<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:    March 31, 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                  (IRS employer identification no.)
of incorporation or organization)


3820 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)


              (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  5,155,164  shares of common stock  outstanding  at May 1, 2000.
This number reflects a 208,000 share upward  adjustment made on April 4, 2000 to
reflect an error made by the Company's former stock transfer agent,  which error
was discovered by the Company in late March 2000.

The aggregate market value of voting stock held by non-affiliates of the Company
at May 1, 2000 was $6,284,453.

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



<PAGE>




                  DYNATEC INTERNATIONAL, INC. AND SUBSIDIARIES


                                TABLE OF CONTENTS



PART I.   FINANCIAL INFORMATION


Item 1.   Financial Statements (Unaudited)

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

         Condensed Consolidated Statements of Operations for the three
         months ended March 31, 2000 and 1999, respectively....................5

         Condensed Consolidated Statements of Cash Flows for the three
         months ended March 31, 2000 and 1999, respectively....................6

         Notes to Condensed Consolidated Financial Statements..................8

Item 2.   Management's Discussion and Analysis or Plan of Operation...........15



PART II.   OTHER INFORMATION

Item 1.      Legal Proceedings................................................21

Item 2(c).   Recent Sales of Unregistered Securities..........................22

Item 6.      Exhibits and Reports on Form 8-K.................................23















                                       2
<PAGE>


                         PART I - FINANCIAL INFORMATION

ITEM 1.    Financial Statements

                  DYNATEC INTERNATIONAL, INC. AND SUBSIDIARIES
                      CONDENSED CONSOLIDATED BALANCE SHEETS


                                     ASSETS

<TABLE>
<CAPTION>
                                                                                     March 31, 2000        December 31,
                                                                                                               1999
                                                                                     ---------------     ---------------
                                                                                     (Unaudited)
CURRENT ASSETS:
<S>                                                                                  <C>                <C>
    Cash and cash equivalents                                                        $     188,369      $      244,755
    Trade accounts receivable, net of allowance for doubtful accounts of $46,226
       and $39,036, respectively                                                         2,051,911           1,695,897
    Inventories (note 2)                                                                 2,806,354           2,963,064
    Prepaid expenses and other                                                             255,934             415,921
                                                                                     ---------------    --------------

                Total current assets                                                     5,302,568           5,319,637
                                                                                     ---------------    --------------

BUILDING AND EQUIPMENT, at cost:
    Building and improvements                                                            2,865,000           2,865,000
    Furniture, fixtures, and equipment                                                   3,821,926           3,724,808
                                                                                     ---------------    --------------
                                                                                         6,686,926           6,589,808
    Less accumulated depreciation and amortization                                       2,597,073           2,471,862
                                                                                     ---------------    --------------

                Net building and equipment                                               4,089,853           4,117,946

GOODWILL AND OTHER IDENTIFIABLE INTANGIBLES, net (note 2)                                  183,589             194,743

DEFERRED LOAN COSTS, net of accumulated amortization of $36,839 and $30,452,
    respectively
                                                                                            29,807              36,194

OTHER ASSETS                                                                               145,786             119,450
                                                                                     ---------------    --------------

                                                                                        $9,751,603          $9,787,970
                                                                                     ===============    ==============
</TABLE>





                See accompanying notes to condensed consolidated
                             financial statements.



                                       3
<PAGE>




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

                      LIABILITIES AND STOCKHOLDERS' EQUITY


<TABLE>
<CAPTION>
                                                                                     March 31, 2000        December 31,
                                                                                                               1999
                                                                                     ---------------     ---------------
                                                                                     (Unaudited)
CURRENT LIABILITIES:
<S>                                                                                  <C>                 <C>
    Short-term note payable                                                          $    2,058,176      $   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                                             64,013             60,739
    Accounts payable                                                                      1,941,945          1,581,463
    Accrued expenses                                                                        513,797            525,038
    Accrued advertising                                                                     150,403            300,000
    Accrued royalties payable                                                                75,757             80,150
                                                                                     ---------------     -------------

              Total current liabilities                                                   4,886,591          6,110,854

DEFERRED GAIN ON SALE OF ASSET                                                              241,282            244,363

LONG-TERM DEBT, net of current portion                                                       60,550             81,175

CAPITAL LEASE OBLIGATIONS, net of current portion                                         2,942,313          2,957,740
                                                                                     ---------------     -------------

              Total liabilities                                                           8,130,736          9,394,132
                                                                                     ---------------     -------------

STOCKHOLDERS' EQUITY (note 3):
    Common stock,  $.01 par value;  100,000,000  shares authorized and 5,038,679
       and 3,721,418 shares outstanding at March 31, 2000 and December 31, 1999,
       respectively                                                                          50,387             37,214
    Treasury stock, at cost, 91,515 shares                                                 (915,150)          (915,150)
    Additional paid-in capital                                                           10,097,720          8,375,074
    Accumulated deficit                                                                  (7,612,090)        (7,103,300)
                                                                                     ---------------     -------------

              Net stockholders' equity                                                    1,620,867            393,838
                                                                                     ---------------     -------------

COMMITMENTS AND CONTINGENCIES (note  6)
                                                                                         $9,751,603      $   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
                                                                          March 31, 2000             March 31, 1999
                                                                       ----------------------     ----------------------
                                                                             (Unaudited)                (Unaudited)

<S>                                                                    <C>                        <C>
PRODUCT SALES                                                          $      3,839,644           $      3,643,679
COST OF SALES                                                                (2,161,197)                (2,208,371)
                                                                       -----------------          -----------------

       Gross Margin                                                           1,678,447                  1,435,308
                                                                       -----------------          -----------------

OPERATING COSTS AND EXPENSES:
    Selling expenses                                                          1,161,076                    829,627
    General and administrative                                                  797,553                    831,314
    Research and development                                                     94,966                     26,012
                                                                       -----------------          -----------------

       Total operating costs and expenses                                     2,053,595                  1,686,953
                                                                       -----------------          -----------------

          Loss from operations                                                 (375,148)                  (251,645)
                                                                       -----------------          -----------------

OTHER INCOME (EXPENSE):
    Interest expense (note 4)                                                  (135,219)                  (273,289)
    Other income                                                                  1,577                      2,431
                                                                       -----------------          -----------------

       Total other expense, net                                                (133,642)                  (270,858)
                                                                       -----------------          -----------------

          Loss before income tax provision                                     (508,790)                  (522,503)

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

          Net loss                                                        $    (508,790)             $    (525,503)
                                                                       =================          =================

BASIC AND DILUTED NET LOSS PER SHARE                                   $           (.12)          $           (.17)
                                                                       =================          =================

WEIGHTED AVERAGE SHARES - BASIC AND DILUTED                                   4,268,896                  3,111,223
                                                                       =================          =================
</TABLE>




                See accompanying notes to condensed consolidated
                             financial statements.


                                       5
<PAGE>



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

<TABLE>
<CAPTION>
                                                                                 Three months ended         Three months ended
                                                                                  March 31, 2000             March 31, 1999
                                                                                ---------------------     ----------------------
                                                                                     (Unaudited)                (Unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES:
<S>                                                                             <C>                       <C>
   Net loss                                                                     $      (508,790)          $       (525,503)

   Adjustments to reconcile net loss to net cash provided by (used in) operating
     activities:
         Depreciation and amortization                                                  136,935                    118,317
         Amortization of deferred loan costs                                              6,387                      6,387
         Amortization of deferred gain on sale of assets                                 (3,082)                         -
         Non-cash interest expense on convertible debentures (note 4)                         -                    179,383
         Forgiveness of liquidated damages related to convertible debenture
             (note 4)                                                                   (13,523)                         -
         Loss (gain) on sale of assets                                                   (1,577)                       625
         Provision for losses on accounts receivable                                          -                      4,000
         Changes in operating assets and liabilities:
               Trade accounts receivable                                               (356,014)                   269,954
               Inventories                                                              156,710                    745,159
               Prepaid expenses                                                         159,987                    (36,313)
               Other assets                                                             (26,336)                         2
               Accounts payable                                                         360,482                   (148,057)
               Accounts payable - other                                                       -                     77,563
               Accounts payable - related party                                               -                    (98,403)
               Accrued expenses                                                         (11,241)                  (106,477)
               Accrued advertising                                                     (149,597)                  (295,000)
               Accrued royalties                                                         (4,393)                      1,151
                                                                                ----------------          -----------------
                  Net cash provided by (used in) operating activities                  (254,052)                   192,788
                                                                                ----------------          -----------------

CASH FLOWS FROM INVESTING ACTIVITIES:
  Net proceeds from the sale of assets                                                    2,600                     15,441
  Purchase of building and equipment                                                    (96,490)                   (69,441)
                                                                                ----------------          -----------------
                  Net cash used in investing activities                                 (93,890)                   (54,000)
                                                                                ----------------          -----------------

CASH FLOWS FROM FINANCING ACTIVITIES:
  Net borrowings on line of credit                                                      226,554                    210,325
  Net payments on long-term debt                                                        (20,625)                   (85,620)
  Net borrowings (payments) on capital lease obligations                                (14,373)                    15,911
  Payment to retire convertible debenture (note 4)                                   (1,500,000)                         -
  Proceeds from  the issuance of common stock related to private
    placement (note 3)                                                                1,600,000                          -
  Payment of liquidated damages related to convertible debenture (note 4)                     -                   (135,000)
                                                                                ----------------          -----------------
                  Net cash provided by financing activities                             291,556                      5,616
                                                                                ----------------          -----------------

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS                                    (56,386)                   144,404

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

CASH AND CASH EQUIVALENTS AT END OF THE PERIOD                                  $       188,369           $        146,672
                                                                                ================          =================
</TABLE>






                See accompanying notes to condensed consolidated
                             financial statements.



                                       6
<PAGE>


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



<TABLE>
<CAPTION>
                                                                            Three months ended        Three months ended
                                                                              March 31, 2000            March 31, 1999
                                                                           ----------------------    ----------------------
                                                                                (Unaudited)               (Unaudited)
SUPPLEMENTAL SCHEDULE OF CASH FLOW INFORMATION:
<S>                                                                        <C>                       <C>
    Cash paid for interest                                                 $        144,492          $        205,447

SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES:
    Property and equipment acquired under capital leases                              2,220                         -

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

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














                See accompanying notes to condensed consolidated
                             financial statements.



                                       7
<PAGE>
                  DYNATEC INTERNATIONAL, INC. AND SUBSIDIARIES
              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 four wholly owned  subsidiaries:  Softalk,  Inc.,  Nordic  Technologies,
Inc., SofTalk Communications,  Inc., and Arnco Marketing,  Inc. Unless specified
to the contrary  herein,  references  to Dynatec or to the Company  refer to the
Company and its subsidiaries on a consolidated basis.

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

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 March
31,  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.

         The results of operations for the three months ended March 31, 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 March 31,  2000 and  December  31,  1999,  respectively,  are
summarized as follows:

<TABLE>
<CAPTION>
                                             March 31, 2000       December 31,
                                                                      1999
                                             ---------------     ---------------
<S>                                          <C>                 <C>
Raw materials............................    $     745,280       $     886,377
Work-in-Process..........................          157,890             135,931
Finished Goods...........................        1,903,184           1,940,756
                                             ===============     ===============
                                             $   2,806,354       $   2,963,064
                                             ===============     ===============
</TABLE>


Income Taxes

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



                                       8
<PAGE>
                  DYNATEC INTERNATIONAL, INC. AND SUBSIDIARIES
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)




(2)      SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Basic and Diluted Net Income (Loss) Per Common Share

         Basic net loss per common share is  calculated  based upon the weighted
average  number of common  shares  outstanding  during  the  periods  presented.
Diluted loss per common share is the amount of loss for the period  available to
each share of common stock  outstanding  during the reporting period and to each
share that would have been  outstanding  assuming the issuance of common  shares
for all dilutive potential common shares outstanding during the period.

         In calculating  net loss per share for the three months ended March 31,
2000, and 1999, warrants and options to purchase 775,750 and 1,150,000 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 March 31, 2000 and  December  31, 1999 was as
follows:

<TABLE>
<CAPTION>
                                                 2000            1999
                                               ----------     -----------
<S>                                            <C>            <C>
             Goodwill                          $  34,306      $   34,306
             Accumulated amortization             12,865           8,576
                                               ----------     -----------
                                               $  21,441      $   25,730
                                               ==========     ===========
</TABLE>


(3)  STOCKHOLDERS' EQUITY

         On  February  4,  1999,  the  Company  entered  into a deposit  payable
conversion  agreement,  whereby a $1,000,000  deposit received by the Company in
early 1998 and recorded as a liability  was  cancelled,  and the Company  issued
500,000 shares of restricted common stock under Regulation D to the depositor.

          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  agreed to issue 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.


 (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


                                       9
<PAGE>

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

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

"Equity  Line").  Under the  terms of the  Credit  Agreement,  the  Company  was
obligated  to draw down a minimum  of  $1,000,000  of the Equity  Line,  and all
amounts  were to have been  drawn in  increments  of not less than  $50,000.  In
return for the payment of additional  capital under the Equity Line, the Company
would have been  required  to issue  shares of its  common  stock at a per share
purchase  price  equal to 80% of the  average of the three  lowest  closing  bid
prices of the common stock during a six day valuation  period  commencing  three
days before the draw date and ending two days after the draw date. Additionally,
upon the effectiveness of a registration statement covering the shares of common
stock issuable under the Credit Agreement (the  "Registration  Statement"),  the
Company  was  obligated  to issue an  additional  $500,000  principal  amount of
Convertible Debentures,  pro rata to the investors.  Also in connection with the
Credit  Agreement,  the investors  and placement  agent were issued Series A and
Series B warrants as follows:

<TABLE>
<CAPTION>
                                                                      Placement           Exercise
                                                 Investors              Agent              Price
                                              -----------------    ----------------    ---------------
<S>                                               <C>                  <C>                 <C>
   Series A Warrants.......................       150,000              150,000             $6.50
   Series B Warrants.......................       150,000              300,000             $7.15
</TABLE>


         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 had issued, under the Credit Agreement,  80,000 shares
of its common stock as a fee to the placement  agent.  Of these  shares,  20,000
were delivered to the placement agent at the time of the closing.  The remaining
60,000 shares were  deposited into escrow and were to be released in 6,000 share
increments as each  $1,000,000 was drawn down under the Equity Line  established
under the Credit Agreement.  Because under the Modification Agreement the Equity
Line was  cancelled,  and therefore  the  placement  agent never would have been
entitled to the 60,000  additional  shares of common stock  deposited in escrow,
the escrow was  terminated,  and the 60,000 shares of common stock were returned
to the Company for  cancellation.  During the quarter ended March 31, 2000,  the
certificates representing such 60,000 shares were cancelled.

         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


                                       10
<PAGE>


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

Registration   Statement  became  effective  and  shareholder  approval  of  the
transaction  was  obtained  on or before  that  date.  Liquidated  damages  from
February  24, 1999  through  June 23, 1999 were not accrued and  continued to be
payable by the Company as specified in the Modification Agreement.

         The Company and the holders of the  Convertible  Debentures  executed a
Convertible  Debenture  Retirement  Agreement  dated as of February 1, 2000, and
which  closed on  February  23,  2000 (the  "Retirement  Agreement").  Under the
Retirement  Agreement,  and  in  exchange  for  payment  to the  holders  of the
Convertible  Debentures,  pro rata, of $1,500,000  cash,  the holders  agreed to
surrender  for  cancellation  all but a small  portion  of the then  unconverted
Convertible  Debentures,  to  surrender  for  cancellation  all  of  the A and B
warrants that were issued under the Credit  Agreement,  and otherwise  terminate
all of the  obligations  of either  party  under the  Credit  Agreement.  At the
closing of the Retirement Agreement, the holders agreed to convert the remaining
portion of the principal  amount of the Convertible  Debentures into that number
of shares that would have been  issuable had such  portion been  converted as of
January 24,  2000, or 94,450  shares.  In light of the closing of the Retirement
Agreement,  the Company has no ongoing  obligations  under the Credit Agreement,
and has  submitted  a request  to the  Securities  and  Exchange  Commission  to
withdraw the pending Registration Statement.

(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>
                                                             THREE MONTHS ENDED MARCH 31,
                                                          --------------------------------------
REVENUES:                                                      2000                 1999
-----------------------------------------------------     ---------------     ------------------
<S>                                                       <C>                 <C>
Telecommunication Headsets and
   Amplifiers and Telephone Accessories..........         $    1,866,000      $     1,836,000
Home Storage and Organization....................              1,386,000              990,000
Flashlights......................................                588,000              210,000
Miscellaneous/Mass Market........................                      -              608,000
                                                          ---------------     ------------------

       Total.....................................         $    3,840,000      $     3,644,000
                                                          ===============     ==================
</TABLE>


<TABLE>
<CAPTION>
                                                             THREE MONTHS ENDED MARCH 31,
                                                          --------------------------------------
OPERATING INCOME (LOSS):                                       2000                  1999
-----------------------------------------------------     ----------------      ----------------
<S>                                                       <C>                   <C>
Telecommunication Headsets and Amplifiers and
   Telephone Accessories.........................         $       85,000        $     (20,000)
Home Storage and Organization....................               (130,000)            (138,000)
Flashlights......................................               (330,000)            (126,000)
Miscellaneous/Mass Market........................                      -               32,000
                                                          ----------------      ----------------

       Total.....................................         $     (375,000)       $    (252,000)
                                                          ================      ================
</TABLE>



                                       11
<PAGE>
                  DYNATEC INTERNATIONAL, INC. AND SUBSIDIARIES
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)




(5)      BUSINESS SEGMENT INFORMATION (Continued)


<TABLE>
<CAPTION>
                                                             THREE MONTHS ENDED MARCH 31,
                                                          --------------------------------------
DEPRECIATION AND AMORTIZATION (1):                             2000                 1999
-----------------------------------------------------     ----------------    ------------------
<S>                                                       <C>                 <C>
Telecommunication Headsets and Amplifiers and
   Telephone Accessories.........................         $       67,000      $       72,000
Home Storage and Organization....................                 49,000              38,000
Flashlights......................................                 21,000               8,000
Miscellaneous/Mass Market........................                      -                   -
                                                          ----------------    ------------------

       Total.....................................         $      137,000      $      118,000
                                                          ================    ==================
</TABLE>

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

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

<TABLE>
<CAPTION>
                                                            MARCH 31,          DECEMBER 31, 1999
ASSETS (1):                                                    2000
----------------------------------------------------    ------------------    --------------------
<S>                                                     <C>                   <C>
Telecommunication Headsets and Amplifiers and
   Telephone Accessories.........................       $      4,326,000      $      4,827,000
Home Storage and Organization....................              2,268,000             2,468,000
Flashlights......................................              2,538,000             1,676,000
Miscellaneous/Mass Market........................                      -                     -
                                                        ------------------    --------------------
       Total assets for reportable segments......              9,132,000             8,971,000

Other assets.....................................                146,000               156,000
Deferred loan costs and other assets not
   allocated                   to segments.......                474,000               661,000
                                                        ==================    ====================
       Total.....................................       $      9,752,000      $      9,788,000
                                                        ==================    ====================
</TABLE>

<TABLE>
<CAPTION>
                                                             THREE MONTHS ENDED MARCH 31,
                                                        ----------------------------------------
CAPITAL EXPENDITURES:                                          2000                  1999
----------------------------------------------------    ------------------    ------------------
<S>                                                     <C>                   <C>
Telecommunication Headsets and Amplifiers and
   Telephone Accessories.........................       $       47,000        $        42,000
Home Storage and Organization....................               35,000                 22,000
Flashlights......................................               14,000                  5,000
Miscellaneous/Mass Market........................
                                                                     -                      -
                                                        ------------------    ------------------

       Total.....................................       $       96,000        $        69,000
                                                        ==================    ==================
</TABLE>





                                       12
<PAGE>
                  DYNATEC INTERNATIONAL, INC. AND SUBSIDIARIES
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)


(5)      BUSINESS SEGMENT INFORMATION (Continued)

Information  as  to  Dynatec  International,   Inc.'s  operations  in  different
geographical areas is as follows:

<TABLE>
<CAPTION>
                                                THREE MONTHS ENDED MARCH 31,
                                           ----------------------------------------
REVENUES:                                           2000                 1999
------------------------------------------     ----------------    -----------------
<S>                                            <C>                 <C>
United States..........................        $    3,732,000      $   3,588,000
Other (1)..............................               108,000             56,000
                                               ----------------    -----------------

       Total...........................        $    3,840,000      $   3,644,000
                                               ================    =================
</TABLE>

(1) Includes Canada, Europe, and other miscellaneous.

<TABLE>
<CAPTION>
                                                THREE MONTHS ENDED MARCH 31,
                                           ----------------------------------------
OPERATING LOSS :                                    2000                 1999
------------------------------------------     ----------------    -----------------

<S>                                            <C>                 <C>
United States..........................        $    375,000        $    252,000
                                               ================    =================
</TABLE>

<TABLE>
<CAPTION>
                                                    MARCH            DECEMBER 31,
ASSETS:                                           31, 1999               1999
------------------------------------------     ----------------    -----------------
<S>                                            <C>                 <C>
United States..........................        $    9,404,000      $    9,418,000
Asia...................................               348,000             370,000
                                               ----------------    -----------------

       Total...........................        $    9,752,000      $    9,788,000
                                               ================    =================
</TABLE>

(6)      STOCK OPTIONS

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

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

         In May 1999,  the  Company's  Board of Directors  adopted the Company's
1999 Stock Option And Incentive  Plan (the "1999 Plan").  Under the 1999 Plan, a
total of 640,000 shares were reserved for issuance in the form of  non-qualified
stock options or qualifying  Incentive Stock Options.  As of March 31, 2000, the
compensation  committee of the  Company's  Board of Directors  has granted stock
options  under the 1999 Plan to  purchase  a total of  502,750  shares of common
stock to various  executives,  employees  and  directors  of the  Company.  Such
options were granted as non-qualified  options having terms of 10 years from the
date of grant.  All such  options  have an exercise  price of between  $1.00 and
$1.75 per share, with a weighted average price of $1.462 per share. The exercise
price for the options was greater  than or equal to the fair market value on the
grant date.

                                       13
<PAGE>
                  DYNATEC INTERNATIONAL, INC. AND SUBSIDIARIES
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)



(6)      STOCK OPTIONS (Continued)

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

(7)      SUBSEQUENT EVENTS

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

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

         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.



                                       14
<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  months  ended
March 31, 2000 and 1999, respectively.  As supplemental  information,  the table
also segregates the Company's revenues by product line type.

<TABLE>
<CAPTION>
                                             For the Three Months Ended
                                             --------------------------
                                                                             % OF
                                                                              CHG
                                                                             FROM
                                                MARCH 31,    MARCH 31,       1999 TO
                                                   2000         1999          2000
                                              -----------   -----------   -----------
<S>                                           <C>           <C>              <C>
Unaudited Statement of Operations Data:
       Product sales                          $ 3,840,000   $ 3,644,000         5.4%
       Cost of sales                            2,161,000     2,208,000        (2.1)
                                              -----------   -----------
               Gross margin                     1,679,000     1,436,000        16.9
                                              -----------   -----------


    Operating Costs and Expenses:

       Selling expenses                         1,161,000       830,000        39.9
       General and administrative                 798,000       831,000        (4.0)
       Research and development                    95,000        26,000       265.4
                                              -----------   -----------
               Total operating costs and
                Expenses                        2,054,000     1,687,000        21.8
                                              -----------   -----------


    Other Income (Expense), net:

       Interest expense                          (135,000)     (273,000)      (50.5)
       Other income                                 2,000         2,000          -
       Income taxes                                     -        (3,000)         -
                                              -----------   -----------
       Net loss                               $  (508,000)  $  (525,000)        3.2%
                                              ===========   ===========



Unaudited Supplemental Information:

Revenue by product line type:

 Telecommunication headsets and
   amplifiers and telephone
   accessories                                $ 1,866,000   $ 1,836,000         1.6%
 Home storage and organization                  1,386,000       990,000        40.0
 Flashlights                                      588,000       210,000       180.0
 Miscellaneous/mass market                              -       608,000          -
                                              -----------   -----------
           Total product sales                $ 3,840,000   $ 3,644,000         5.4%
                                              ===========   ===========
</TABLE>


The following are  explanations of significant  period to period changes for the
three months ended March 31, 2000 and 1999:

Revenues

     Total Product Sales.  Total product sales  increased by $196,000,  or 5.4%,
from $3,644,000 to $3,840,000 for the three months ended March 31, 2000 compared
to the three months ended March 31, 1999.

     Telecommunication   Headsets  and  Amplifiers  and  Telephone  Accessories.
Telecommunication  headsets  and  amplifiers  and  telephone  accessories  sales
increased  $30,000,  or 1.6%, from $1,836,000 to $1,866,000 for the three months
ended March 31, 2000  compared to the three months  ended March 31,  1999.  This
increase  is  primarily  related to an  increase  in the  Company's  Softalk and
MiniSoftalk  products of  $79,000,  the Cord  Manager of $32,000  and  telephone
headsets and  amplifiers of $30,000,  as well as an increase in sales of $52,000
of the new phonerest product acquired in the Transworld acquisition in August of
1999.  The  increase  was  offset in part by a  decrease  in the  Softalk II and
Universal  products  of  $109,000  and a decrease  of  $54,000 of the  Company's
Twisstop product. Overall gross margins for this product line increased to 57.4%
from 56.3% for the three  months  ended  March 31,  2000  compared  to the three
months ended March 31, 1999,  as a result of the sales mix and a more  efficient
production process.



                                       15
<PAGE>



     Home  Storage and  Organization.  Home  storage and  organization  revenues
increased  $396,000,  or 40.0%, from $990,000 to $1,386,000 for the three months
ended March 31, 2000  compared to the three  months  ended March 31,  1999.  The
increase  is  primarily   attributable   to  an  increase  of  $250,000  in  the
"Expand-A-Drawer"  product  line,  $113,000  in the  Company's  "Expand-A-Shelf"
product line, and $60,000 in the doorstops product line. These increases are the
results  of the  Company's  efforts  to  improve  the  retail  packaging  of its
houseware products. These increases were offset in part by a decrease of $18,000
in the baskets product line and $9,000 in the miscellaneous  houseware  products
line.  Overall gross margins for products in this category  increased from 34.0%
to 37.6% for the three  months  ended March 31, 2000 when  compared to March 31,
1999, as a result of the sales mix.

     Flashlights.  Flashlight  revenues  increased  $378,000,  or  180.0%,  from
$210,000 to $588,000 for the three  months ended March 31, 2000  compared to the
three months ended March 31, 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 16.1% to
14.9% for the three months ended March 31, 2000 when compared to March 31, 1999,
as a result of an increase in costs related to upgrading the retail packaging of
this product line.

     Miscellaneous  and Mass  Market.  Miscellaneous  and mass  market  revenues
decreased $608,000 from $608,000 to $0 for the three months ended March 31, 2000
compared to the three months ended March 31, 1999.  This decrease was the result
of the Company's  decision to  discontinue  its efforts in this product line and
the resulting December 24, 1998 agreement with Grandway China ("Grandway").  The
agreement provided for the transfer of inventory,  distribution and sales rights
of products that the Company was then supplying to Dolgencorp.  Upon  execution,
Grandway agreed to purchase approximately  $1,800,000 of inventory that had been
acquired by the Company and earmarked for sale to  Dolgencorp.  Management  does
not presently anticipate future significant sales in this product line.


Operating Costs and Expenses

     Selling  Expenses.  Selling expenses  increased  $331,000,  or 39.9%,  from
$830,000 to $1,161,000 for the three months ended March 31, 2000 compared to the
three months ended March 31, 1999.  This  increase is due in part to an increase
in salaries  for sales  personnel  of $105,000 due to the addition of the Senior
Vice President of Sales and a national sales manager for the housewares  product
line, as well as increases in advertising  expense  resulting from the placement
of additional  pages in office product  catalogues and an increase in consulting
fees of $50,000. Travel expenses increased by $41,000 due to increased travel to
foreign trade shows and freight  expenses  increased by $63,000 due to increased
sales and increased fuel prices.

     Research and Development.  Research and development  expenses  increased by
$69,000, or 265.4%, from $26,000 to $95,000 for the three months ended March 31,
2000  compared  to the three  months  ended March 31,  1999.  The  increase  was
primarily  attributable  to the  Company's  increased  research and  development
efforts  associated  with the Company's  flashlight line to improve the function
and appearance of the products.

     General and Administrative  Expenses.  General and administrative  expenses
decreased $33,000, or 4.0%, from $831,000 to $798,000 for the three months ended
March 31, 2000  compared to the three months ended March 31, 1999.  The decrease
in general and administrative expenses was primarily the result of a decrease in
severance  pay in the  amount  of  approximately  $115,000  that was paid to the
Company's  former  Chairman and CEO,  who resigned on January 14, 1999,  and the
former  President of the Company,  who resigned  effective  March 17, 1999. This
decrease was offset in part by increases in consulting  expense of $47,000,  and
Directors and Officers and group health insurance premiums of $23,000.

     Total  Operating  Costs and Expenses.  Total  operating  costs and expenses
increased by $367,000,  or 21.8%,  from  $1,687,000 to $2,054,000  for the three
months  ended March 31, 2000  compared to the three months ended March 31, 1999,
for the reasons discussed above.

     Interest  Expense.  Interest expense  decreased  $138,000,  or 50.5%,  from
$273,000 to $135,000 for the three  months ended March 31, 2000  compared to the
three months ended March 31, 1999.  This decrease was primarily  associated with
the retirement of the Convertible Debentures as of February 14, 2000. The normal
non-cash  interest that was recognized on the Convertible  Debentures at 12% per
annum in the three  months  ended  March 31,  1999 was  $44,000  and  liquidated
damages were  assessed  against the Company in the amount of $135,000 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.  Theses  decreases were offset in
part by an increase  in  interest  expense  related to the  amortization  of the
capital lease on the Company's office building and an increase in the borrowings
on the Company's line of credit.


                                       16
<PAGE>


     Net  loss.  The net loss  decreased  by  $16,000,  or 3.2%,  from a loss of
$525,000  to a loss of  $508,000  for the three  months  ended  March  31,  2000
compared to the three  months ended March 31, 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 inventory.  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.  On March  23,  2000 the  Company  and its  lending
institution  entered  into a Seventh  Amendment  to the  Credit  Agreement  (the
"Seventh  Amendment").  Pursuant to this amendment certain definitions have been
modified  as  follows:  (i)  the  maximum  line  decreased  from  $3,000,000  to
$2,500,000;  and (ii) the inventory  advance rate  increased  from 40% to 48% of
eligible inventory.  Also, the Seventh Amendment changed the terms of certain of
the financial  covenants and ratios for the remainder of year 2000 and for 2001.
The interest rate  presently  applicable  to the revolving  credit line is prime
plus three  percent,  with  interest  payable  monthly.  At March 31, 2000,  the
Company  had  $441,824 of unused  borrowings  under its credit  facility,  which
amount is limited by the levels of inventory and receivables.

     On May 22, 1998, the Company closed a transaction that provided net capital
proceeds  of  $1,335,000.   The  transaction  was  accomplished  pursuant  to  a
Convertible  Debenture and Private Equity Line of Credit  Agreement (the "Credit
Agreement")  between  the Company  and a group of five  unaffiliated  investors.
These  funds were  raised  pursuant  to the sale by the  Company of  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. In addition to the sale
of the  Convertible  Debentures,  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  under the Equity
Line,  and all amounts  were to have been drawn in  increments  of not less than
$50,000.  In return for the payment of additional capital under the Equity Line,
the Company  would have been  required to issue  shares of its common stock at a
per share purchase price equal to 80% of the average of the three lowest closing
bid prices of the common  stock  during a six day  valuation  period  commencing
three days  before  the draw date and  ending two days after the draw date.  The
Equity Line could not have been  utilized,  and the Company had no obligation to
exercise any portion of the put mechanism, until after the effective date of the
registration  statement (the "Registration  Statement") for the underlying stock
of the Credit  Agreement.  Additionally,  upon  registration  of the  underlying
shares, which were issuable upon conversion of the Convertible  Debentures,  the
Company was obligated to issue an additional $500,000 of Convertible Debentures.
The Company  filed the  Registration  Statement  on Form SB-2 as required by the
Credit Agreement but it had not become effective by June 1999.

     On June 25, 1999, the Company and the Convertible Debenture holders entered
into a  Modification  Agreement  ("Modification  Agreement"),  under  which  the
parties  agreed to cancel the  Equity  Line and all of the  parties'  respective
obligations  there under. 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  obligation 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,  of which  $135,000 was
paid in the  three-month  period  ended March 31, 1999.  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 payable at any time after October 1, 1999,  upon request for
payment therefore by the Investors, in shares of the Company's common stock. The
number of shares of common  stock  issuable  upon such  payment was to have been
determined  by  dividing  the total  amount of  damages  accrued  by 100% of the
average of the closing bid prices of the Company's  common stock during the five
trading day period immediately preceding the date of such payment. Additionally,
under the  Modification  Agreement,  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




                                       17
<PAGE>

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
before October 31, 1999.

     Although the Company  filed an amendment to the  registration  statement on
July 2, 1999,  the  registration  statement was not effective by the October 31,
1999 deadline set forth in the  Modification  Agreement.  Moreover,  because the
Company's  pending  preliminary  proxy  statement  was  being  reviewed  by  the
Securities  and  Exchange  Commission  in tandem with the  pending  registration
statement,  the Company was not able to hold its annual meeting of  shareholders
by the October 31, 1999  deadline.  On November  12,  1999,  the Company and the
Investors  executed an amendment to the Modification  Agreement that substituted
February  15,  2000  for  the  October  31,  1999  deadline  originally  in  the
Modification Agreement and made certain other changes to the Credit Agreement.

     On  December  8,  1999,  the  Company  filed  its  third  amendment  to the
Registration  Statement.  The Registration  Statement did not become  effective,
however. 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 agreed to issue 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.

     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




                                       18
<PAGE>

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.

         March 31, 2000 Compared to December 31, 1999

     As of March  31,  2000,  the  Company  had  liquid  assets  (cash  and cash
equivalents and trade accounts receivable) of $2,240,000,  an increase of 15.4%,
or $299,000,  from  December 31, 1999 when liquid assets were  $1,941,000.  Cash
decreased  $57,000,  or 23.3%,  to $188,000  at March 31, 2000 from  $245,000 at
December 31, 1998.  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 $356,000, or 21.0%, to $2,052,000 at March 31, 2000 from $1,696,000 at
December 31, 1999.  This increase is primarily the result of increased  sales in
March 2000 compared to December 1999.

     Current  assets  decreased by $17,000,  or 0.3%, to $5,303,000 at March 31,
2000 from  $5,320,000  at December 31, 1999.  This  decrease was  primarily  the
result of a decrease  in cash of  $57,000,  discussed  above,  inventory  levels
decreased by $157,000 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
$160,000.  The  decrease in current  assets was offset in part by an increase in
trade accounts receivable, as discussed above.

     Long-term  assets  decreased  $19,000,  or 0.4%, to $4,449,000 at March 31,
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 $1,224,000,  or 20.0%,  to $4,887,000 at
March 31, 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 1, 2000 agreement to retire the convertible  debentures,  as
well as a decrease in accrued  advertising  of $150,000.  These  decreases  were
off-set in part by an increase of $361,000 in trade accounts payable as a result
of the Company negotiating extended terms with some of its major suppliers,  and
$226,000 in short-term notes payable as a result of additional  borrowings under
the Company's revolving line of credit.

     The  Company's  working  capital  increased by  $1,207,000,  or 152.6%,  to
$416,000 at March 31, 2000 from ($791,000) at December 31, 1999, for the reasons
described above.

     The Company  used net cash of $254,000 in operating  activities  during the
three months ended March 31, 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 $94,000 in  investing  activities  during the
three  months  ended March 31,  2000,  primarily  for capital  expenditures  for
machinery and equipment.

     The Company provided net cash of $292,000 from financing  activities during
the three  months  ended March 31,  2000.  The  increase  was  primarily  due to
proceeds from the issuance of common stock related to a private  placement (note
3) and borrowings under the Company's revolving line-of-credit,  off-set in part
by payments made on the  retirement of the  convertible  debentures and payments
made on long-term debt during the period.


                                       19
<PAGE>

     Based on current  operations  and, after  accounting for  anticipated  cost
savings through  operating  efficiencies and reductions in selling,  and general
and  administrative  expenses,  the Company believes that its present sources of
liquidity  will 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.  However,  the Company
anticipates that it 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 second  quarter of 2000 to fund a combination  of short-term  working
capital requirements and growth.

Inflation

     Most of the Company's  products are purchased in finished form and packaged
by the supplier or at the  Company's  headquarters.  The Company uses a premixed
plastisol  (a  petroleum  based raw  material)  to  manufacture  certain  of its
telephone accessory products at its headquarters.  The Company anticipates usual
inflationary  increases in the price of its plastic products and does not intend
to pass these increases  along to its customers,  primarily as a result of other
operating  efficiencies  gained through  changing the sourcing of certain of its
flashlight  manufacturing from the United States to Asia.  Significant increases
in the cost of  plastisol in the future could  materially  affect the  Company's
profitability if these costs cannot be passed on to customers.  In general,  the
Company does not believe that inflation has had a material effect on its results
of  operations  in recent  years.  However,  there can be no assurance  that the
Company's business will not be affected by inflation in the future.


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.



                                       20
<PAGE>


                           PART II - OTHER INFORMATION


Item 1.  Legal Proceedings

         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.

         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 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 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



                                       21
<PAGE>

the U.S.  District Court for the Central  District of California on February 19,
1999. The complaint  alleges that the Company has infringed  three patents owned
by Mag,  and seeks (i) an order  enjoining  the Company  from  infringing  Mag's
patents,  (ii) the delivery to the Court of all flashlights which infringe Mag's
patents,  (iii) that the  Company  identify  all  entities  who have  purchased,
distributed or sold any infringing  products,  (iv) that the Company  deliver to
the  Court  all  documents  reflecting  or  relating  to the  purchase,  sale or
distribution of any flashlights which infringe Mag's patents,  (v) money damages
sustained  by Mag  by  reason  of the  alleged  patent  infringement,  including
interest, costs, and attorney's fees. During the second quarter of 1999, Mag and
the Company  agreed to pursue  efforts to settle the dispute  and,  pending such
discussions,  the complaint would be dismissed  without prejudice upon the joint
stipulation of the parties.  The Company has expressly agreed with Mag, however,
that if the pending  disputes are not settled,  Mag may refile the  complaint in
the same court and venue. Settlement negotiations with Mag are still ongoing.

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

         In  addition,  the Company has  previously  disclosed  that 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(c).  Recent Sales of Unregistered Securities

         In January and February 2000, the Company conducted a private placement
of its restricted  common stock to seven investors.  The closing of that private
placement  occurred on February 23, 2000,  although  funds were  received by the
Company in connection  with that placement on various dates ranging from January
20, 2000 to February 11,  2000.  Pursuant to the private  placement  the Company
received  proceeds  of  $1,600,000,  $1,500,000  of which was used to retire the
Company's convertible  debentures and discharge other liabilities of the Company
to the holders of the convertible  debentures.  The remaining  $100,000 of those
proceeds was used as working capital.  The purchase price of such securities was
100% of the average of the closing bid price of the Company's  common stock,  as
quoted  by The  Nasdaq  Stock  Market,  for the five  trading  days  immediately
preceding  the date funds were received by the Company.  In connection  with the
private  placement,  the  Company  issued a total  of  1,222,811  shares  of its
restricted  common stock.  The Company issued such shares  without  registration
under the Securities Act of 1933 (the  "Securities  Act") in reliance on Section
4(2) of the  Securities  Act and Rule 506 of  Regulation D under the  Securities



                                       22
<PAGE>

Act. Such shares of common stock were issued as restricted  securities,  and the
certificates  representing  such  shares was stamped  with a standard  legend to
prevent any resale without  registration under the Securities Act or pursuant to
an exemption.

         In  connection  with  the  retirement  of  the  Company's   convertible
debentures,  the holders of the convertible debentures agreed in January 2000 to
convert approximately $58,000 principal amount of the debentures,  together with
interest  accrued  thereon,  into  94,450  shares of  restricted  common  stock.
Although the Convertible  Debenture Retirement Agreement executed by the Company
and the convertible  debenture holders was dated as of February 1, 2000, and the
transactions  contemplated  thereby did not close until  February 23, 2000,  the
Company agreed that it would honor the conversions described above as of January
24, 2000, the date the Company's  Board of Directors  approved the  transaction.
The Company issued such shares without  registration under the Securities Act of
1933 in  reliance  on  Section  4(2) of the  Securities  Act,  and the rules and
regulations  promulgated under that section including  Regulation D. Such shares
of  common  stock  were  issued as  restricted  securities  and the  certificate
representing  such  shares was  stamped  with a standard  legend to prevent  any
resale  without  registration  under  the  Securities  Act  or  pursuant  to  an
exemption, except for that portion of such shares as were subject to sales under
Rule 144 under the Securities Act.

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).

         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).


                                       23
<PAGE>

         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.)

         27       Financial Data Schedule.

(b)    Forms 8-K

None



<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.           May 15, 2000
------------------------------------    -------------------
Frederick W. Volcansek, Sr.                      Date
Chairman & CEO



/s/ Michael L. Whaley                      May 15, 2000
------------------------------------    -------------------
Michael L. Whaley                                Date
Senior Vice President & CFO