

          In January 1999, the Company's former Chairman and CEO, and holder of
900,000 of the options granted in December 1996 (500,000 shares) and January
1997 (400,00 shares) under the Non-Qualified Plan, agreed to cancel those
options. In addition to the non-qualified options granted to employees to date,
the Company granted options to purchase 537,500 shares of common stock to Muito
Bem Ltd., an entity controlled by a shareholder and former CEO of the Company,
at a strike price of $2.50 per share in December 1996. The shareholder and
former executive officer of the Company who owns Muito Bem, Ltd. agreed in
January 1999 to cancel all stock options issued to Muito Bem, Ltd.


(17)     STOCK OPTIONS-(continued)

         In May 1999, the Company's Board of Directors adopted the Company's
1999 Stock Option And Incentive Plan (the "1999 Plan"). Under the 1999 Plan, a
total of 640,000 shares were reserved for issuance in the form of non-qualified
stock options or qualifying Incentive Stock Options. As of December 31, 2000,
the compensation committee of the Company's Board of Directors has granted stock
options under the 1999 Plan to purchase a total of 344,000 shares of common
stock to various executives, employees and directors of the Company. Such
options were granted as non-qualified options having terms of 10 years from the
date of grant. All such options have an exercise price of between $1.00 and
$1.75 per share, with a weighted average price of $1.568 per share. The exercise
price for the options were 100% of the fair market value on the grant date.

         The Company's qualified options issued to employees in December 1996
and January 1997 may be exercised upon the holder-employee's continued
employment with the Company for six years and the Company's achievement of
profitable operations for three out of those six years. Such options expire ten
years from the date of the grant. Options granted under the 1996 non-qualified
Plan become exercisable as of the date of grant and expire five years from the
date of grant, or three months following termination, or 24 months following
death of the employee.

         Summary of stock options is as follows for the years ended December 31:
<TABLE>
<CAPTION>

                                                                2000                              1999
                                                    ------------------------------     ----------------------------
                                                                      Weighted                         Weighted
                                                                       Average                         Average
                                                         Shares       Exercise            Shares       Exercise
         FIXED OPTIONS:                                 (000's)         Price            (000's)        Price
<S>                                                  <C>            <C>               <C>            <C>
         Outstanding at beginning of year.........        937          $1.819              909          $2.500
         Granted..................................         19          $1.625              635          $1.495
         Exercised................................         --            --                 --            --
         Canceled.................................       (359)         $1.579             (607)         $2.500
                                                      -------------                    -------------
         Outstanding at end of year...............        597          $1.963              937          $1.819
                                                      =============
                                                                                       =============
         Options exercisable at year-end..........        592          $1.966              547          $1.708
                                                      =============                    =============
         Weighted average fair value of
            options granted during the year.......       $1.625                           $1.495

         Weighted average remaining
            contractual life for exercisable
            options at year-end...................     8.3 years                        8.5 years

                                                                2000                              1999
                                                    ------------------------------     ----------------------------
         VARIABLE OPTIONS:                               Shares       Exercise            Shares       Exercise
                                                        (000's)         Price            (000's)        Price
         Outstanding at beginning of year.........        325           $2.00             1,640         $2.00
         Granted..................................         --                               --
         Canceled.................................       (175)          $2.00            (1,315)        $2.00
                                                      -------------                    -------------
         Outstanding at end of year...............        150           $2.00              325          $2.00
                                                      =============                    =============

</TABLE>

                                    Page 49
<PAGE>



(17).....STOCK OPTIONS-(continued)

         The following table summarizes information about stock options
outstanding at December 31, 2000:
<TABLE>
<CAPTION>

         FIXED OPTIONS                       OPTIONS OUTSTANDING                          OPTIONS EXERCISABLE
         ------------------    -------------------------------------------------    --------------------------------
                                                 Weighted-average
                                                   remaining       Weighted-average                    Weighted-average
             Range of           Outstanding       contractual        exercise       Exercisable          exercise
          exercise prices          as of             life             price            as of              price
                                 12/31/00                                             12/31/00
         ------------------    --------------    --------------    -------------    -------------      -------------
<S>      <C>                    <C>              <C>               <C>              <C>                <C>
         $ 1.00 - 1.50                32,000           9              $1.01               32,000          $1.01
         $ 1.51 - 2.25               312,000           9              $1.63              307,375          $1.63
         $ 2.26 - 2.50               253,000          7.3             $2.50              253,000          $2.50
                                     597,000                                             592,375

</TABLE>

         The Company applies the intrinsic value method under APB No. 25 in
accounting for stock-based employee compensation arrangements. Had compensation
cost for the Company's stock option plans been determined pursuant to the fair
value method under SFAS No. 123, the Company's net loss and net loss per share
would have increased accordingly. The fair value of options granted under the
Company's 1999 stock option plan have been estimated using the Black-Scholes
option pricing model with the following weighted average assumptions: dividend
yield of 0%, risk free interest rate of 6.0%, expected volatility of 132.9% and
expected lives of 10 years.

<TABLE>
<CAPTION>
                                                                            2000              1999

<S>                                                                    <C>              <C>
                     Net loss                   As reported            $(3,158,931)     $(3,477,545)
                                                Pro Forma              $(3,317,743)     $(4,157,777)
                     Basic and diluted
                        loss per share          As reported            $     (0.61)     $     (1.03)
                                                Pro Forma              $     (0.64)     $     (1.23)
</TABLE>

(18)     EMPLOYEE BENEFITS

         The Company also has a defined contribution plan which is a qualified
retirement plan under section 401(k) of the Internal Revenue Code. Under the
terms of the Plan, employees may make contributions to the Plan and are eligible
to participate in the Plan immediately. The Company has not made matching
contributions to the Plan.


(19)   COMMITMENTS & CONTINGENCIES

Employment Agreements
       The Company has entered into employment agreements with the Company's
Chief executive officer and executive vice president of sales that provide for a
period of employment of four years from the date of the agreements, subject to
termination and extension provisions. The agreements permit each of them to
participate in any incentive compensation plan adopted by the Company and
benefit and equity-based plans or arrangements. If the Company terminates either
executive employment for cause, or if either of them terminates their employment
without good reason, the Company has no further obligation to pay them under
their respective agreements. If the Company terminates either of them without
cause, the terminated executive may receive severance pay equal to two years of
his then current annual salary. In the event of a merger, acquisition,
dissolution or transfer of substantially all of the Company's assets, the
employment agreements must then be honored by the surviving entity or it must
purchase the

                                    Page 50
<PAGE>

(19)   COMMITMENTS & CONTINGENCIES (continued)

agreements for a sum equal to three (3) years' base salary. The employment
agreements prohibit each executive for two years from the date of termination of
their respective employment under the agreements, from becoming an employee,
owner (except for investments in up to 5% of the equity securities of a company
listed or traded on a national securities exchange or the NASDAQ Stock Market),
officer, agent or director of a firm or person that competes with the Company in
the consumer products industry. The employment agreements have customary
provisions for vacation, fringe benefits, payment of expenses and automobile
allowances.

     Litigation
         On February 8, 2001, the Company waived service of summons with respect
to a complaint filed in the U.S. District court in the District of Utah by K&S
Flashlight, Inc. ("K&S"), a Taiwan company that was the Company's flashlight
supplier from 1998 through 2000. The lawsuit names as defendants both Dynatec
and its subsidiary, Nordic Technologies, Inc. The lawsuit alleges that the
Company owes K&S in excess of $100,000 for the Company's alleged failure to pay
amounts due to K&S for flashlight products shipped during 2000, and seeks
damages in an unspecified amount. The Company intends to answer and otherwise
defend the lawsuit.

         On August 4, 2000, the Company filed suit (the "Utah WAC Action")
against WAC Research, Inc., a Utah corporation ("WAC"), in Utah state court in
Salt Lake City, Utah. WAC is a corporation at least fifty percent of which is
owned by Donald M. Wood ("Wood"), the Company's former Chairman and Chief
Executive Officer. The dispute with WAC arose out of a series of royalty
agreements between the Company and WAC dated in 1990 and 1998 that purported to
obligate the Company to pay perpetual royalties to WAC on sales of products in
the Company's telephone accessories product line. In return for this perpetual
royalty (which the Company paid for approximately 10 years) WAC purported to
assign and grant to the Company the intellectual property rights underlying
certain of the Company's Softalk products. At the times the WAC agreements were
negotiated, Wood controlled both WAC and the Company. The Company amended its
complaint in the Utah WAC Action on August 29, 2000 and on October 19, 2000.
After the Company was unable to negotiate a settlement of its disputes with WAC,
and after WAC filed its own complaint in state court in Phoenix, Arizona (the
"Arizona WAC Action") on October 6, 2000, the Company served process in the Utah
WAC Action. The Company's complaint in the Utah WAC Action, as amended to date,
seeks the court's declaration that no further royalties are owed by the Company
to WAC because, among other reasons, (i) WAC never had any interest in or to any
of the intellectual property rights underlying the Company's Softalk products,
(ii) WAC breached its representations and warranties of ownership as to such
intellectual property rights as set forth in the WAC agreements, (iii) patents
covering certain of the key products in the Company's Softalk product line have
expired, and such products are not otherwise covered by enforceable copyrights
or other intellectual property rights, (iv) the Company owns all trademark
rights with respect to its Softalk products, (v) WAC has no right to continue
forcing the Company to pay royalties under expired patents, (vi) WAC's ongoing
attempts to enforce the WAC royalty agreements constitute patent misuse, and
(vii) as a consequence of WAC's patent misuse, WAC is liable to the Company for
royalties paid under a 1998 agreement between WAC and the Company. The complaint
in the Utah WAC Action also includes claims for damages stemming from WAC's
alleged patent misuse, failure of consideration, unjust enrichment and
additional declaratory relief. WAC's complaint in the Arizona WAC Action alleges
that WAC made unspecified loans to the Company that were never repaid, and that
the Company is in breach of its royalty payment obligations under the WAC
royalty agreements. In the Arizona WAC Action, WAC sought declaratory judgment
that the Company is required prospectively to pay royalties under the WAC
agreements and for money damages in the amount of $308,841. The Company moved to
dismiss the Arizona WAC Action for lack of jurisdiction or, in the alternative
to stay the Arizona WAC Action pending a resolution of the Utah WAC Action. On
February 26, 2001, the court in the Arizona WAC Action granted the Company's
motion to dismiss that action. On March 27, 2001, WAC filed a counterclaim
against the Company in the Utah WAC Action. This counterclaim asserts claims
that are identical to those that were asserted by WAC in the Arizona WAC Action
before it was dismissed. The Utah WAC Action is still pending, and the Company
intends to vigorously prosecute it.

                                    Page 51
<PAGE>

(19)     COMMITMENTS & CONTINGENCIES (continued)

         In February 1999, Mag Instrument, Inc., a manufacturer and distributor
of flashlights and one of the Company's competitors ("Mag"), filed a lawsuit
against the Company's subsidiary, Nordic Technologies, Inc. ("Nordic"), of
infringing certain of Mag's patents and committing false advertising and unfair
competition. The lawsuit was filed in the U.S. District Court for the Central
District of California. The Company and Mag attempted to settle that lawsuit,
and entered into an agreement whereby the lawsuit was dismissed without
prejudice, with Mag having the express right to refile the complaint in the same
court and venue. No settlement was ever reached. On October 30, 2000, Mag filed
a new complaint in the same federal district court that it subsequently served
on the Company. The new Mag complaint alleges that Nordic has infringed two
patents and related trademarks owned by Mag, and also has engaged in unfair
competition arising out of Nordic's alleged use of a flashlight design that is
confusingly similar to the shape, style and overall appearance of Mag's
miniature "AA" light, all in violation of various provisions of federal and
California state law. Mag seeks unspecified money damages, punitive damages and
injunctive relief. The Company does not believe that any of Nordic's flashlight
products have infringed any patents or trademarks of Mag, and intends to
vigorously defend the suit.

         On May 4, 2000, Grandur, Inc., a Taiwan corporation ("Grandur"), sued
the Company in the United States District Court for the District of New Jersey.
The summons and complaint were served on the Company in Salt Lake City, Utah on
May 12, 2000. The complaint alleges that the Company has breached a
manufacturing agreement between the Company and Grandur pursuant to which the
Company is alleged to have a minimum annual purchase requirement and an
exclusive manufacturing arrangement with Grandur for the Company's Twisstop
product. The complaint further alleges that Grandur is entitled to recover, in
addition to such damages as may be proved at trial, liquidated damages per the
terms of the contract in the amount of $500,000. Grandur and the Company have
entered into an oral agreement to settle this litigation and are making efforts
to memorialize their agreement. On February 6, 2001, Grandur and the Company
reported the terms as their settlement to the court. On February 7, 2001, the
court entered an order conditionally dismissing the lawsuit subject to being
reopened if the settlement is not consummated. In the event the settlement is
not consummated, the Company intends to vigorously defend the lawsuit.

         In February 2000, Merrill Lynch & Co., Inc. ("Merrill Lynch") notified
the Company that American Stock Transfer & Trust Co., New York, New York, the
Company's stock transfer agent ("AST"), had confiscated three separate
certificates purporting to represent a total of 208,000 shares of restricted
common stock issued in the name of an entity affiliated with Donald M. Wood, the
Company's former Chairman and Chief Executive Officer. AST confiscated such
certificates because they were not then shown as valid certificates representing
the Company's issued and outstanding common stock. Based on further
investigation by AST, the Company believes that its former stock transfer agent
had transferred the shares represented by such certificates to third parties,
but had not received the original certificates representing such shares at the
time of those transfers. Nor did the former transfer agent obtain documentation
indicating that such certificates had been lost, stolen or destroyed. In January
2000, several years after the shares represented by such certificates
purportedly had been transferred, the original certificates were tendered to
Merrill Lynch with instruction to sell the shares represented by such
certificates. Merrill Lynch then sold such shares and tendered the certificates
to AST for transfer, at which time AST confiscated the certificates. On March
28, 2000, the Company received a letter from counsel for Merrill Lynch. In that
letter, Merrill Lynch advised the Company of its intention to enforce its
clients' rights to compel the Company to recognize the transfers of the shares
represented by the certificates tendered to it in January 2000 under the Uniform
Commercial Code as adopted by the State of Utah. The Company complied with
Merrill Lynch's demand. The net effect of this action was that the Company was
required to recognize as having been previously issued 208,000 shares of common
stock that were not then shown as being issued and outstanding on the books and
records of the Company. On March 29, 2000, the Company filed a lawsuit in Utah
state court against Mr. Wood, WAC Research, Inc. ("WAC") and Muito Bem Ltd
Partnership ("Muito Bem"), Alpha Tech Stock Transfer & Trust Company, the
Company's former stock transfer agent ("Alpha Tech"). Both WAC and Muito Bem are
entities affiliated with Wood. The case sought damages from all defendants, and
specifically asked the court to award to the Company the proceeds of the sales
by WAC and/or Muito Bem of the shares that the Company was compelled to
reinstate on the basis that those entities and their principals had been
unjustly enriched. In a settlement, dated April 12, 2000, among Wood, WAC, Muito

                                    Page 52
<PAGE>

(19)     COMMITMENTS & CONTINGENCIES (continued)

Bem, Merrill Lynch and the Company, the Company received cash in the amount of
$200,714, in exchange for which it released its claims for further damages
against Wood, WAC, Muito Bem and Merrill Lynch. The Company's claims against
Alpha Tech are still pending.

         On December 7, 1999, Donald M. Wood, the former Chairman and Chief
Executive Officer of the Company, and the Stith Law Office (Wood's personal
legal counsel) filed a lawsuit in the District Court of Salt Lake County, State
of Utah (Case No. 990912153). In that lawsuit, Wood and Stith asserted that the
Company has breached a Settlement Agreement executed by the Company and Wood
upon Wood's resignation as the Company's Chairman and Chief Executive Officer,
effective as of January 14, 1999. The lawsuit includes claims for breach of
contract, fraud and intentional infliction of emotional distress, and seeks
money damages and punitive damages in the aggregate amount of $1,162,246. On
February 7, 2000, the Company filed its answer to the Wood litigation, in which
the Company asserted that its payment obligations under the Settlement Agreement
were excused by repeated breaches by Wood of various covenants of the Settlement
Agreement. Simultaneously, the Company filed a counterclaim against Wood for
money damages incurred by the Company as a result of Wood's various breaches of
the Settlement Agreement. The Company also simultaneously filed motions to
dismiss the fraud and intentional infliction of emotional distress claims. The
Company's management believes the Wood litigation is without merit and intends
to vigorously defend.

         On March 19, 1999, Alpha Tech Stock Transfer Company ("Alpha Tech")
filed a lawsuit against the Company in Utah state court in Salt Lake City, Utah.
Alpha Tech was the Company's stock transfer agent for a period of approximately
ten years until the Company terminated its relationship with Alpha Tech in
January 1999 and instructed Alpha Tech to transfer the Company's stock transfer
records to American Stock Transfer, New York, New York. The complaint alleges
that the Company breached its service contract with Alpha Tech by failing to pay
$132,165 to Alpha Tech for transfer agent services rendered and reimbursement
for legal expenses incurred by Alpha Tech. Alpha Tech never served the
complaint; the Company learned about the complaint through an unrelated third
party. In March 2000, Alpha Tech refiled essentially the same complaint, thereby
commencing another lawsuit against the Company. The March 2000 complaint is
virtually identical to the March 1999 complaint. In April 2000, the Company
accepted service of process, and has filed a motion to dismiss the March 2000
complaint. The Company disputes the claims of Alpha Tech's complaint and intends
to vigorously defend this action.

         On April 27, 1998, the Enforcement Division of the Securities and
Exchange Commission notified the Company that the SEC was anticipating filing an
administrative proceeding in the latter part of calendar year 1998 against
various individuals and entities who had engaged in transactions with a Canadian
corporation. The SEC Enforcement Division further indicated that the Company may
be named as a defendant in such administrative action. In July 1998, the Company
submitted a Wells Submission to clarify why, in the Company's estimation, it
should not be named in the administrative proceeding, if any. The Company
suggested in the Wells Submission that it should not be named in any
administrative proceeding because the Company never consummated either of the
two transactions with the subject Canadian company that the Company was
considering, and the Company received no consideration in connection with those
aborted transactions. Moreover, the Company believes that its conduct in
connection with those proposed but aborted transactions met applicable legal
requirements. As of December 31, 2000, the Company had received no response from
the Enforcement Division about whether the SEC plans to name the Company in any
administrative action.

         In addition, the Company has previously disclosed that, in the first
quarter of 1999, it was informed of an investigation by the Enforcement Division
of the Securities and Exchange Commission. The Company believes this
investigation concerns certain trading activity in the Company's common stock
and other transactions involving the Company's securities, however, the Company
has not been informed of the specifics of such investigation. The Company has
cooperated fully with these administrative proceedings. The Company had no
contract from the Enforcement Division regarding this investigation during the
entirety of 2000.

                                    Page 53
<PAGE>

(19)     COMMITMENTS & CONTINGENCIES (continued)

         On February 12, 1998, Fuji Corporation filed a claim with the
International Trade Commission seeking a cease and desist order against
approximately 30 entities. Fuji sought to enlist the aid of the U.S. Customs
Department in preventing the importation of single-use cameras which are
manufactured by any of the defendant entities and which infringe the patents of
Fuji. The Company does not manufacture single-use cameras, but previously has
distributed single-use cameras which have been refurbished and reloaded in
mainland China. The Company was therefore involved in the Fuji proceeding. The
Company engaged intellectual property counsel and vigorously defended its
position until December 1998, when the Company sold its remaining inventory of
single-use cameras to another entity. In connection with that sale, any
liability of the Company in connection with the Fuji proceeding, including the
costs of further defending the action, were assumed by the purchaser of the
Company's single-use camera inventory, although the Company nominally remains
part of that litigation.

         The Company is involved in various other claims and legal actions
arising in the ordinary course of business. In the opinion of management, the
ultimate disposition of these other matters will not have a material adverse
effect on the Company's operations or financial condition.


(20)     RECENT ACCOUNTING PRONOUNCEMENTS

         The Financial Accounting Standards Board issued SFAS No. 133,
Accounting for Derivatives Instruments and Hedging Activities, in 1998. SFAS No.
133 establishes accounting and reporting standards for derivative instruments,
including certain derivative instruments embedded in other contracts
(collectively referred to as derivatives), and for hedging activities. It
requires that an entity recognize all derivatives as either assets or
liabilities in the statement of financial position and measure those instruments
at fair value. For a derivative not designated as a hedging instrument, changes
in the fair value of the derivative are recognized in earnings in the period of
change. As a result of SFAS No. 137 the effective date for SFAS No. 133 shall be
in the first quarter of 2001. The Company does not believe the adoption of SFAS
No. 133 will have a material affect on the financial position or results of
operations of the Company.

         SFAS No. 140,  Accounting  for  Transfers  and  Servicing  of Financial
Assets and  Extinguishments  of Liabilities,  was issued in September 2000. SFAS
No. 140 is a replacement of SFAS No. 125, Accounting for Transfers and Servicing
of Financial Assets and  Extinguishments of Liabilities.  Most of the provisions
of SFAS No. 125 were carried forward to SFAS No. 140 without  reconsideration by
the Financial  Accounting  Standards Board (FASB), and some were changed only in
minor ways. In issuing SFAS No. 140, the FASB included issues and decisions that
had been  addressed and  determined  since the original  publication of SFAS No.
125. SFAS No. 140 is effective for  transfers  after March 31, 2001.  Management
does not expect the adoption of SFAS No. 140 to have a significant impact on the
financial position or results of operations of the Company.



                                    Page 54

<PAGE>



(21)     SUBSEQUENT EVENTS

       In February 2001, and due to decreases in the Company's operating capital
and borrowing availability, the Company entered into a relationship with Sarkat
International, LLC ("Sarkat"), a limited liability company that is owned in part
by Reed Newbold, who currently is a member of the Company's board of directors.
In connection with this arrangement, Sarkat agreed to provide unsecured,
revolving debt financing to Softalk, Inc. or Softalk Communications, Inc., each
a subsidiary of the Company, in the aggregate amount of $150,000. In exchange
for each advance of funds by Sarkat, the Company (or its subsidiary directly
receiving such funds) is to sign a promissory note obligating the Company to
repay the principal amount advanced, plus interest calculated on a daily basis
at the annual rate of the greater of eight percent or the actual rate of
interest paid by Sarkat to obtain such funds, plus a "lender's premium" of 12.5%
of the principal amount advanced. Such borrowed funds are disbursed by direct
payment by Sarkat to the Company's supplier, who then ships product to the
Company, which allows the Company to service pending orders from its customers.
Principal, interest and lender's premiums payable to Sarkat are repaid out of
loan advances from the Company's secured lender when the Company's accounts
receivable borrowing base increases as result of the sales facilitated by the
Sarkat loans. The Company's secured lender has consented to this mechanism. As
of April 2, 2001, the Company owes Sarkat $150,000 in principal and $1,253 in
interest. Sarkat has been paid $27,619 in lender's premiums. Debt financing on
similar or terms more preferential to the Company was not available to the
Company at the time.

       In a transaction related to the Sarkat financing desribed in the
preceding paragraph, in January 2001, the Company's Nordic Technologies, Inc.
subsidiary ("Nordic") formed a joint venture called Nordic ASI, L.L.C. that is
owned 50% by Nordic and 50% by Sarkat. Nordic ASI was formed specifically to
enable the Company to pursue sales of its flashlight product line (and other
flashlights and products not then offered by the Company) in the advertising,
specialty and promotional market (the "ASI Market"). Prior to the formation of
Nordic ASI, the Company was not engaged directly in the ASI Market, although
until the end of 2000, it was a supplier of flashlight products to one or more
companies that sell in the ASI Market. As its capital contribution, the Company
contributed rights to sell its products in the ASI Market to Nordic ASI, and
agreed to incur the administrative expense associated with operating Nordic ASI
and marketing its products for a period of two years. For its capital
contribution, Sarkat agreed to provide $200,000 of debt financing to Nordic ASI
to enable it to start up its operations. Profits and losses of Nordic ASI will
be allocated 70% to Nordic and 30% to Sarkat. Nordic ASI obtained the $200,000
of debt financing provided by Sarkat and has commenced its business of selling
to the ASI Market by ordering LED flashlights provided by an unaffiliated third
party. The Company believes that, given its current financial condition, it
could not have commenced any sales effort in the ASI Market or supplemented its
product line for that market absent the formation of the joint venture with
Sarkat. To date, no distributions have been made by Nordic ASI, and no profits
or losses have been allocated.


                                    Page 55
<PAGE>



Item 8.   Changes In and Disagreements With Accountants on Accounting and
          Financial Disclosure

         On January 5, 2001, the Company dismissed KPMG LLP ("KPMG") as its
principal accountant and on January 5, 2001, the Company retained Tanner + Co.,
Salt Lake City, Utah ("Tanner"), as its principal accountant.

         The reports of KPMG on the consolidated financial statements of the
Company for the two fiscal years ended December 31, 1999 and 1998 contain no
adverse opinion or disclaimer of opinion and were not qualified or modified as
to any uncertainty, audit scope or accounting principle.

         The Company's Board of Directors, as of January 5, 2001, had decided to
change the Company's independent accountants and appointed Tanner to audit the
books and accounts of the Company for the fiscal year ended December 31, 2000.

         In connection with the audits for the fiscal years ended December 31,
1999 and 1998, and the subsequent period through January 5, 2001, there were no
disagreements with KPMG on any matter of accounting principles or practices,
financial statement disclosure, or auditing scope or procedure, which
disagreements if not resolved to the satisfaction of KPMG would have caused KPMG
to make reference thereto in their reports on the financial statements for such
years.

         During the fiscal years ended December 31, 1999 and 1998, and the
subsequent period through January 5, 2001, KPMG has not advised the Company of
any reportable events (as defined in Item 304(a)(1)(iv)(B) of Regulation S-B
issued by the Securities and Exchange Commission).


























                                    Page 55

<PAGE>


                                    PART III

Item 9.   Directors and Officers of the Registrant; Compliance With Section
          16(a)  of the Exchange Act

         The following table sets forth certain information regarding the
executive officers and directors of Dynatec as of March 10, 2001.

<TABLE>
<CAPTION>
Name                                        Age                                 Title
<S>                                       <C>    <C>
Frederick W. Volcansek, Sr............      54    Chairman of the Board of Directors and Chief Executive Officer
Lloyd M. "Tag" Taggart................      56    Executive Vice President Sales
Mark W. Sperry........................      35    Vice President and Chief Accounting Officer
Reed Newbold..........................      53    Director
Wayne L. Berman.......................      43    Director
John P. Schmitz.......................      45    Director
</TABLE>

         Mr.  Volcansek was employed by the Company's  Board of Directors as the
Company's Chief  Executive  Officer on February 6, 1999. On that same day he was
appointed Chairman of the Company's Board of Directors.  Prior to that time, Mr.
Volcansek  served as an outside director of the Company from 1988 to February 6,
1999.  Before accepting  full-time  employment as the Chief Executive Officer of
the  Company,  from  June  1996 to  February  1999  Mr.  Volcansek  was the Vice
President of Development for TM Global Power, LLC and the President of Mosbacher
Power do Brasil Ltda. in Houston,  Texas.  Mr. Volcansek also has several years'
experience in international market development and as a political consultant for
several large  multi-national  corporations,  including US West, Enron and Ogden
Corp.  President Bush appointed Mr. Volcansek Deputy Under Secretary of the U.S.
Department of Commerce  (International Trade Administration) from June 19, 1992,
after  serving  as  Deputy  Assistant   Secretary  of  Commerce  for  Trade  and
Development  from June 1990. Mr.  Volcansek  received a B.S. degree in 1967 from
Texas Tech University.

         Mr.  Taggart  joined the  Company in April  1999.  Prior to joining the
Company, from 1994 to 1999, Mr. Taggart was the President and CEO of Sweet Water
Ranch, Inc., a manufacturer of custom,  handmade  reproductions of the legendary
western style Molesworth  furniture.  Mr. Taggart expanded  distribution of that
company's  products  from  twenty-three  states  to all fifty  states  and eight
foreign countries. After service in the United States Navy, in 1972, Mr. Taggart
joined the Clorox  Company's brand  management team in Oakland,  California.  He
also served for three terms as a Commissioner of the Colorado River  Commission,
a board  that  controls  and  markets  $25,000,000  of  hydro  electrical  power
generated by the Hoover Dam and  5,000,000,000  GPM of water allocated to Nevada
from the Colorado River.  Mr. Taggart  received a B.S. degree from Brigham Young
University in 1968.

         Mr. Sperry joined the Company in February  1996.  Until August 11, 2000
Mr. Sperry worked as the Company's  controller.  Before  joining the Company Mr.
Sperry worked in the  accounting  departments of Thatcher  Chemical  Company and
Kennecott  Utah Copper.  He received his Masters of Business  Administration  in
1999 from  Westminster  College  in Salt Lake  City,  Utah and a B.A.  degree in
Accounting from the University of Utah in 1991.

                                    Page 56
<PAGE>

         Mr. Newbold has been an outside  Director of the Company since 1988. In
1991, Mr. Newbold founded Newbold  Financial,  a financial planning and mortgage
brokerage  services company located in Salt Lake City, Utah. Since its founding,
Mr. Newbold has been the founding principal of Newbold  Financial.  Prior to his
founding of Newbold  Financial,  Mr.  Newbold  served as Vice President of Tracy
Collins Bank & Trust in Salt Lake City, Utah.

         Mr. Berman was appointed to the Company's Board of Directors on March
5, 1999. Mr. Berman presently is Managing Director of Park Strategies, L.L.C.,
an international business consultancy he founded in 1999. In that capacity, he
advises companies including Lockheed Martin, American International Group, US
West, BMW Corporation, AON Corporation and Philip Morris on matters relating to
new business opportunities, international financing strategies and strategic
relationships. Mr. Berman also is currently a Fellow at the Center for Strategic
and International Studies and was recently appointed to the Library of Congress'
Board of Trustees. From 1993 to 1999, Mr. Berman was Managing Director of Berman
Enterprises, an international consultancy. Prior to that, Mr. Berman was
Managing Partner of American Mercantile Group, a private merchant bank, in which
capacity he developed and managed a $100 million merchant banking fund
specializing in middle-market American companies with underdeveloped exports. In
January 1989, President George Bush appointed Mr. Berman Assistant Secretary of
Commerce for Policy, a position he occupied until January 1991. He has held
numerous other political positions, including Vice Presidential Campaign
Director for Dole-Kemp (1996), member of the Budget and Policy Priorities
Committee of the Pataki transition team (1994), Deputy Director and Executive
Producer, 1992 Republican National Convention, Senior Staff and Director of
Congressional Relations, Bush Campaign (1988), and Deputy Director of the
Reagan-Bush Transition Team (1981). Mr. Berman received his Bachelor of Arts at
the University of Buffalo and attended graduate school at Georgetown University.

         Mr. Schmitz was appointed to the Company's Board of Directors on
September 16, 1999. Since 1993, he has been a partner at the Washington, D.C.
office of the law firm of Mayer, Brown & Platt where his practice specializes in
the areas of energy and environment, government and international. From 1989 to
1993 he was Deputy Counsel to President George Bush, and from 1985 to 1989 was
Deputy Counsel to Vice President George Bush. From 1984 to 1985, he was an
attorney at the firm of Wilmer, Cutler & Pickering, Washington, D.C. In 1984 he
was employed at the Robert Bosch Foundation Fellowship, Office of Bundestag
Member Matthias Wissmann, Bonn, and Office of General Counsel, Robert Bosch,
GmbH, Stuttgart, Germany. From 1983 to 1984 he was law clerk to The Honorable
Antonin Scalia, U.S. Court of Appeals for the District of Columbia, Washington,
D.C. Mr. Schmitz received his J.D. from the Stanford Law School in 1981, his
M.S. from the California Institute of Technology in 1978, and his B.A. from
Georgetown University in 1976. His recent professional activities include, among
other activities, the Carnegie Endowment for International Peace, Study Group on
American-European Community Relations, 1993 to date; the International
Republican Institute, Rule of Law Advisory Board, 1993 to date; U.S.
Representative, Joint U.S.-Panama Commission on the Environment, 1993-1994;
Member, U.S. Delegation, United Nations Conference on Environment and
Development (UNCED), Rio de Janeiro, June 1992. He is admitted to the bars of
Pennsylvania and the District of Columbia.

         From October 29, 1999 through August 11, 2000 Michael L. Whaley served
as Senior Vice President and Chief Financial Officer of the Company. Effective
August 11, 2000, he resigned from the Company for personal reasons. Prior to
joining the Company, Mr. Whaley worked for a year as an Engagement Manager for
Prism Consulting International of Bethesda, Maryland, a strategy and operations
consulting firm. Before that, he worked as the Director of Westinghouse Electric
Corporation's Government Privatization Activities Division from February 1997
though August 1998, and as the Chief Financial Officer of Westinghouse's
Commercial Nuclear Fuel Division from January 1993 through February 1997. Mr.
Whaley received his B.S. degree in accounting from Norfolk State University in
Norfolk, Virginia, and received a Certificate of Completion of the Harvard
Business School Program for Management Development in 1996.

Compliance with Section 16(a) of the Exchange Act

         During the year ended December 31, 2000, as far as the Company is
aware, all officers and directors prepared and timely filed all Forms 3, 4 and 5
required by Section 16(a) of the Exchange Act.

Board Compensation

         In June 1999, the Company issued stock options to the non-employee
members of the Board of Directors, which option grants replace future cash
compensation. Employee directors are not compensated for their services on the
Board of Directors.

Board Committees

         Two functioning committees of the Company's Board of Directors have
been organized including (i) Compensation Committee and (ii) Audit Committee.
Following is a brief description of each of these committees.

         Compensation Committee. The Compensation Committee is composed of
Messrs. Berman (Chairman) Newbold and Vo1cansek. The purpose of this committee
is to ensure that the Company has a broad plan of executive compensation that is
competitive and motivating to the degree that it will attract, hold and inspire
performance of managerial and other key personnel of a quality nature and that
will enhance the growth and profitability of the Company.

         Audit  Committee.  The Audit Committee is comprised of Messrs.  Newbold
(Chairman),  Berman and  Volcansek.  The  purpose of the Audit  Committee  is to
provide oversight and review of the Company's accounting and financial reporting
process in consultation with the Company's independent auditors.

Indemnification and Compensation

         The Company's Bylaws authorize the Company to indemnify its present and
former directors and officers and to pay or reimburse expenses for such
individuals in advance of the final disposition of a proceeding upon receipt of
an undertaking by or on behalf of such individuals to repay such amounts if so
required.


                                    Page 57
<PAGE>


Item 10.   Executive Compensation

         The following table sets forth information with regard to compensation
for services rendered in all capacities to the Company by the (i) Chief
Executive Officer, (ii)the four most highly compensated executive officers other
than the CEO who were serving as executive officers at the end of the last
completed fiscal year and (iii)two additional individuals for whom disclosure
would have been provided, but for the fact that the individual was not serving
as an executive officer at the end of the last completed fiscal year.
Information set forth in the table reflects compensation earned by such
individuals for services with the Company or its subsidiaries.
<TABLE>
<CAPTION>

                              Summary Compensation Table

                                                                                     Long Term Compensation
                                                                            --------------------------------------------
                                            Annual Compensation                   Awards                 Payouts
                                        ----------------------------------- --------------------- ----------------------
                                                                                       Securities
                                                                   Other    Restricted Underlying
Name and                                                          Annual       Stock    Options/     LTIP     All Other
Principal Position                       Salary       Bonus    Compensation  Award(s)   SARs (1)   Payouts  Compensation
                                Year      ($)          ($)         ($)          ($)        (#)        ($)       ($)

<S>                             <C>     <C>           <C>      <C>           <C>        <C>        <C>      <C>
Frederick W. Volcansek, Sr.(2)  2000    205,000         -         25,933         -          -         -           -
                                1999    175,795         -         38,902         -       125,000      -           -
Chairman and CEO                1998       -            -            -           -          -         -           -

Lloyd M. Taggart (3)            2000    168,900         -          4,818         -          -         -           -
Executive Vice President        1999    107,267         -          3,570         -       110,000      -           -
Sales                           1998       -            -            -           -          -         -           -

Michael L. Whaley (4)           2000    144,000         -           326          -          -         -           -
Former Sr. Vice President       1999     24,167         -            85          -       100,000      -           -
and Chief Financial Officer     1998       -            -            -           -          -         -           -
</TABLE>

-----------------
(1)  An incentive stock option plan was implemented in May 1999. Options were
     granted as approved by the Board of Directors on July 6, 1999.
(2)  Employed as Company's Chief Executive Officer on February 6, 1999. Other
     annual compensation includes, personal use of a company vehicle of $2,582,
     premiums paid on life insurance of $6,880 and non-deductible moving
     expenses of $16,471.
(3)  Employed as Company's Executive Vice President of sales on April 6, 1999.
     Other annual compensation includes personal use of a company vehicle of
     $763, and premiums paid on life insurance of $4,055.
(4)  Employed as Company's Sr. Vice President and Chief Financial Officer from
     October 29, 1999 to August 11, 2000. Other annual compensation consists of
     personal use of a company vehicle.


Employment Agreements

         Mr. Volcansek and Lloyd M. "Tag" Taggart, the Company's Executive Vice
President of Sales, each have employment agreements that provide for a period of
employment of four years from the date of the agreements, subject to termination
and extension provisions. The agreements permit each of them to participate in
any incentive compensation plan adopted by the Company and benefit and
equity-based plans or arrangements. If the Company terminates either of Mr.
Volcansek's or Mr. Taggart's employment for cause, or if either of them
terminates their employment without good reason, the Company has no further
obligation to pay them under their respective agreements. If the Company
terminates either of them without cause, the terminated executive may receive
severance pay equal to two years of his then current annual salary. In the event
of a merger, acquisition, dissolution or transfer of substantially all of the
Company's assets, the employment agreements must then be honored by the
surviving entity or it must purchase the agreements for a sum equal to three (3)
years' base salary. The employment agreements prohibit each of Messrs. Volcansek
and Taggart for two years from the date of termination of their respective
employment under the agreements, from becoming an employee, owner (except for
investments in up to 5% of the equity securities of a company listed or traded
on a national securities exchange or the NASDAQ Stock Market), officer, agent or
director of a firm or person that competes with the Company in the consumer
products industry. The employment agreements have customary provisions for
vacation, fringe benefits, payment of expenses and automobile allowances. Mr.
Volcansek's base salary is $205,000 and Mr. Taggart's base salary is $167,500.

                                    Page 58

<PAGE>


Item 11.   Security Ownership of Certain Beneficial Owners and Management

         The following table sets forth, as of March 9, 2001 the number of
shares of Common Stock of the Company beneficially owned by all persons known to
be holders of more than five percent of the Company's Common Stock and by the
executive officers and directors of the Company individually and as a group.
Unless indicated otherwise, the address of the shareholder is the Company's
principal executive offices, 3820 West Great Lakes Drive, Salt Lake City, Utah
84120.
<TABLE>
<CAPTION>

                          BENEFICIAL OWNERS HOLDING FIVE PERCENT OR MORE OF THE SECURITIES

           Name, Title, and Address of                    Common Stock                 Percent of Class as of
                Beneficial Owner                       Beneficially Owned                   March 9, 2001

<S>                                                    <C>                              <C>
Touchstone Transport Services                                457,660                            8.0%
5% Beneficial Owner
c/o Oxford International Management, Inc.
Suite 1402, 14th Floor
PDCP Bank Centre, 8737 Paseo De Roxas
Cor. Makati Avenue, Makati City
Phillipines

Wilford A. Cardon                                            290,000 (1)                        5.0%
5% Beneficial Owner
1819 East Southern Avenue, Suite B-10
Mesa, Arizona 85204-5219

Frederick W. Volcansek, Sr.                                  126,100 (2)                        2.1%
Chairman and Chief Executive Officer

Lloyd M. "Tag" Taggart                                       100,000 (3)                        1.7%
Executive Vice President Sales & Marketing

Reed Newbold                                                  30,300 (4)                           *
Director

Wayne L. Berman                                               25,000 (3)                           *
Director

John P. Schmitz                                               25,000 (5)                           *
Director

Mark W. Sperry
Vice President-Chief Accounting Officer                       23,000 (6)                           *

Directors and Officers as a group                            329,400                            5.7%
</TABLE>
-------------------------
*    Less than one percent.
(1)  Includes 90,000 shares and 200,000 options owned respectively by two
     entities affiliated with Mr. Cardon.
(2)  Includes 125,000 shares issuable on exercise of options having an exercise
     price of $1.625 per share, and 1,100 shares.
(3)  All shares issuable on exercise of options having an exercise price of
     $1.625 per share.
(4)  Includes 25,000 shares issuable on exercise of options having an exercise
     price of $1.625 per share, and 5,300 shares.
(5)  All shares issuable on exercise of options having an exercise price of
     $1.000 per share.
(6)  Includes 8,000 shares 10,000 shares and 5,000 shares issuable on exercise
     of options having an exercise price of $2.500 per share, $1.625 per share
     and $1.063 per share, respectively.

         During 1996, the Company's Board of Directors authorized grants of
non-qualified stock options that are tied to the profitability of the Company
and based upon minimum years of employment. Options to purchase a total of
840,000 shares at an exercise price of $2.00 per share were granted. To vest,
the holder-employee must continue his employment with the Company through the
year 2001 and the Company must be profitable three out of four years commencing
January 1, 1998. Additional non-qualified stock options for 800,000 shares with
similar terms were granted on January 2, 1997. To vest, the holder-employee must
continue his employment with the Company through the year 2001 and the Company
must be profitable three out of four years commencing January 1, 1998.


                                    Page 59
<PAGE>


Item 12.   Certain Relationships and Related Transactions

       In February 2001, and due to decreases in the Company's operating capital
and borrowing availability, the Company entered into a relationship with Sarkat
International, LLC ("Sarkat"), a limited liability company that is owned in part
by Reed Newbold, who currently is a member of the Company's board of directors.
In connection with this arrangement, Sarkat agreed to provide unsecured,
revolving debt financing to Softalk, Inc. or Softalk Communications, Inc., each
a subsidiary of the Company, in the aggregate amount of $150,000. In exchange
for each advance of funds by Sarkat, the Company (or its subsidiary directly
receiving such funds) is to sign a promissory note obligating the Company to
repay the principal amount advanced, plus interest calculated on a daily basis
at the annual rate of the greater of eight percent or the actual rate of
interest paid by Sarkat to obtain such funds, plus a "lender's premium" of 12.5%
of the principal amount advanced. Such borrowed funds are disbursed by direct
payment by Sarkat to the Company's supplier, who then ships product to the
Company, which allows the Company to service pending orders from its customers.
Principal, interest and lender's premiums payable to Sarkat are repaid out of
loan advances from the Company's secured lender when the Company's accounts
receivable borrowing base increases as result of the sales facilitated by the
Sarkat loans. The Company's secured lender has consented to this mechanism. To
date, the Company owes Sarkat $150,000 in principal and $1,253 in interest.
Sarkat has been paid $27,619 in lender's premiums. Debt financing on similar or
terms more preferential to the Company was not available to the Company at the
time.

       In a transaction related to the Sarkat financing desribed in the
preceding paragraph, in January 2001, the Company's Nordic Technologies, Inc.
subsidiary ("Nordic") formed a joint venture called Nordic ASI, L.L.C. that is
owned 50% by Nordic and 50% by Sarkat. Nordic ASI was formed specifically to
enable the Company to pursue sales of its flashlight product line (and other
flashlights and products not then offered by the Company) in the advertising,
specialty and promotional market (the "ASI Market"). Prior to the formation of
Nordic ASI, the Company was not engaged directly in the ASI Market, although
until the end of 2000, it was a supplier of flashlight products to one or more
companies that sell in the ASI Market. As its capital contribution, the Company
contributed rights to sell its products in the ASI Market to Nordic ASI, and
agreed to incur the administrative expense associated with operating Nordic ASI
and marketing its products for a period of two years. For its capital
contribution, Sarkat agreed to provide $200,000 of debt financing to Nordic ASI
to enable it to start up its operations. Profits and losses of Nordic ASI will
be allocated 70% to Nordic and 30% to Sarkat. Nordic ASI obtained the $200,000
of debt financing provided by Sarkat and has commenced its business of selling
to the ASI Market by ordering LED flashlights provided by an unaffiliated third
party. The Company believes that, given its current financial condition, it
could not have commenced any sales effort in the ASI Market or supplemented its
product line for that market absent the formation of the joint venture with
Sarkat. To date, no distributions have been made by Nordic ASI, and no profits
or losses have been allocated.

       Since prior to 1990, the Company's subsidiary Softalk, Inc., has been a
party to a series of royalty agreements with WAC Research Inc., a Utah
corporation ("WAC"). The WAC agreements purported to obligate the Company to
pay, in perpetuity, royalties on all sales of Softalk shoulder rest products in
exchange for the sale to Dynatec of unspecified intellectual property rights
associated with the Softalk products. At the time the WAC agreements were
negotiated and executed, Donald M. Wood, served as both the Company's Chairman
and Chief Executive Officer, and was a shareholder and the president of WAC. The
Company believes that WAC obtained rights to the design patents employed in the
Softalk products in 1986, when WAC purchased them from the inventor of Softalk
and related products in a private transaction. Documents manifesting the
assignment to Softalk or Dynatec of the patents were subsequently executed and
filed in the U.S. Patent and Trademark Office. Softalk originally filed for and
has continued to maintain the registrations of the Softalk trademarks.
Notwithstanding the expiration of the design patent covering the original
Softalk shoulder rest product in 1990, WAC continued to be paid royalties on all
Softalk products. When, in January 1999, Mr. Wood resigned from Dynatec, the
Company continued to pay the WAC royalties until, in August 2000, the Company
advised WAC that in light of the expiration of the patent for the Softalk
product in 1990 the Company would no longer pay royalties for products
incorporating expired patents, would not agree to pay royalties on other
products in perpetuity, and was seeking reimbursement for royalties paid with
respect to the core Softalk product after the expiration of the patent in 1990.
WAC disagreed with the Company's position. Litigation ensued. See "Legal
Proceedings." Pending resolution of the litigation, the Company has discontinued
the payment of all royalties to WAC. Prior to August 2000, and during the years
ended December 31, 2000 and 1999, the Company paid WAC $94,677 and $298,420,
respectively, in royalties.

         In July 1998, the Company's Board of Directors commenced an internal
investigation into the facts and circumstances of a number of transactions
between the Company and certain of its officers and directors as well as several
general corporate and management concerns brought to the attention of the
Company's independent directors. The Company engaged an unrelated third party to
conduct the investigation, which concluded in January 1999. Thereafter, the
Company's former Chairman and CEO resigned and retired from the Company. The
Company does not anticipate taking further action, legal or otherwise, with
respect to the matters and individuals investigated, although the Company,
through its new management, has identified several areas in which new corporate
governance policies have been adopted or old policies changed. In connection
with the investigation, several of the Company's directors engaged independent
legal counsel. An aggregate of $112,938 of such legal fees were reimbursed by
the Company pursuant to action by the Company's Board of Directors at the
commencement of the investigation.


                                    Page 60
<PAGE>


Item 13.   Exhibits and Reports on Form 8-K

(a)      Exhibits

         No.      Description

         3.1      Restated Articles of Incorporation of the Company.
                  (Incorporated by reference from Registration Statement on Form
                  SB-2 (File No. 333-57921) filed by the Company with the
                  Securities and Exchange Commission (the "SEC") on June 25,
                  1998).

         3.2      Amended and Restated Bylaws of the Company. (Incorporated by
                  reference from Registration Statement on Form SB-2 (File No.
                  333-57921) filed by the Company with the SEC on June 25,
                  1998).

         10.1     Convertible Debenture and Equity Line of Credit Agreement
                  between the Company and five investors dated as of May 28,
                  1998. (Incorporated by reference from Current Report on Form
                  8-K filed by the Company with the SEC on June 8, 1998).

         10.2     Form of Convertible Debentures issued in May 1998.
                  (Incorporated by reference from Current Report on Form 8-K
                  filed by the Company with the SEC on June 8, 1998).

         10.3     Form of A Warrants issued in conjunction with Convertible
                  Debentures. (Incorporated by reference from Current Report on
                  Form 8-K filed by the Company with the SEC on June 8, 1998).

         10.4     Form of B Warrants issued in conjunction with Convertible
                  Debentures. (Incorporated by reference from Current Report on
                  Form 8-K filed by the Company with the SEC on June 8, 1998).

         10.5     Registration Rights Agreement entered into with the holders of
                  Convertible Debentures. (Incorporated by reference from
                  Current Report on Form 8-K filed by the Company with the SEC
                  on June 8, 1998).

         10.6     Modification Agreement between the Company and the holders of
                  Convertible Debentures, dated as of June 25, 1999.
                  (Incorporated by reference from Quarterly Report on Form
                  10-QSB for the period ended June 30, 1999).

         10.7     Amendment to Modification Agreement between the Company and
                  the holders of Convertible Debentures, dated as of November
                  12, 1999. (Incorporated by reference from Quarterly Report on
                  Form 10-QSB for the period ended September 30, 1999.)

         10.8     Convertible Debenture Retirement Agreement between the Company
                  and the holders of the Convertible Debentures, dated as of
                  February 1, 2000. (Incorporated by reference from Annual
                  Report on Form 10-KSB for the year ended December 31, 1999.)

         10.9     Stock Purchase Agreement between the Company and seven
                  investors, dated as of February 11, 2000. (Incorporated by
                  reference from Annual Report on Form 10-KSB for the year ended
                  December 31, 1999.)

         10.10    Employment Agreement between the Company and Frederick W.
                  Volcansek, dated as of February 5, 1999. (Incorporated by
                  reference from Annual Report on Form 10-KSB for the year ended
                  December 31, 1998).

         10.11    Employment Agreement between the Company and Lloyd M. Taggart,
                  dated as of June 22, 1999. (Incorporated by reference from
                  Quarterly Report on Form 10-QSB for the period ended September
                  30, 1999.)

                                    Page 61
<PAGE>

         10.12    Employment Agreement between the Company and Michael L.
                  Whaley, dated as of October 29, 1999. (Incorporated by
                  reference from Quarterly Report on Form 10-QSB for the period
                  ended September 30, 1999.)

         10.13    Commercial Lease between the Company and FRE II I Corporation,
                  a California corporation, dated as of November 4, 1999.
                  (Incorporated by reference from Quarterly Report on Form
                  10-QSB for the period ended September 30, 1999.)

         10.14    Commercial Real Estate Purchase Contract between the Company
                  and Darwin Datwyler dated as of July 16, 1999, as amended
                  through November 4, 1999. (Incorporated by reference from
                  Quarterly Report on Form 10-QSB for the period ended September
                  30, 1999.)

         10.15    Stock Purchase Agreement between the Company and three
                  investors, dated as of May 18, 2000. (Incorporated by
                  reference from Quarterly Report on Form 10-QSB for the period
                  ended June 30, 2000).

         10.16    Asset Purchase Agreement dated November 22, 2000, by and among
                  Dynatec International, Inc., and Expandable Home Organizers,
                  Inc., a California corporation (Incorporated by reference from
                  Current Report on Form 8-K dated as of November 22, 2000).

         10.17    Form of Promissory Note in favor of Sarkat International,
                  L.L.C.

         10.18    Articles of Organization of Nordic ASI, L.L.C.

         10.19    Operating Agreement of Nordic ASI, L.L.C.

         21       List of Subsidiaries of the Registrant (See, "Subsidiaries of
                  the Company" at page 5).

(b)      Reports on Form 8-K

         The Company filed a Current Report on Form 8-K on December 7, 2000,
that contained Item 2. disclosure pertaining to the Company's disposition of the
assets used in its Neat Things! home organization and storage unincorporated
division. That report was amended by the filing of Amendment No. 1 on Form
8-K/A, which was filed on December 20, 2000 to file required pro forma financial
information.

                                    Page 62
<PAGE>


                                   SIGNATURES

         In accordance with Section 13 or 15(d) of the Securities Exchange Act
of 1934, the registrant caused this amended report to be signed on its behalf by
the undersigned, thereunto duly authorized.



DYNATEC INTERNATIONAL, INC.




   /s/ Frederick W. Volcansek, Sr.     June 7, 2001
-----------------------------------   ---------------
Frederick W. Volcansek, Sr.                Date
Chief Executive Officer


                                    Page 63
<PAGE>


                                   SIGNATURES

         Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, this amended report has been signed below by the following
persons on behalf of the registrant and in the capacities and on the dates
indicated.
<TABLE>
<CAPTION>

         Signature                                   Title                                       Date


<S>                                    <C>                                                   <C>
    /s/ Frederick W. Volcansek, Sr.    Chairman of the Board of Directors                    June 7, 2001
-----------------------------------    and Chief Executive Officer (Principal Executive
(Frederick W. Volcansek, Sr.)          Officer)


   /s/ Mark W. Sperry                  Vice President, Chief Accounting Officer              June 7, 2001
-----------------------------------    and Secretary  (Principal Accounting Officer)
(Mark W. Sperry)


   /s/ Wayne L. Berman                  Director                                             June 7, 2001
-----------------------------------
(Wayne L. Berman)


   /s/ Reed Newbold                     Director                                             June 7, 2001
-----------------------------------
(Reed Newbold)


   /s/ John P. Schmitz                  Director                                             June 7, 2001
-----------------------------------
(John P. Schmitz)
</TABLE>

                                    Page 64