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

                                   FORM 10-QSB

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

         For the Quarterly Period Ended:    September 30, 2000


[    ]   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 small business issuer as specified in its charter)

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


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


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

                                       N/A
            -------------------------------------------------------
             (Former name, former address and former fiscal year, if
                           changed since last report)

Check  whether the issuer (1) filed all reports  required to be filed by Section
13 or 15(d) of the  Securities  Exchange  Act  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

The Company had  5,837,155  shares of common  stock  outstanding  at November 3,
2000.

The aggregate market value of voting stock held by non-affiliates of the Company
at November 3, 2000 was $1,389,010.

Transitional small business disclosure format.   Yes [    ] No [X]






                                       1


<PAGE>


                  DYNATEC INTERNATIONAL, INC. AND SUBSIDIARIES

                                TABLE OF CONTENTS

PART I.   FINANCIAL INFORMATION

Item 1.   Financial Statements (Unaudited)

         Condensed Consolidated Balance Sheets as of September 30, 2000 and
         December 31, 1999.....................................................3

         Condensed Consolidated Statements of Operations for the three months
         ended September 30, 2000 and 1999.....................................5

         Condensed Consolidated Statements of Operations for the nine months
         ended September 30, 2000 and 1999.....................................6

         Condensed Consolidated Statements of Cash Flows for the nine months
         ended September 30, 2000 and 1999.....................................7

         Notes to Condensed Consolidated Financial Statements..................9

Item 2.   Management's Discussion and Analysis or Plan of Operation...........17



PART II.   OTHER INFORMATION

Item 1.        Legal Proceedings..............................................25

Item 2.        Changes in Securities and Use of Proceeds......................27

Item 4.        Submission of Matters to a Vote of Security Holders............27

Item 5.        Other Information..............................................28

Item 6.        Exhibits and Reports on Form 8-K...............................28


                    Signatures................................................30














                                       2


<PAGE>


                         PART I - FINANCIAL INFORMATION

ITEM 1.    Financial Statements

                  DYNATEC INTERNATIONAL, INC. AND SUBSIDIARIES
                      CONDENSED CONSOLIDATED BALANCE SHEETS

                                     ASSETS

<TABLE>
<CAPTION>
                                                                                      September 30,         December 31,
                                                                                           2000                 1999
                                                                                     -----------------    ---------------
                                                                                       (Unaudited)
CURRENT ASSETS:
<S>                                                                                  <C>                  <C>
    Cash and cash equivalents                                                        $        70,668      $      244,755
    Trade accounts receivable, net of allowance for doubtful accounts of $22,519
       and $39,036 at September 30, 2000 and December 31, 1999, respectively               1,875,371           1,695,897
    Inventories (note 2)                                                                   2,545,302           2,963,064
    Prepaid expenses and other                                                               282,182             415,921
                                                                                     ---------------      --------------


                Total current assets                                                       4,773,523           5,319,637
                                                                                     ---------------      --------------

BUILDING AND EQUIPMENT, at cost:
    Building and improvements                                                              2,865,000           2,865,000
    Furniture, fixtures, and equipment                                                     3,963,139           3,724,808
                                                                                     ---------------      --------------
                                                                                           6,828,139           6,589,808
    Less accumulated depreciation and amortization                                         2,870,490           2,471,862
                                                                                     ---------------      --------------

                Net building and equipment                                                 3,957,649           4,117,946

GOODWILL AND OTHER IDENTIFIABLE INTANGIBLES, net (note 2)                                    161,282             194,743

DEFERRED LOAN COSTS, net of accumulated amortization of $59,614 and $40,452 at
    September 30, 2000 and December 31, 1999, respectively                                    17,032
                                                                                                                  36,194

OTHER ASSETS                                                                                 153,646             119,450
                                                                                     ---------------      --------------

                                                                                     $     9,063,132          $9,787,970
                                                                                     ===============      ==============
</TABLE>



















      See accompanying notes to condensed consolidatedfinancial statements.

                                       3

<PAGE>


                  DYNATEC INTERNATIONAL, INC. AND SUBSIDIARIES
                CONDENSED CONSOLIDATED BALANCE SHEETS (continued)

                      LIABILITIES AND STOCKHOLDERS' EQUITY

<TABLE>
<CAPTION>
                                                                                      September 30,         December 31,
                                                                                           2000                 1999
                                                                                     ----------------     ---------------
                                                                                       (Unaudited)
CURRENT LIABILITIES:
<S>                                                                                  <C>                  <C>
    Short-term note payable                                                          $     1,607,242      $    1,831,622
     Convertible debentures (note 4)                                                               -           1,649,342
    Current portion of long-term debt                                                         82,500              82,500
    Current portion of capital lease obligations                                              72,648              60,739
    Accounts payable                                                                       2,245,429           1,581,463
    Accrued expenses                                                                         556,257             525,038
    Accrued advertising                                                                      157,205             300,000
    Accrued royalties payable                                                                163,270              80,150
    Stock warrant reserve (note 8)                                                            21,818                   -
                                                                                     ----------------     --------------

              Total current liabilities                                                    4,906,369           6,110,854

DEFERRED GAIN ON SALE OF ASSET                                                               235,122             244,363

LONG-TERM DEBT, net of current portion                                                        19,300              81,175

CAPITAL LEASE OBLIGATIONS, net of current portion                                          2,899,985           2,957,740
                                                                                     ----------------     ---------------

              Total liabilities                                                            8,060,776           9,394,132
                                                                                     ----------------     ---------------

STOCKHOLDERS' EQUITY (note 3):

    Common stock,  $.01 par value;  100,000,000  shares authorized and 5,837,155
       and 3,721,418  shares  outstanding at September 30, 2000 and December 31,
       1999,

       respectively                                                                           58,372              37,214
    Treasury stock, at cost, 91,515 shares                                                  (915,150)           (915,150)
    Additional paid-in capital                                                            11,235,184           8,375,074
    Accumulated deficit                                                                   (9,376,050)         (7,103,300)
                                                                                     ----------------     ---------------

              Net stockholders' equity                                                     1,002,356             393,838
                                                                                     ----------------     ---------------

COMMITMENTS AND CONTINGENCIES
                                                                                     $     9,063,132      $    9,787,970
                                                                                     ================     ===============
</TABLE>
















     See accompanying notes to condensed consolidated financial statements.

                                       4

<PAGE>


                  DYNATEC INTERNATIONAL, INC. AND SUBSIDIARIES
                 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
                                                                       Three months ended         Three months ended
                                                                       September 30, 2000         September 30, 1999
                                                                      --------------------       --------------------
                                                                          (Unaudited)                (Unaudited)

<S>                                                                     <C>                         <C>
PRODUCT SALES                                                           $     2,076,768             $    2,415,441
COST OF SALES                                                                (1,259,970)                (1,360,190)
                                                                        ----------------            ---------------

       Gross Margin                                                             816,798                  1,055,251
                                                                        ----------------            ---------------

OPERATING COSTS AND EXPENSES:
    Selling expenses                                                            867,790                    879,167
    General and administrative                                                  846,956                    834,353
    Research and development                                                     26,470                     36,818
                                                                        ----------------            ---------------

       Total operating costs and expenses                                     1,741,216                  1,750,338
                                                                        ----------------            ---------------

          Loss from operations                                                 (924,418)                  (695,087)
                                                                        ----------------            ---------------

OTHER INCOME (EXPENSE):
    Interest expense (note 4)                                                  (176,781)                  (155,474)
    Other income (expense)                                                            -                      3,105
                                                                        ----------------            ---------------

       Total other income (expense)                                            (176,781)                  (152,369)
                                                                        ----------------            ---------------

          Loss from continuing operations before income tax
              provision                                                      (1,101,199)                  (847,456)

INCOME TAX PROVISION                                                                  -                          -
                                                                        ----------------            ---------------

          Loss from continuing operations                                    (1,101,199)                  (847,456)

DISCONTINUED OPERATIONS:
    Income from operations of discontinued home storage and
       organization segment (Note 9)                                            149,718                    172,951
                                                                        ----------------            ---------------

          Net loss                                                      $      (951,481)            $     (674,505)
                                                                        ================            ===============

BASIC AND DILUTED LOSS FROM CONTINUING OPERATIONS PER SHARE
                                                                        $          (.19)            $         (.24)
                                                                        ================            ===============

BASIC AND DILUTED NET LOSS PER SHARE                                    $          (.17)            $         (.19)
                                                                        ================            ===============

WEIGHTED AVERAGE SHARES - BASIC AND DILUTED                                   5,675,040                  3,471,322
                                                                        ================            ===============
</TABLE>










     See accompanying notes to condensed consolidated financial statements.

                                       5

<PAGE>


                  DYNATEC INTERNATIONAL, INC. AND SUBSIDIARIES
                 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
                                                                       Nine months ended           Nine months ended
                                                                      September 30, 2000          September 30, 1999
                                                                     ---------------------        --------------------
                                                                          (Unaudited)                 (Unaudited)

<S>                                                                     <C>                         <C>
PRODUCT SALES                                                           $     7,006,654             $     7,989,357
COST OF SALES                                                                (4,119,042)                 (4,627,259)
                                                                        ----------------            ----------------

       Gross Margin                                                           2,887,612                   3,362,098
                                                                        ---------------             ----------------

OPERATING COSTS AND EXPENSES:
    Selling expenses                                                          2,563,745                   2,260,275
    General and administrative                                                2,267,330                   2,449,495
    Research and development                                                    178,790                     100,642
                                                                        ----------------            ----------------

       Total operating costs and expenses                                     5,009,865                   4,810,412
                                                                        ----------------            ----------------

          Loss from operations                                               (2,122,253)                 (1,448,314)
                                                                        ----------------            ----------------

OTHER INCOME (EXPENSE):
    Interest expense (note 4)                                                  (468,979)                   (701,321)
    Other income (expense) (note 3)                                            (167,156)                      5,462
                                                                        ----------------            ----------------

       Total other expense, net                                                (636,135)                   (695,859)
                                                                        ----------------            ----------------

          Loss from continuing operations before income tax
              provision                                                      (2,758,388)                 (2,144,173)

INCOME TAX PROVISION                                                                  -                       3,000
                                                                        ----------------            ----------------

          Loss from continuing operations                                    (2,758,388)                 (2,147,173)
                                                                        ----------------            ----------------

DISCONTINUED OPERATIONS
    Income from operations of discontinued home storage and
       organization segment (Note 9)                                            485,638                     539,350
                                                                        ----------------            ----------------

          Net loss                                                      $    (2,272,750)            $    (1,607,823)
                                                                        ================            ================

BASIC AND DILUTED LOSS FROM CONTINUING OPERATIONS PER SHARE             $          (.55)            $          (.65)
                                                                        ================            ================

BASIC AND DILUTED NET LOSS PER SHARE                                    $          (.45)            $          (.49)
                                                                        ================            ================

WEIGHTED AVERAGE SHARES - BASIC AND DILUTED                                   5,032,340                   3,303,371
                                                                        ================            ================
</TABLE>









     See accompanying notes to condensed consolidated financial statements.

                                       6

<PAGE>


                  DYNATEC INTERNATIONAL, INC. AND SUBSIDIARIES
                 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
                                                                                 Nine months ended          Nine months ended
                                                                                 September 30, 2000         September 30, 1999
                                                                               ----------------------     ----------------------
                                                                                    (Unaudited)                (Unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES:
<S>                                                                               <C>                        <C>
   Net loss                                                                       $     (2,272,750)          $     (1,607,823)
   Adjustments to reconcile net loss to net cash used in operating activities:

         Depreciation and amortization                                                     432,660                    398,981
         Amortization of deferred loan costs                                                19,162                     19,161
         Amortization of deferred gain on sale of assets                                    (9,241)                         -
         Non-cash interest expense on convertible debentures (note 4)                            -                    308,932
         Non-cash expense on re-issuance of common stock shares (note 3)                   169,733                          -
         Non-cash interest expense on issued stock warrant (note 8)                         21,818
         Forgiveness of liquidated damages related to convertible debenture
             (note 4)                                                                      (13,523)                         -
         Loss (gain) on sale of assets                                                      (1,577)                      (881)
         Provision for losses on accounts receivable                                        20,000                     15,000
         Changes in operating assets and liabilities:
               Trade accounts receivable                                                  (199,474)                   (15,263)
               Inventories                                                                 417,762                  1,216,364
               Prepaid expenses                                                            133,739                   (185,304)
               Other assets                                                                (34,196)                    (1,687)
               Accounts payable                                                            663,966                   (134,518)
               Accounts payable - other                                                          -                     (9,000)
               Accounts payable - related party                                                  -                    (98,403)
               Accrued expenses                                                             31,219                   (239,837)
               Accrued advertising                                                        (142,795)                  (167,522)
               Accrued royalties                                                            83,120                     (5,440)
                                                                                  -----------------          -----------------
                  Net cash used in operating activities                                   (680,377)                  (507,240)
                                                                                  -----------------          -----------------

CASH FLOWS FROM INVESTING ACTIVITIES:
  Net proceeds from the sale of assets                                                       2,600                     26,124
  Purchases of furniture, fixture and equipment                                           (237,703)                  (224,179)
                                                                                  -----------------         ------------------
                  Net cash used in investing activities                                   (235,103)                  (198,055)
                                                                                  -----------------          -----------------

CASH FLOWS FROM FINANCING ACTIVITIES:
  Net borrowings (payments) on line of credit                                             (224,380)                 1,114,054
  Net payments on long-term debt                                                           (61,875)                  (249,508)
  Net payments on capital lease obligations                                                (48,066)                   (19,839)
  Payment to retire convertible debenture (note 4)                                      (1,500,000)                         -
  Proceeds from  the issuance of common stock related to private
    placement (note 3)                                                                   2,375,000                          -
  Proceeds from re-issuance of common stock (note 3)                                       200,714                          -
                                                                                  -----------------          -----------------
                  Net cash provided by financing activities                                741,393                    844,707
                                                                                  -----------------          -----------------

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS                                      (174,087)                   139,412

CASH AND CASH EQUIVALENTS AT BEGINNING OF THE PERIOD                                       244,755                      2,268
                                                                                  -----------------          -----------------

CASH AND CASH EQUIVALENTS AT END OF THE PERIOD                                    $         70,668           $        141,680
                                                                                  =================          =================
</TABLE>





     See accompanying notes to condensed consolidated financial statements.


                                       7

<PAGE>


                  DYNATEC INTERNATIONAL, INC. AND SUBSIDIARIES
           CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)

<TABLE>
<CAPTION>
                                                                             Nine months ended         Nine months ended
                                                                             September 30, 2000        September 30, 1999
                                                                           ----------------------    ----------------------
                                                                                (Unaudited)               (Unaudited)
SUPPLEMENTAL SCHEDULE OF CASH FLOW INFORMATION:
<S>                                                                           <C>                       <C>
    Cash paid for interest                                                    $        447,893          $        414,612

SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES:
    Building and equipment acquired under capital leases                                 2,220                    99,463

    Conversion of Convertible Debentures and accrued interest for
         common stock                                                                  135,819                   218,680

    Issuance of 500,000 shares of restricted stock                                           -                 1,000,000
</TABLE>






































     See accompanying notes to condensed consolidated financial statements.


                                       8

<PAGE>


                           DYNATEC INTERNATIONAL, INC.
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)


(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, home storage and organization,  and flashlights.  Dynatec
is located in Salt Lake City,  Utah. The Company conducts most of its operations
through its wholly owned subsidiaries: Softalk, Inc., Nordic Technologies, Inc.,
and  SofTalk  Communications,  Inc.,  and in the case of its  home  organization
product  line,  an  unincorporatted  division  operated  under  the  name  "Neat
Things!".  Unless specified to the contrary herein,  references to Dynatec or to
the  Company  refer to the  Company  and its  subsidiaries  and  divisions  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.

Basis of Presentation

     The accompanying unaudited condensed consolidated financial statements have
been prepared by the Company in accordance with the rules and regulations of the
Securities and Exchange  Commission  for Form 10-QSB,  and  accordingly,  do not
include all of the  information  and  footnotes  required by generally  accepted
accounting principles.  In the opinion of management,  these unaudited condensed
consolidated financial statements reflect all adjustments, which consist only of
normal  recurring  adjustments,  which  are  necessary  to  present  fairly  the
Company's  financial  position,  results  of  operations  and  cash  flows as of
September  30,  2000  and for the  periods  presented  herein.  These  unaudited
condensed  consolidated  financial statements should be read in conjunction with
the  consolidated  financial  statements  and  notes  thereto  included  in  the
Company's  annual  report on form  10-KSB for the year ended  December  31, 1999
filed with the Securities and Exchange Commission.

     The  preparation  of the  condensed  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.

     The results of operations for the three and nine months ended September 30,
2000 are not necessarily  indicative of the results that may be expected for the
remainder of the year ending December 31, 2000.

(2)      SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Inventories

     Inventories,  consisting  principally  of  telecommunication  headsets  and
amplifiers  and  telephone  accessories,  home  storage  and  organization,  and
flashlights  as of September 30, 2000 and December 31, 1999,  respectively,  are
summarized as follows:


                                             September 30,        December 31,
                                                 2000                1999
                                           -----------------    ---------------
                   Raw materials.......    $       1,076,248    $       886,377
                   Work-in-Process.....              163,311            135,931
                   Finished Goods......            1,305,743          1,940,756
                                           -----------------    ---------------
                                           $       2,545,302    $     2,963,064
                                           =================    ===============


                                       9
<PAGE>


(2)      SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

                           DYNATEC INTERNATIONAL, INC.
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)

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  related 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 nine months ended  September 30,
2000, and 1999, warrants and options to purchase 757,000 and 1,556,000 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.

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.  The  balance as of  September  30,  2000 and  December  31,  1999 was as
follows:

                                                      2000           1999
                                                   -----------    -----------
             Goodwill                              $    34,306    $    34,306
             Less accumulated amortization              21,441          8,576
                                                   -----------    -----------
                                                   $    12,865    $    25,730
                                                   ===========    ===========

(3)      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.


                                       10

<PAGE>

                           DYNATEC INTERNATIONAL, INC.
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)


(3)       STOCKHOLDERS' EQUITY-(continued)

     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.

     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.

     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 $169,733,  which is the  difference  between the fair
market  value  of the  208,000  shares  as of the date of such  recognition,  or
$370,447, 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  $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.

(4)      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


                                       11

<PAGE>

                           DYNATEC INTERNATIONAL, INC.
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)

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

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:

                                                  Placement          Exercise
                               Investors            Agent             Price
                            ---------------     --------------    -------------
   Series A Warrants.....       150,000            150,000            $6.50
   Series B Warrants.....       150,000            300,000            $7.15


     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.

     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  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

                                       12

<PAGE>
                           DYNATEC INTERNATIONAL, INC.
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)


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

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.

(5)      BUSINESS SEGMENT INFORMATION

     Information  as to the  operations  of the  Company in  different  business
segments  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 non-cash
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.

<TABLE>
<CAPTION>
                                                                    (Rounded)                             (Rounded)
                                                                THREE MONTHS ENDED                    NINE MONTHS ENDED
                                                                  SEPTEMBER 30,                         SEPTEMBER 30,
                                                         ---------------------------------     --------------------------------
REVENUES:                                                     2000              1999               2000              1999
-----------------------------------------------------    ---------------    --------------     --------------    --------------
Telecommunication Headsets and Amplifiers and

<S>                                                      <C>                <C>                <C>               <C>
     Telephone Accessories.......................        $    1,440,000     $   1,700,000      $   4,871,000     $   5,472,000
Flashlights......................................               381,000           501,000          1,487,000           900,000
Hardware/Houseware...............................               256,000           214,000            649,000           625,000
Mass Market......................................                     -                 -                  -           992,000
                                                         ---------------    --------------     --------------    --------------

       Total.....................................        $    2,077,000     $   2,415,000      $   7,007,000     $   7,989,000
                                                         ===============    ==============     ==============    ==============



                                                                THREE MONTHS ENDED                    NINE MONTHS ENDED
                                                                  SEPTEMBER 30,                         SEPTEMBER 30,
                                                         ---------------------------------     --------------------------------
OPERATING LOSS:                                               2000              1999               2000               1999
-----------------------------------------------------    ---------------    --------------     --------------    --------------
Telecommunication Headsets and Amplifiers and

     Telephone Accessories.......................        $     (354,000)    $    (331,000)     $    (631,000)    $    (807,000)
Flashlights......................................              (444,000)         (327,000)        (1,251,000)         (557,000)
Hardware/Houseware...............................              (126,000)          (37,000)          (240,000)          (90,000)
Mass Market......................................                     -                 -                  -             6,000
                                                         ---------------    --------------     --------------    --------------

       Total.....................................        $     (924,000)    $    (695,000)     $  (2,122,000)    $  (1,448,000)
                                                         ===============    ==============     ==============    ==============


                                                                THREE MONTHS ENDED                    NINE MONTHS ENDED
                                                                  SEPTEMBER 30,                         SEPTEMBER 30,
                                                         ---------------------------------     --------------------------------
DEPRECIATION AND AMORTIZATION:                                2000              1999               2000              1999
-----------------------------------------------------    ---------------    --------------     --------------    --------------
Telecommunication Headsets and Amplifiers and

     Telephone Accessories.......................        $       94,000     $     100,000      $     271,000     $     250,000
Flashlights......................................                27,000            29,000             79,000            73,000
Hardware/Houseware...............................                17,000            24,000             52,000            55,000
Discontinued Operations..........................                12,000             7,000             31,000            21,000
                                                         ---------------    --------------     --------------    --------------

       Total.....................................        $      150,000     $     160,000      $     433,000     $     399,000
                                                         ===============    ==============     ==============    ==============
</TABLE>


                                       13

<PAGE>

                           DYNATEC INTERNATIONAL, INC.
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)

(5)      BUSINESS SEGMENT INFORMATION (Continued)

Information as to the assets and capital expenditures of Dynatec International,
Inc. is as follows:

<TABLE>
<CAPTION>
                                                            SEPTEMBER 30,            DECEMBER 31,
ASSETS:                                                          2000                   1999
----------------------------------------------------     --------------------     ------------------
Telecommunication Headsets and Amplifiers and
<S>                                                      <C>                      <C>
   Telephone Accessories.........................        $         4,364,000      $       4,973,000
Flashlights......................................                  1,854,000              1,861,000
Hardware/Houseware...............................                    653,000                813,000
Discontinued Operations..........................                  1,669,000              1,324,000
                                                         --------------------     ------------------
       Total assets for reportable segments......                  8,540,000              8,971,000

Other assets not allocated to segments...........                    523,000                817,000
                                                         --------------------     ------------------
       Total.....................................        $         9,063,000      $       9,788,000
                                                         ====================     ==================
</TABLE>

<TABLE>
<CAPTION>
                                                                THREE MONTHS ENDED                    NINE MONTHS ENDED
                                                                  SEPTEMBER 30,                         SEPTEMBER 30,
                                                         ---------------------------------     --------------------------------
CAPITAL EXPENDITURES:                                         2000              1999               2000              1999
-----------------------------------------------------    ---------------    --------------     --------------    --------------
Telecommunication Headsets and Amplifiers and

<S>                                                      <C>                <C>                <C>               <C>
     Telephone Accessories.......................        $        8,000     $      56,000      $      65,000     $     120,000
Flashlights......................................                     -            17,000             19,000            25,000
Hardware/Houseware...............................                     -                 -                  -                 -
Discontinued Operations..........................               106,000            44,000            154,000            79,000
                                                         ---------------    --------------     --------------    --------------

       Total.....................................        $      114,000     $     117,000      $     238,000     $     224,000
                                                         ===============    ==============     ==============    ==============
</TABLE>


Information as to the Company's operations in different geographical areas is as
follows:

<TABLE>
<CAPTION>
                                                                THREE MONTHS ENDED                    NINE MONTHS ENDED
                                                                  SEPTEMBER 30,                         SEPTEMBER 30,
                                                         ---------------------------------     --------------------------------
REVENUES:                                                     2000              1999               2000               1999
-----------------------------------------------------    ---------------    --------------     --------------    --------------
<S>                                                      <C>                <C>                <C>                <C>
United States....................................        $    1,990,000     $   2,350,000      $   6,705,000     $   7,849,000
Other (1)........................................                87,000            65,000            302,000           140,000
                                                         ---------------    --------------     --------------    --------------

       Total.....................................        $    2,077,000     $   2,415,000      $   7,007,000     $   7,989,000
                                                         ===============    ==============     ==============    ==============
</TABLE>

(1)      Includes Canada, Europe and other miscellaneous.


<TABLE>
<CAPTION>
                                                                THREE MONTHS ENDED                    NINE MONTHS ENDED
                                                                  SEPTEMBER 30,                         SEPTEMBER 30,
                                                         ---------------------------------     --------------------------------
OPERATING LOSS:                                               2000              1999               2000              1999
-----------------------------------------------------    ---------------    --------------     --------------    --------------
<S>                                                            <C>               <C>              <C>               <C>
United States....................................              (924,000)         (695,000)        (2,122,000)       (1,448,000)
                                                         ===============    ==============     ==============    ==============
</TABLE>


<TABLE>
<CAPTION>
                                                SEPTEMBER 30, 2000       DECEMBER 31, 1999

ASSETS:

------------------------------------------     ---------------------    --------------------
<S>                                            <C>                      <C>
United States..........................        $          8,759,000     $         9,418,000
Asia...................................                     304,000                 370,000
                                               ---------------------    --------------------

       Total...........................        $          9,063,000     $         9,788,000
                                               =====================    ====================
</TABLE>

                                       14

<PAGE>

                           DYNATEC INTERNATIONAL, INC.
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)

 (6)     RECENT ACCOUNTING PRONOUNCEMENTS

     In June 1998, the Financial  Accounting  Standards  Board  ("FASB")  issued
Statement of Financial  Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging  Activities"  ("SFAS 133"). SFAS 133, as amended by SFAS
137 and SFAS 138, is  effective  for all fiscal years  beginning  after June 15,
2000. SFAS 133 establishes new accounting and reporting  standards for companies
to report information about 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 balance sheet 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.  The  Company  intends to adopt SFAS 133 by
January  1, 2001.  The  impact of  adopting  SFAS 133 is not  anticipated  to be
material to the financial statements.

     In December 1999, the Securities and Exchange Commission staff issued Staff
Accounting  Bulletin No. 101,  "Revenue  Recognition,"  (SAB No. 101) to provide
guidance on the recognition, presentation and disclosure of revenue in financial
statements;  however, SAB No. 101 does not change existing literature on revenue
recognition.  SAB  101  explains  the  staff's  general  framework  for  revenue
recognition.  The Company will incorporate the guidance of SAB 101 in the fourth
quarter of fiscal 2000. The Company continues to evaluate the impact, if any, of
SAB 101 and subsequent  interpretations of SAB 101 on the Company's policies and
procedures.

     The FASB issued Interpretation No. 44, "Accounting for Certain Transactions
Involving Stock  Compensation-an  Interpretation of APB Opinion No. 25" (FIN No.
44) in March 2000. The  interpretation  clarifies the  application of Opinion 25
for only certain  issues such as the  following:  (i) the definition of employee
for purposes of applying Opinion 25, (ii) the criteria for determining whether a
plan qualifies as a noncompensatory  plan, (iii) the accounting  consequences of
various  modifications to the terms of a previously fixed stock option or award,
and (iv) the  accounting  for an  exchange  of stock  compensation  awards  in a
business  combination.  Management does not believe that the interpretation will
have a material impact on the Company's consolidated financial position, results
of operations, or liquidity.

(7)      LIQUIDITY

     Based on current  operations  and, after  accounting for  anticipated  cost
savings  through  an  aggressive  restructuring  plan and  associated  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 for the
remainder  of 2000.  The Company  therefore  will pursue  additional  sources of
liquidity in the form of commercial  credit or additional sales of the Company's
debt or equity  securities during the last quarter of 2000 to fund a combination
of short-term  working capital  requirements and growth.  The Company intends to
sell the  assets of one or more of its  operating  subdivisions  in an effort to
streamline  and  restructure  the Company's  business  operations and to provide
operating  capital.  If the  Company  is not  able  to  meet  its  ongoing  cash
requirements,  it may have to  curtail  some or all of its  operations,  or seek
protection under bankruptcy laws.

(8)      STOCK WARRANT

     On August 4, 2000, the Company  issued a warrant to purchase  43,636 shares
of the Company's  restricted  common stock to Wells Fargo Business Credit,  Inc.
("Lender").  Lender  accepted  the  warrant in lieu of payment by the  Company's
Nordic  Technologies,  Inc. and Softalk,  Inc.,  subsidiaries of a portion of an
accommodation  fee payable by those  subsidiaries as consideration  for Lender's
renegotiation of certain  provisions of the Credit Agreement  between Lender and
those  subsidiaries.  The  warrant  is  exercisable  at any  time  prior  to the
termination  date under the Credit  Agreement.  No  consideration  is payable by
Lender  upon  exercise  of the  warrant.  As a result,  the  Company  recognized
non-cash interest expense of $21,818.



                                       15

<PAGE>

                           DYNATEC INTERNATIONAL, INC.
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)

 (9)     SUBSEQUENT EVENTS

     During the period ended September 30, 2000, the Company began investigating
potential  sales of one or more of its business  divisions or subsidiaries in an
effort  to  streamline   and   restructure   its   operations  to  provide  more
strategicfocus  on core  competencies.  The Company has engaged in  negotiations
with  multiple  potential  purchasers  of  its  home  organization  and  storage
products,  which are being  manufactured and sold under the names "Neat Things!"
and  "Expandables".  The primary products in this line are expandable drawer and
closet  organizers  made of  injection-molded  plastic.  As of the  date of this
report,  no definitive  agreement for the sale of such assets has been executed.
Nevertheless, management has the requisite authority and intent to sell its home
organization  and storage  product line and has determined to report the results
of that product line as discontinued  operations in the  accompanying  financial
statements. There can be no assurance that the Company will, in fact, consummate
any sale of any of its assets.

                                       16

<PAGE>


         ITEM  2. 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 three and  nine-month
periods  ended  September  30,  2000 and  1999,  respectively.  As  supplemental
information,  the table also  segregates the Company's  revenues by product line
type.

<TABLE>
<CAPTION>
                                                 (Rounded)                           (Rounded)
                                         For the Three Months Ended          For the Nine Months Ended
                                    ----------------------------------- ------------------------------------
                                                                 % OF                                 % OF
                                                                  CHG                                  CHG
                                                                 FROM                                 FROM
                                     SEPTEMBER    SEPTEMBER     1999 TO   SEPTEMBER   SEPTEMBER      1999 TO
                                      30,2000     30, 1999        2000    30, 2000    30, 1999         2000
                                    ------------- -----------  ---------- ----------- -----------    ---------

Unaudited Statement of Operations
Data:

<S>                                 <C>           <C>           <C>     <C>           <C>            <C>
       Product sales.............   $  2,077,000  $2,415,000   (14.0)%  $  7,007,000  $ 7,989,000   (12.3)%
       Cost of sales.............      1,260,000   1,360,000    (7.4)      4,119,000    4,627,000   (11.0)
                                    ------------- -----------           ------------- ------------
               Gross margin......        817,000   1,055,000   (22.6)      2,888,000    3,362,000   (14.1)
                                    ------------- -----------           ------------- ------------


Operating Costs and Expenses:

       Selling expenses..........        868,000     879,000    (1.3)      2,564,000    2,260,000    13.5
       General and administrative        847,000     834,000     1.6       2,267,000    2,449,000    (7.5)
       Research and development..         26,000      37,000   (29.7)        179,000      101,000    77.2
                                    ------------- -----------           ------------- -------------
          Total operating costs
          and Expenses...........      1,741,000   1,750,000    (0.5)      5,010,000    4,810,000     4.2
                                    ------------- -----------           ------------- ------------

Other Income (Expense), net:
       Interest expense..........       (177,000)   (155,000)   14.2        (469,000)    (701,000   (33.1)
       Other income (expense)....             -        3,000       -        (167,000)       2,000 (8450.0)
                                    ------------- -----------           ------------- ------------
         Total  other income
          (expense)                     (177,000)   (152,000)   16.4        (636,000)    (699,00)    (9.0)

         Loss from continuing
         operations                   (1,101,000)   (847,000)   30.0      (2,758,000)  (2,147,000    28.5
                                    ------------- -----------           ------------- ------------

Discontinued Operations:
    Income from discontinued
    operations                           150,000     173,000   (13.3)        486,000      539,000   (10.0)

           Net loss..............   $   (951,000) $ (674,000)   41.1%   $ (2,272,000) $(1,608,000)   41.3%
                                    ============= ===========           ============= ============

Revenue by product line type:

    Telecommunication headsets and
      amplifiers and telephone
      accessories                   $  1,440,000  $1,700,000   (15.3)%  $  4,871,000  $ 5,472,000   (11.0)%
    Flashlights..................        381,000     501,000   (24.0)      1,487,000      900,000    65.2
    Hardware/houseware...........        256,000     214,000   (19.6)        649,000      625,000     3.8
    Mass market..................              -           -       -               -      992,000       -
                                    ------------- -----------           ------------- ------------
       Total product sales......    $  2,077,000  $2,415,000    (9.0)%  $  7,007,000  $ 7,989,000   (12.3)%
                                    ============= ===========           ============= ============

</TABLE>


The following are  explanations of significant  period to period changes for the
three months ended September 30, 2000 and 1999:

Revenues

     Total Product Sales.  Total product sales decreased by $338,000,  or 14.0%,
from  $2,415,000  to  $2,077,000  for the three months ended  September 30, 2000
compared to the three months ended September 30, 1999.

     Telecommunication Headsets and Amplifiers and Telephone Accessories.  Sales
of telecommunication headsets and amplifiers and telephone accessories decreased
$260,000,  or 15.3%,  from  $1,700,000 to $1,440,000  for the three months ended
September 30, 2000 compared to the three months ended  September 30, 1999.  This
decrease was primarily attributable to a decrease in sales of telephone headsets
and  amplifiers  of  $185,000,  a  decrease  in sales of  $39,000  in  telephone
accessories and a $36,000 decrease in sales of telephone shoulder rests.  These
decreases are a result of lower sales to the Company's  office supply  catalogue
customers.  Overall gross margins in this category increased to 56.2% from 55.1%
for the three months ended September 30, 1999, as a result of the sales mix.

     Flashlights.   Flashlight  revenues  decreased  $120,000,  or  24.0%,  from
$501,000 to $381,000 for the three months ended  September  30, 2000 compared to
the three months ended September 30, 1999. Overall gross margins for products in

                                       17

<PAGE>

this  category  decreased  from  17.6% to  (9.1)%  for the  three  months  ended
September  30,  2000 when  compared to  September  30,  1999,  as a result of an
increase in costs  related to  upgrading  the retail  packaging  of this product
line,  as well as an increase in freight  costs to expedite  the delivery of the
product  from  the  Company's  overseas  vendors,  in order  to meet  ship  date
requirements.

     Hardware/Houseware.   Hardware/Houseware  revenues  increased  $42,000,  or
19.6%,  from $214,000 to $256,000 for the three months ended  September 30, 2000
compared  to the  three  months  ended  September  30,  1999.  The  increase  is
attributable  to an increase in the Company's  doorstops  product line.  Overall
gross  margins for products in this category  increased  from 13.8% to 16.5% for
the three months ended September 30, 2000 when compared to September 30, 1999.

Operating Costs and Expenses

     Selling  Expenses.  Selling  expenses  decreased  $11,000,  or  1.3%,  from
$879,000 to $868,000 for the three months ended  September  30, 2000 compared to
the three months ended  September  30, 1999.  This  decrease is due in part to a
decrease of $33,000 in  commissions  paid to outside  sales  reps,  as well as a
decrease in  consulting  fees of $76,000.  The decrease was offset in part by an
increase in salaries  for sales  personnel of $66,000 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 $22,000
due to increased fuel prices.

     General and Administrative  Expenses.  General and administrative  expenses
increased $13,000, or 1.6%, from $834,000 to $847,000 for the three months ended
September  30, 2000 compared to the three months ended  September 30, 1999.  The
increase in general and  administrative  expenses was primarily the result of an
increase in severance pay in the amount of  approximately  $83,000 that was paid
to the Company's former Chief Financial Officer and Vice President of Operations
in connection  with the Company's  workforce  reduction on August 11, 2000.  The
increase was offset in part by a decrease of $21,000 in travel  expenses,  and a
decrease in employee  recruitment,  relocation  and  education  of $27,000 and a
$16,000 decrease in temporary help.

     Research and Development. Research and development decreased by $11,000, or
29.7%,  from $37,000 to $26,000 for the three months  ended  September  30, 2000
compared  to the three  months  ended  September  30,  1999.  The  decrease  was
primarily   attributable  to  the  Company's  completion  of  its  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 $9,000, or 0.5%, from $1,750,000 to $1,741,000 for the three months
ended  September 30, 2000 compared to the three months ended September 30, 1999,
for the reasons discussed above.

     Interest  Expense.  Interest  expense  increased by $22,000,  or 14.2% from
$155,000 to $177,000 for the three months ended  September  30, 2000 compared to
the three months ended  September 30, 1999. This increase is attributable to the
$22,000 non-cash  interest expense related to a warrant issued on August 4, 2000
in lieu of fees paid to the  Company's  lending  institution  (see note 8 to the
accompanying condensed consolidated financial statements).

     Other income  (expense).  Other income  (expense)  decreased by $3,000 from
$3,000 to -0- for the three  months  ended  September  30, 2000  compared to the
three months ended September 30, 1999.

     Net  Loss  from  continuing  operations.   The  net  loss  from  continuing
operations increased by $254,000,  or 30.0%, from $847,000 to $1,101,000 for the
three  months  ended  September  30,  2000  compared to the three  months  ended
September 30, 1999 due to the factors described above.

The following are  explanations of significant  period to period changes for the
nine months ended September 30, 2000 and 1999:

Revenues

     Total Product Sales.  Total product sales decreased by $982,000,  or 12.3%,
from  $7,989,000  to  $7,007,000  for the nine months ended  September  30, 2000
compared to the nine months ended September 30, 1999.

     Telecommunication Headsets and Amplifiers and Telephone Accessories.  Sales
of telecommunication headsets and amplifiers and telephone accessories decreased
$601,000,  or 11.0%,  from  $5,472,000 to  $4,871,000  for the nine months ended
September  30, 2000 compared to the nine months ended  September 30, 1999.  This
decrease was primarily attributable to a $251,000 decrease in sales of telephone
shoulder  rests  as well  as a  decrease  in  sales  of  $136,000  in  telephone
accessories  and a decrease  of  $214,000  in sales of  telephone  headsets  and


                                       18
<PAGE>

amplifiers.  These  decreases  are  primarily  a result  of  lower  sales to the
Company's  office  supply  catalogue  customers.  Overall  gross margins in this
category  increased to 55.7% from 55.4% for the nine months ended  September 30,
2000 when compared to September 30, 1999, as a result of the sales mix.

     Flashlights.   Flashlight  revenues  increased  $587,000,  or  65.2%,  from
$900,000 to $1,487,000 for the nine months ended  September 30, 2000 compared to
the nine months ended September 30, 1999. This increase was primarily the result
of the  addition of new major  foreign and  domestic  customers as a result of a
successful  increase  in the  Company's  selling and  marketing  efforts in this
product line. Overall gross margins for products in this category decreased from
19.9% to 3.8% for the nine months  ended  September  30,  2000 when  compared to
September 30, 1999, as a result of an increase in costs related to upgrading the
retail  packaging of this product  line, as well as 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.

     Hardware/Houseware. Hardware/Houseware revenues increased $24,000, or 3.8%,
from $625,000 to $649,000 for the nine months ended  September 30, 2000 compared
to the nine months ended  September 30, 1999. The increase is attributable to an
increase in the doorstop  product line . Overall  gross  margins for products in
this category  decreased from 23.3% to 18.3% for the nine months ended September
30, 2000 when compared to September 30, 1999.

     Mass Market. Mass market revenues decreased $992,000,  from $992,000 to -0-
for the nine months ended  September  30, 2000 compared to the nine months ended
September 30, 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 significant sales in this product line.

Operating Costs and Expenses

     Selling  Expenses.  Selling expenses  increased  $304,000,  or 13.5%,  from
$2,260,000 to $2,564,000  for the nine months ended  September 30, 2000 compared
to the nine months ended  September 30, 1999. This increase is due in part to an
increase in salaries for sales  personnel of $268,000 due to the addition of  an
Executive  Vice  President  of  Sales  and a  European  sales  manager  for  the
flashlights  product line, as well as increases in advertising expense resulting
from the  placement of additional  pages in office  product  catalogues.  Travel
expenses  increased by $72,000 due to increased  travel to foreign  trade shows.
Also, freight expenses increased by $73,000 due to increased fuel prices.

     General and Administrative  Expenses.  General and administrative  expenses
decreased  $182,000,  or 7.5%, from $2,449,000 to $2,267,000 for the nine months
ended  September 30, 2000 compared to the nine months ended  September 30, 1999.
The decrease in general and administrative  expenses was primarily the result of
a  decrease  in legal  expense  of  $87,000,  a  decrease  of  $63,000 in travel
expenses,  and a decrease in employee recruitment and education of $35,000. This
decrease was offset in part by increases in consulting  expense of $53,000,  and
Directors and Officers and group health insurance premiums of $66,000.

     Research and Development. Research and development increased by $78,000, or
77.2%,  from  $101,000 to $179,000 for the nine months ended  September 30, 2000
compared to the nine months ended September 30, 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
increased by $200,000,  or 4.2%,  from  $4,810,000  to  $5,010,000  for the nine
months ended  September 30, 2000 compared to the nine months ended September 30,
1999, for the reasons discussed above.

     Interest  Expense.  Interest expense  decreased  $232,000,  or 33.1%,  from
$701,000 to $469,000 for the nine months ended  September  30, 2000  compared to
the nine months ended September 30, 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 in the nine  months  ended  September  30, 1999 was  $128,000  and
liquidated  damages were assessed  against the Company in the amount of $258,000
due to the Company's failure to have effective a registration statement covering
the  shares  of  common  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 a warrant issued on
August 4, 2000 in lieu of fees paid to the Company's  lending  institution  (see


                                       19
<PAGE>

note 8 to the accompanying condensed consolidated financial statements), as well
as the amortization of 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.

     Other income (expense).  Other income (expense)  increased  $169,000,  from
$2,000 to  $(167,000)  for the nine months ended  September 30, 2000 compared to
the nine months ended  September  30, 1999.  The increase is due 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 3
to the accompanying condensed consolidated financial statements).

     Net  Loss  from  continuing  operations.   The  net  loss  from  continuing
operations  increased by $611,000,  or 28.5%,  from $2,147,000 to $2,758,000 for
the nine  months  ended  September  30, 2000  compared to the nine months  ended
September 30, 1999 due to a combination of the factors described above.

Liquidity and Capital Resources

General

     The  Company's   principal   sources  of  liquidity  are  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.  The credit  facility  is secured  by the  Company's  accounts
receivable and inventories. The note underlying the revolving credit line is due
May 26, 2001. 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 September 30, 2000 the Company was in default
of certain of these  covenants.  On August 4, 2000 the  Company  and its lending
institution  entered  into an Eighth  Amendment  to the  Credit  Agreement  (the
"Eighth  Amendment").  Pursuant to this amendment certain  definitions have been
modified as follows: (i) the accounts receivable advance rate decreases from 78%
to 77.5% and shall be reduced  by one half of one  percent on August 7, 2000 and
on each Monday  thereafter  until such rate is equal to 70%.  (ii) the  interest
rate on the equipment  loan changes from prime plus 3 percent to prime plus 5.25
percent,  (iii) the interest rate on the revolving line of credit increases from
prime plus 3 percent to prime plus 5 percent,  (iv) the  inventory  advance rate
decreases  to 47.5% and shall be reduced by one-half of one percent on August 7,
2000 and on each Monday  thereafter until such rate is equal to 30%, and (v) the
maximum line decreases from $2,500,000 to $2,200,000.

     On May 22, 1998, the Company sold  Convertible  Debentures in the aggregate
principal amount of $1,500,000. The Convertible Debentures were convertible into
the Company's common stock at the lesser of: (i) 75% of the average of the three
lowest  closing bid prices of the common stock as quoted on the Nasdaq  SmallCap
Market during the 22  trading-day  period  immediately  preceding the conversion
date or (ii) $6.50.



                                       20
<PAGE>

     The  Company  and the holders of the  Convertible  Debentures  subsequently
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.

     To allow the Company to consummate  the  transactions  contemplated  by the
Retirement  Agreement,   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 close the Retirement  Agreement,  and $100,000 was
used for general corporate purposes.

     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.


                                       21
<PAGE>

     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.

     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 by Merrill  Lynch to reinstate
on the  basis  that  those  entities  and  their  principals  had been  unjustly
enriched.  In a settlement  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.

     On April 4, 2000 the Company  recognized as having  previously  been issued
the 208,000 shares of common stock.  As a result,  the Company  recognized a one
time  non-cash  expense of $169,733,  which is the  difference  between the fair
market value of the 208,000 shares on the date of such recognition, or $370,447,
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  $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

September 30, 2000 Compared to December 31, 1999

     As of  September  30,  2000,  the Company had liquid  assets (cash and cash
equivalents and receivables) of $1,946,000, an increase of 0.3%, or $5,000, from
December 31, 1999 when liquid assets were $1,941,000.  Cash decreased  $174,000,
or 71.0%,  to $71,000 at September  30, 2000 from $245,000 at December 31, 1999.
The  decrease  in cash was  primarily  the result of the Company  utilizing  its
revolving credit  facility,  under which "draws" are made by the Company to fund
capital  expenditures,  purchase inventory and for general-purpose  use. After a
draw is made a corresponding  payable is setup,  when collections of outstanding
accounts receivable are made the monies collected,  are swept, the next day, and
re-applied  against  outstanding  draws.  Trade  accounts  receivable  increased
$179,000,  or 10.6%,  to  $1,875,000  at September  30, 2000 from  $1,696,000 at
December 31, 1999 due to the nature and timing of payments received.

     Current assets decreased by $546,000,  or 10.3%, to $4,774,000 at September
30, 2000 from  $5,320,000 at December 31, 1999.  This decrease was primarily the
result of a  decrease  in cash of  $174,000,  discussed  above,  a  decrease  in
inventory  levels of $418,000  primarily due to the Company's  efforts to reduce
inventory  levels to a three months supply,  and a decrease in prepaid  expenses
and other of $134,000.  This decrease was offset in part by an increase in trade
accounts receivable of $179,000, as discussed above.

     Long-term  assets decreased  $178,000,  or 4.0%, to $4,290,000 at September
30, 2000 from  $4,468,000 at December 31, 1999.  This decrease was primarily the
result  of  recurring  depreciation  expense  on  building  and  equipment,  and
amortization of deferred loan costs, and other intangibles.

     Current  liabilities  decreased by $1,795,000,  or 29.4%,  to $4,906,000 at
September  30, 2000 from  $6,111,000  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

                                       22
<PAGE>

debentures,  as well as a decrease  in accrued  advertising  of  $143,000  and a
decrease of $224,000 in  short-term  notes  payable as a result of payments made
under the company's  revolving line of credit.  These  decreases were off-set in
part by an increase of  $664,000  in trade  accounts  payable as a result of the
Company  negotiating  extended  terms  with  some  of its  major  suppliers  and
extending payments beyond terms with many of the Company's vendors.

     The Company's working capital deficit  decreased by $658,000,  or 83.2%, to
($133,000) at September 30, 2000 from  ($791,000) at December 31, 1999,  for the
reasons described above.

     The Company  used net cash of $680,000 in operating  activities  during the
nine months ended  September  30,  2000,  primarily  from the net loss  incurred
during the period,  an increase in trade  accounts  receivable and a decrease in
accrued  advertising,  offset in part by decreased  inventory levels and prepaid
expenses as well as an increase in accounts payable.

     The Company  used net cash of $235,000 in investing  activities  during the
nine  months  ended  September  30,  primarily  for  capital   expenditures  for
equipment.

     The Company provided net cash of $741,000 from financing  activities during
the nine months ended  September  30, 2000.  The increase was  primarily  due to
proceeds  from the  issuance of common  stock  related to two  separate  private
placements and from proceeds from the  re-issuance  of common stock,  off-set in
part by payments made on the retirement of the convertible debentures,  payments
made  on  long-term   debt,  and  payments  made  on  the  Company's   revolving
line-of-credit.

     Based on current  operations  and, after  accounting for  anticipated  cost
savings  through  an  aggressive  restructuring  plan and  associated  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 for the
remainder  of 2000.  The Company  therefore  will pursue  additional  sources of
liquidity in the form of commercial  credit or additional sales of the Company's
debt or equity  securities during the last quarter of 2000 to fund a combination
of short-term  working capital  requirements and growth.  The Company intends to
sell the  assets of one or more of its  operating  subdivisions  in an effort to
streamline  and  restructure  the Company's  business  operations and to provide
operating  capital.  If the  Company  is not  able  to  meet  its  ongoing  cash
requirements,  it may have to  curtail  some or all of its  operations,  or seek
protection under bankruptcy laws.

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  determinate to overall  profitability
for the year.




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,  the Company's  ability to obtain  additional
working  capital to fund  future  growth and any of the risks  described  in the
Company's Annual Report on Form 10-KSB for the year ended December 31, 1999.

                                       23

<PAGE>


                           PART II - OTHER INFORMATION

Item 1.  Legal Proceedings

     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  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 has 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 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 seeks 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 has 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.  The Company
intends to  vigorously  prosecute the Utah WAC Action and defend the Arizona WAC
Action.

     On February 22, 1999, the Company received a demand letter from counsel for
Mag Instrument,  Inc., a manufacturer  and distributor of flashlights and one of
the  Company's  competitors  ("Mag").  In the letter,  Mag accused the Company's
subsidiary, Nordic Technologies, Inc. ("Nordic"), of infringing certain of Mag's
patents and committing false advertising and unfair competition. Attached to the
demand letter was a copy of a complaint filed in the U.S. District Court for the
Central  District of California on February 19, 1999.  During the second quarter
of 1999, Mag and the Company agreed to attempt to settle the dispute and, agreed
that  pending  such  discussions,  the  complaint  would  be  dismissed  without
prejudice upon the joint stipulation of the parties, 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 and  subsequently  served a new
complaint in the same federal district court. 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. The Company intends to vigorously defend the
lawsuit.

                                       24
<PAGE>

     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
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

                                       25
<PAGE>

aborted  transactions.  Moreover,  the  Company  believes  that its  conduct  in
connection  with those proposed but aborted  transactions  met applicable  legal
requirements.  As of September  30,  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 it has been 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 is  cooperating  fully with these
administrative  proceedings.  Any finding or order of the Commission  adverse to
the Company or any judgment against the Company in any of the pending litigation
matters,  would have an adverse effect on the business,  financial  condition or
results of operations of the Company, or the market for its common stock.

     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.

Item 2.  Changes in Securities and Use of Proceeds

         2(c)     Recent Sales of Unregistered Securities.

     On August 4, 2000, the Company  issued a warrant to purchase  43,636 shares
of the Company's  restricted  common stock to Wells Fargo Business Credit,  Inc.
("Lender").  Lender  accepted  the  warrant in lieu of payment by the  Company's
Nordic  Technologies,  Inc. and Softalk,  Inc.,  subsidiaries of a portion of an
accommodation  fee payable by those  subsidiaries as consideration  for Lender's
renegotiation of certain  provisions of the Credit Agreement  between Lender and
those  subsidiaries.  The  warrant  is  exercisable  at any  time  prior  to the
termination  date under the Credit  Agreement.  No  consideration  is payable by
Wells Fargo upon  exercise of the  warrant.  The  Company did not  register  the
warrant and would not register  any shares of common stock issued upon  exercise
of the warrant in  reliance  on the  exemption  from  registration  set forth in
Section 4(2) of the Securities Act of 1933 (the "Securities  Act") and the rules
and regulations promulgated thereunder, including without limitation Rule 506 of
Regulation D. The warrant is imprinted,  and the  certificates  representing any
shares of common stock issued upon exercise  thereof will be  imprinted,  with a
standard legend to prevent any resale without  registration under the Securities
Act or pursuant to an exemption.

Item 4.  Submission of Matters To A Vote of Security Holders

At the  Company's  Annual  Meeting of  Shareholders  held on July 31, 2000,  and
adjourned  to August 7,  2000,  the  shareholders  of the  Company  voted on the
following three proposals:

         Proposal 1 - To elect the following four  directors,  each to serve
         until the next annual meeting of shareholders and until his successor
         is elected and shall have qualified:  Frederick W. Volcansek,  Sr.,
         Wayne L. Berman, John P. Schmitz, and Reed Newbold.

         Proposal 2 - To approve the Board of  Directors'  selection of KPMG LLP
         as  the  Company's   independent   public   accountants  to  audit  the
         consolidated  financial  statements of the Company and its subsidiaries
         for the fiscal year ending December 31, 2000.

         Proposal 3 - To ratify and approve the Company's 1999  Incentive  Stock
         Option  Plan,  as  amended  to date,  under  which  certain  employees,
         officers,  directors  and  consultants  have  received  or may  receive
         options to purchase shares of the Company's common stock.

                                       26
<PAGE>

Voting results were as follows:

<TABLE>
<CAPTION>
                               For                 Against          Abstain

         Proposal 1:
<S>                            <C>                 <C>              <C>                 <C>
           Mr. Volcansek       3,081,201           15,477           0
           Mr. Berman          3,081,246           15,432           0
           Mr. Schmitz         3,081,246           15,432           0
           Mr. Newbold         3,081,246           15,432           0

                               For                 Against          Abstain
         Proposal 2            3,095,069           641              968


                               For                 Against          Abstain             Not Voted
         Proposal 3            1,411,851           18,534           6,440               1,659,853
</TABLE>


Item 5.  Other Information

     The Company's  common stock is quoted on the Nasdaq  SmallCap  Market under
the trading symbol "DYNX".  In order to maintain such listing,  the Company must
comply with the listing  requirements of The Nasdaq Stock Market, which include,
among other things,  the requirements that the Company's common stock maintain a
minimum closing bid price of $1.00,  and that the Company  maintain net tangible
assets of at least  $2,000,000.  The closing bid price of the  Company's  common
stock has been below the $1  minimum  for  several  weeks as of the date of this
quarterly report.  During the quarter ended September 30, 2000, The Nasdaq Stock
Market advised the Company that if the closing bid price of the Company's common
stock were not above $1 for any ten consecutive trading day period during the 90
day period  ending  November  29,  2000,  the  Company's  common  stock would be
delisted on  December 1, 2000.  Additionally,  the Company is not  presently  in
compliance with the $2,000,000 net tangible asset requirement.  If the Company's
common stock is delisted from the Nasdaq SmallCap  Market,  the Company believes
that its common stock would be traded in the over the counter  market and quoted
on the OTC Bulletin Board.

Item 6.  Exhibits and Reports on Form 8-K

(a)    Exhibits

         No.      Description

         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).

                                       27
<PAGE>


         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 Paul A. Boyer,
                  dated as of October 19, 1998.  (Incorporated by reference from
                  Annual  Report on Form 10-KSB for the year ended  December 31,
                  1998).

         10.12    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.)

         10.13    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.)

         10.14    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.)

         10.15    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.)

         10.16   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.)

         27       Financial Data Schedule.

(b)    Forms 8-K

None

                                       28

<PAGE>

                                   SIGNATURES

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

DYNATEC INTERNATIONAL, INC.

/s/ Frederick W. Volcansek, Sr.                      November 20, 2000
--------------------------------------               -----------------
Frederick W. Volcansek, Sr.                          Date
Chairman & Chief Executive Officer

/s/ Mark W. Sperry                                   November 20, 2000
--------------------------------------               -----------------
Chief Accounting Officer                             Date