<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:    June 30, 2000


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

         For the Transition Period from      to

         Commission File Number:    0-12806


                           DYNATEC INTERNATIONAL, INC.
                           ---------------------------
        (Exact name of small business issuer as specified in its charter)

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


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


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

                                       N/A

      (Former name, former address and former fiscal year, if changed since
                                  last report)

Check  whether the issuer (1) filed all reports  required to be filed by Section
13 or 15(d) of the  Securities  Exchange  Act  during the past 12 months (or for
such shorter period that the registrant was required to file such reports),  and
(2) has been subject to such filing requirements for the past 90 days. [X] yes [
] no

The Company had 5,246,679 shares of common stock outstanding at August 7, 2000.

The aggregate market value of voting stock held by non-affiliates of the Company
at August 7, 2000 was $2,866,899.

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






                                       1



<PAGE>


                  DYNATEC INTERNATIONAL, INC. AND SUBSIDIARIES

                                TABLE OF CONTENTS

PART I.   FINANCIAL INFORMATION

Item 1.   Financial Statements (Unaudited)

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

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

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

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

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

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



PART II.   OTHER INFORMATION

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

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

Item 6.        Exhibits and Reports on Form 8-K...............................27


                    Signatures................................................29















                                       2



<PAGE>


                         PART I - FINANCIAL INFORMATION

ITEM 1.    Financial Statements

                  DYNATEC INTERNATIONAL, INC. AND SUBSIDIARIES
                      CONDENSED CONSOLIDATED BALANCE SHEETS

                                     ASSETS

<TABLE>
<CAPTION>
                                                                                        June 30,          December 31,
                                                                                          2000               1999
                                                                                     -------------       -------------
                                                                                     -------------       -------------
                                                                                      (Unaudited)
CURRENT ASSETS:
<S>                                                                                  <C>                 <C>
    Cash and cash equivalents                                                        $      68,759       $     244,755
    Trade accounts receivable, net of allowance for doubtful accounts of $47,109
       and $39,036 at June 30, 2000 and December 31, 1999, respectively                  2,221,694           1,695,897
    Accounts receivable-other                                                               60,000                   -
    Common stock subscription receivable (note 9)                                           75,000                   -
    Inventories (note 2)                                                                 2,820,265           2,963,064
    Prepaid expenses and other
                                                                                           377,057             415,921
                                                                                     -------------       -------------

                Total current assets                                                     5,622,775           5,319,637
                                                                                     -------------       -------------

BUILDING AND EQUIPMENT, at cost:
    Building and improvements                                                            2,865,000           2,865,000
    Furniture, fixtures, and equipment                                                   3,849,426           3,724,808
                                                                                     -------------       -------------
                                                                                         6,714,426           6,589,808
    Less accumulated depreciation and amortization                                       2,731,716           2,471,862
                                                                                     -------------       -------------

                Net building and equipment                                               3,982,710           4,117,946

GOODWILL AND OTHER IDENTIFIABLE INTANGIBLES, net (note 2)                                  172,436             194,743

DEFERRED LOAN COSTS,  net of accumulated  amortization of $43,226 and $30,452 at
    June 30, 2000 and December 31, 1999, respectively

                                                                                            23,420              36,194

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

                                                                                     $   9,954,987       $   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>

                                                                                        June 30,          December 31,
                                                                                          2000                1999
                                                                                     --------------      --------------
                                                                                      (Unaudited)
CURRENT LIABILITIES:
<S>                                                                                  <C>                 <C>
    Short-term note payable                                                          $   1,880,656       $   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                                            66,367              60,739
    Accounts payable                                                                     2,041,273           1,581,463
    Accrued expenses                                                                       526,035             525,038
    Accrued advertising                                                                    128,569             300,000
    Accrued royalties payable
                                                                                            74,225              80,150
                                                                                     --------------      --------------

              Total current liabilities                                                  4,799,625           6,110,854

DEFERRED GAIN ON SALE OF ASSET                                                             238,203             244,363

LONG-TERM DEBT, net of current portion                                                      39,925              81,175

CAPITAL LEASE OBLIGATIONS, net of current portion                                        2,923,598           2,957,740
                                                                                     --------------       -------------

              Total liabilities                                                          8,001,351           9,394,132
                                                                                     --------------       -------------

STOCKHOLDERS' EQUITY (note 3):

    Common stock,  $.01 par value;  100,000,000  shares authorized and 5,246,679
       and 3,721,418 shares outstanding at June 30, 2000 and December 31, 1999,

       respectively                                                                         52,467              37,214
    Common stock subscribed (note 9)                                                         5,904                   -
    Treasury stock, at cost, 91,515 shares                                                (915,150)           (915,150)
    Additional paid-in capital                                                          11,235,184           8,375,074
    Accumulated deficit                                                                 (8,424,769)         (7,103,300)
                                                                                     --------------       -------------

              Net stockholders' equity                                                   1,953,636             393,838
                                                                                     --------------       -------------

COMMITMENTS AND CONTINGENCIES (note  6)
                                                                                     $   9,954,987       $   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
                                                                          June 30, 2000              June 30, 1999
                                                                       ------------------         ------------------
                                                                             (Unaudited)                (Unaudited)


<S>                                                                    <C>                        <C>
PRODUCT SALES                                                          $       3,418,073          $       3,690,094
COST OF SALES                                                                 (2,169,479)                (2,169,199)
                                                                       ------------------         ------------------

       Gross Margin                                                            1,248,594                  1,520,895
                                                                       ------------------         ------------------

OPERATING COSTS AND EXPENSES:
    Selling expenses                                                           1,055,186                    834,438
    General and administrative                                                   622,822                    783,828
    Research and development                                                      57,353                     37,812
                                                                       ------------------         ------------------

       Total operating costs and expenses                                      1,735,361                  1,656,078
                                                                       ------------------         ------------------

          Loss from operations                                                  (486,767)                  (135,183)
                                                                       ------------------         ------------------

OTHER EXPENSE:
    Interest expense (note 4)                                                   (157,178)                  (272,555)
    Other expense                                                               (168,733)                       (77)
                                                                       ------------------         ------------------

       Total other expense                                                      (325,911)                  (272,632)
                                                                       ------------------         ------------------

          Loss before income tax provision                                      (812,678)                  (407,815)

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

          Net loss                                                     $        (812,678)         $        (407,815)
                                                                       ==================         ==================

BASIC AND DILUTED NET LOSS PER SHARE                                   $            (.17)         $            (.13)
                                                                       ==================         ==================

WEIGHTED AVERAGE SHARES - BASIC AND DILUTED                                    4,707,459                  3,218,004
                                                                       ==================         ==================
</TABLE>




















     See accompanying notes to condensed consolidated financial statements.


                                       5

<PAGE>


                  DYNATEC INTERNATIONAL, INC. AND SUBSIDIARIES
                 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>

                                                                        Six months ended           Six months ended
                                                                          June 30, 2000              June 30, 1999
                                                                       ------------------         ------------------
                                                                          (Unaudited)                (Unaudited)

<S>                                                                    <C>                        <C>
PRODUCT SALES                                                          $       7,257,717          $       7,333,773
COST OF SALES                                                                 (4,330,676)                (4,377,570)
                                                                       ------------------         ------------------

       Gross Margin                                                            2,927,041                  2,956,203
                                                                       ------------------         ------------------

OPERATING COSTS AND EXPENSES:
    Selling expenses                                                           2,216,262                  1,664,065
    General and administrative                                                 1,420,374                  1,615,143
    Research and development                                                     152,320                     63,824
                                                                       ------------------         ------------------

       Total operating costs and expenses                                      3,788,956                  3,343,032
                                                                       ------------------         ------------------

          Loss from operations                                                  (861,915)                  (386,829)
                                                                       ------------------         ------------------

OTHER INCOME (EXPENSE):
    Interest expense (note 4)                                                   (292,398)                  (545,846)
    Other income (expense) (note 3)                                             (167,156)                     2,357
                                                                       ------------------         ------------------

       Total other expense, net                                                 (459,554)                  (543,489)
                                                                       ------------------         ------------------

          Loss before income tax provision                                    (1,321,469)                  (930,318)

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

          Net loss                                                     $      (1,321,469)         $        (933,318)
                                                                       ==================         ==================

BASIC AND DILUTED NET LOSS PER SHARE                                   $            (.28)         $            (.29)
                                                                       ==================         ==================

WEIGHTED AVERAGE SHARES - BASIC AND DILUTED                                    4,707,459                  3,218,004
                                                                       ==================         ==================
</TABLE>



















     See accompanying notes to condensed consolidated financial statements.


                                       6

<PAGE>


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

<TABLE>
<CAPTION>
                                                                                 Six months ended       Six months ended
                                                                                   June 30, 2000          June 30, 1999
                                                                               -------------------     -------------------
                                                                                   (Unaudited)             (Unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES:

<S>                                                                            <C>                     <C>
   Net loss                                                                    $       (1,321,469)     $         (933,318)
   Adjustments to reconcile net loss to net cash used in operating activities:
         Depreciation and amortization                                                    282,731                 239,229
         Amortization of deferred loan costs                                               12,774                  12,774
         Amortization of deferred gain on sale of assets                                   (6,160)                      -
         Non-cash interest expense on convertible debentures (note 4)                           -                 269,260
         Non-cash interest expense on re-issuance of common stock
            shares (note 3)                                                               169,733                       -
         Forgiveness of liquidated damages related to convertible debenture
             (note 4)                                                                     (13,523)                      -
         Loss (gain) on sale of assets                                                     (1,577)                    699
         Provision for losses on accounts receivable                                        5,000                   5,000
         Changes in operating assets and liabilities:
               Trade accounts receivable                                                 (530,797)                182,434
               Accounts receivable - other                                                (60,000)                      -
               Inventories                                                                142,799               1,114,560
               Prepaid expenses                                                            38,864                (158,403)
               Other assets                                                               (34,196)                    721
               Accounts payable                                                           459,810                (567,945)
               Accounts payable - other                                                         -                  (9,000)
               Accounts payable - related party                                                 -                 (98,403)
               Accrued expenses                                                               997                (203,200)
               Accrued advertising                                                       (171,431)               (225,068)
               Accrued royalties                                                           (5,925)                 (9,228)
                                                                               -------------------     -------------------
                  Net cash used in operating activities                                (1,032,370)               (379,888)
                                                                               -------------------     -------------------

CASH FLOWS FROM INVESTING ACTIVITIES:
  Net proceeds from the sale of assets                                                      2,600                  19,804
  Purchase of building and equipment                                                     (123,990)                (82,556)
                                                                                ------------------     -------------------
                  Net cash used in investing activities                                  (121,390)                (62,752)
                                                                                ------------------     -------------------

CASH FLOWS FROM FINANCING ACTIVITIES:
  Net borrowings on line of credit                                                         49,034                 959,510
  Net payments on long-term debt                                                          (41,250)               (178,686)
  Net payments on capital lease obligations                                               (30,734)                (15,414)
  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                               -
  Proceeds from common stock subscribed (note 3)                                          700,000                       -
  Proceeds from re-issuance of common stock (note 3)                                      200,714                               -
                                                                                ------------------     -------------------
                  Net cash provided by financing activities                               977,764                 765,410
                                                                                ------------------     -------------------

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS                                     (175,996)                322,770

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

CASH AND CASH EQUIVALENTS AT END OF THE PERIOD                                 $           68,759      $          325,038
                                                                               ===================     ===================
</TABLE>


     See accompanying notes to condensed consolidated financial statements.


                                       7

<PAGE>


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

<TABLE>
<CAPTION>
                                                                                Six months ended        Six months ended
                                                                                  June 30, 2000           June 30, 1999
                                                                               -------------------     -------------------
                                                                                (Unaudited)               (Unaudited)
SUPPLEMENTAL SCHEDULE OF CASH FLOW INFORMATION:
<S>                                                                            <C>                     <C>
    Cash paid for interest                                                     $          296,634      $          310,829

SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES:
    Building and equipment acquired under capital leases                                    2,220                  24,000

    Conversion of Convertible Debentures and accrued interest for
         common stock                                                                     135,819                 143,680

    Issuance of 500,000 shares of restricted stock                                             -                1,000,000

    Common stock subscription receivable                                                  75,000                        -

    Write-off of accounts receivable                                                       3,073                        -
</TABLE>

































     See accompanying notes to condensed consolidated financial statements.


                                       8

<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 five wholly owned  subsidiaries:  Softalk,  Inc.,  Nordic  Technologies,
Inc., Neat Things, 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 June
30,  2000  and for the  periods  presented  herein.  These  unaudited  condensed
consolidated  financial  statements  should  be read  in  conjunction  with  the
consolidated  financial  statements and notes thereto  included in the Company's
annual report on form 10-KSB for the year ended December 31, 1999 filed with the
Securities and Exchange Commission.

     The  preparation  of the  condensed  consolidated  financial  statements in
conformity with generally accepted accounting  principles requires management to
make estimates and  assumptions  that affect the reported  amounts of assets and
liabilities,  the  disclosure  of  contingent  assets and  liabilities,  and the
reported  amounts of revenue and expense for the period being  reported.  Actual
results could differ from those estimates.

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

(2)      SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Inventories

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

                                      June 30,          December 31,
                                        2000                1999
                                   ---------------     ---------------
      Raw materials............      $ 1,080,499         $   886,377
      Work-in-Process..........          189,882             135,931
      Finished Goods...........        1,549,884           1,940,756
                                   ---------------     ---------------
                                     $ 2,820,265         $ 2,963,064
                                   ===============     ===============


                                       9

<PAGE>


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

(2)      SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

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.

Basic and Diluted Net Loss Per Common Share

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

     In  calculating  net loss per share for the six months ended June 30, 2000,
and 1999,  warrants  and options to purchase  766,750  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 June 30, 2000 and December 31, 1999 was as follows:

                                                2000           1999
                                             -----------    -----------
       Goodwill                               $  34,306      $  34,306
       Less accumulated amortization             17,153          8,576
                                             -----------    -----------
                                             -----------    -----------
                                              $  17,153      $  25,730
                                             ===========    ===========


(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.

     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


                                       10

<PAGE>

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


(3)       STOCKHOLDERS' EQUITY-(continued)

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.

     On April 4, 2000 the Company  recognized as having  previously  been issued
the 208,000 shares of common stock.  As a result,  the Company  recognized a one
time  non-cash  expense of $169,733,  which is the  difference  between the fair
market  value  of the  208,000  shares  as of the date of such  recognition,  or
$370,447, and the $200,714 cash received.

     On May 18, 2000 the Company  entered into a Stock  Purchase  Agreement (the
"May 2000 Stock Purchase  Agreement") with three offshore  investors.  Under the
May 2000 Stock Purchase Agreement, the offshore investors agreed to purchase and
acquire  from the  Company  shares  of the  Company's  common  stock,  having an
aggregate purchase price of at least $775,000 (the "Minimum  Investment Amount")
and a maximum  aggregate  purchase  price of  $1,000,000.  The  number of shares
issuable to the  investors  in  consideration  of their  payment of the purchase
price was  calculated  as follows (i) as to the Minimum  Investment  Amount,  by
dividing the total dollar  amount of the Minimum  Investment  Amount paid to the
Company as of closing,  by $1.3125,  which was 100% of the fair market  value of
the  Company's  common  stock  as of the  date of the May  2000  Stock  Purchase
Agreement,  and (ii) as to any  additional  amount  invested  over  the  Minimum
Investment Amount, by dividing the total dollar amount of such additional amount
paid to the  Company  by 100% of the  average of the  closing  bid prices of the
Company's common stock for the five trading days immediately  preceding the date
of actual payment of such additional amount. As of June 30, 2000 the Company had
received $700,000 of the Minimum Investment Amount. The remainder of the Minimum
Investment Amount was received by July 11, 2000 (see note 9).

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

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

         In addition to the sale of the Convertible Debentures, under the Credit
Agreement,  the Company  also  obtained  the right to use a "put"  mechanism  to
periodically  draw down up to  $10,000,000  of  additional  equity  capital (the
"Equity  Line").  Under the  terms of the  Credit  Agreement,  the  Company  was

                                       11

<PAGE>

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

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

     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:

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


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

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

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


                                       12

<PAGE>

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

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

     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>
                                                                    (Rounded)                             (Rounded)
                                                                THREE MONTHS ENDED                    SIX MONTHS ENDED
                                                                     JUNE 30,                             JUNE 30,
                                                         ---------------------------------     --------------------------------
REVENUES:                                                     2000              1999               2000              1999
-----------------------------------------------------    ---------------    --------------     --------------    --------------
Telecommunication Headsets and Amplifiers and

<S>                                                      <C>                <C>                <C>               <C>
     Telephone Accessories.......................        $    1,565,000     $   1,937,000      $   3,431,000     $   3,772,000
Home Storage and Organization....................             1,336,000         1,181,000          2,721,000         2,171,000
Flashlights......................................               517,000           188,000          1,106,000           399,000
Miscellaneous/Mass Market........................                     -           384,000                  -           992,000
                                                         ---------------    --------------     --------------    --------------

       Total.....................................        $    3,418,000     $   3,690,000      $   7,258,000     $   7,334,000
                                                         ===============    ==============     ==============    ==============


                                                                THREE MONTHS ENDED                    SIX MONTHS ENDED
                                                                     JUNE 30,                             JUNE 30,
                                                         ---------------------------------     --------------------------------
OPERATING LOSS:                                               2000              1999               2000              1999
-----------------------------------------------------    ---------------    --------------     --------------    --------------
Telecommunication Headsets and Amplifiers and

     Telephone Accessories.......................        $       37,000     $      39,000      $     122,000     $      19,000
Home Storage and Organization....................              (206,000)          (88,000)          (336,000)         (226,000)
Flashlights......................................              (318,000)          (60,000)          (648,000)         (186,000)
Miscellaneous/Mass Market........................                     -           (26,000)                 -             6,000
                                                         ---------------    --------------     --------------    --------------



<PAGE>


       Total.....................................        $     (487,000)    $    (135,000)     $    (862,000)    $    (387,000)
                                                         ===============    ==============     ==============    ==============


(5)      BUSINESS SEGMENT INFORMATION (Continued)

                                                                THREE MONTHS ENDED                    SIX MONTHS ENDED
                                                                     JUNE 30,                             JUNE 30,
                                                         ---------------------------------     --------------------------------
DEPRECIATION AND AMORTIZATION (1):                            2000              1999               2000              1999
-----------------------------------------------------    ---------------    --------------     --------------    --------------
Telecommunication Headsets and Amplifiers and

     Telephone Accessories.......................        $       63,000     $      71,000      $     130,000     $     143,000
Home Storage and Organization....................                61,000            43,000            110,000            81,000
Flashlights......................................                22,000             7,000             43,000            15,000
                                                         ---------------    --------------     --------------    --------------

       Total.....................................        $      146,000     $     121,000      $     283,000     $     239,000
                                                         ===============    ==============     ==============    ==============
</TABLE>

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

                                       13
<PAGE>

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

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

<TABLE>
<CAPTION>
                                                            JUNE 30,         DECEMBER 31,
ASSETS (1):                                                   2000               1999
----------------------------------------------------     ---------------    --------------
Telecommunication Headsets and Amplifiers and
<S>                                                      <C>                <C>
   Telephone Accessories.........................        $    4,369,000     $   4,827,000
Home Storage and Organization....................             2,936,000         2,468,000
Flashlights......................................             1,892,000         1,676,000
Miscellaneous/Mass Market........................                     -                 -
                                                         ---------------    --------------
       Total assets for reportable segments......             9,197,000         8,971,000

Other assets not allocated to segments...........               758,000           817,000
                                                         ---------------    --------------
       Total.....................................        $    9,955,000     $   9,788,000
                                                         ===============    ==============

                                                                THREE MONTHS ENDED                    SIX MONTHS ENDED
                                                                     JUNE 30,                             JUNE 30,
                                                         ---------------------------------     --------------------------------
CAPITAL EXPENDITURES:                                         2000              1999               2000              1999
-----------------------------------------------------    ---------------    --------------     --------------    --------------
Telecommunication Headsets and Amplifiers and

     Telephone Accessories.......................        $       10,000     $      22,000      $      57,000     $      64,000
Home Storage and Organization....................                13,000            13,000             48,000            35,000
Flashlights......................................                 5,000             3,000             19,000             8,000
Miscellaneous/Mass Market........................                     -                 -                  -                 -
                                                         ---------------    --------------     --------------    --------------

       Total.....................................        $       28,000     $      38,000      $     124,000     $     107,000
                                                         ===============    ==============     ==============    ==============


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

                                                                THREE MONTHS ENDED                    SIX MONTHS ENDED
                                                                     JUNE 30,                             JUNE 30,
                                                         ---------------------------------     --------------------------------
REVENUES:                                                     2000              1999               2000              1999
-----------------------------------------------------    ---------------    --------------     --------------    --------------
United States....................................        $    3,311,000     $   3,671,000      $   7,043,000     $   7,259,000
Other (1)........................................               107,000            19,000            215,000            75,000
                                                         ---------------    --------------     --------------    --------------

       Total.....................................        $    3,418,000     $   3,690,000      $   7,258,000     $   7,334,000
                                                         ===============    ==============     ==============    ==============

(1)      Includes Canada, Europe and other miscellaneous.


                                                                THREE MONTHS ENDED                    SIX MONTHS ENDED
                                                                     JUNE 30,                             JUNE 30,
                                                         ---------------------------------     --------------------------------
OPERATING LOSS:                                               2000              1999               1999              1999
-----------------------------------------------------    ---------------    --------------     --------------    --------------
United States....................................             (487,000)         (135,000)          (862,000)         (387,000)
                                                         ===============    ==============     ==============    ==============



                                                            JUNE 30,         DECEMBER 31,
ASSETS:                                                       2000               1999
------------------------------------------               ---------------    --------------
United States..........................                  $     9,629,000    $    9,418,000
Asia...................................                          326,000           370,000
                                                         ---------------    --------------

       Total...........................                  $     9,955,000    $    9,788,000
                                                         ===============    ==============
</TABLE>

                                       14

<PAGE>

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

(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
condensed consolidated 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  (400,000 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, 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 agreed in January  1999 to
cancel all stock options issued to Muito Bem.

     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  originally  were  reserved  for  issuance  in the  form  of
non-qualified stock options or qualifying  Incentive Stock Options. In May 2000,
the Company's Board of Directors  increased the number of shares of common stock
covered  by the  1999  Plan to  1,000,000  shares.  As of  June  30,  2000,  the
compensation  committee of the  Company's  Board of Directors  has granted stock
options  under the 1999 Plan to  purchase  a total of  497,750  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.  The  vesting  schedule  is 50% at the date of  grant,  63% three
months after the date of grant,  75% six months after the date of grant and 100%
after one year 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.

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


(7)      RECENT ACCOUNTING PRONOUNCEMENTS

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

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

                                       15

<PAGE>

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

have a material impact on the Company's consolidated financial position, results
of operations, or liquidity.

(8)      LIQUIDITY

     Based on current  operations  and, after  accounting for  anticipated  cost
savings  through  an  aggressive  restructuring  plan and  associated  operating
efficiencies and reductions in selling, and general and administrative expenses,
the Company  believes that its present sources of liquidity will not be adequate
to meet its projected  requirements for working capital,  capital  expenditures,
scheduled debt service requirements and other general corporate purposes for the
remainder  of 2000.  The Company  therefore  will pursue  additional  sources of
liquidity in the form of commercial  credit or additional sales of the Company's
debt or equity  securities  during the second half of 2000 to fund a combination
of short-term working capital requirements and growth (see note 9).


(9)      SUBSEQUENT EVENTS

     On July  11,  2000  the  Company  received  the  remainder  of the  Minimum
Investment Amount related to the May 2000 Stock Purchase  Agreement  recorded in
the condensed  consolidated  financial statements as a common stock subscription
receivable  as of June 30,  2000 (see note 3). No  additional  amounts  over the
Minimum Investment Amount were paid by the investors. Accordingly, subsequent to
June 30, 2000,  the Company will issue a total of 590,476  shares of  restricted
common stock to the investors.

     In connection with the Company's  aggressive  restructuring plan, on August
7, 2000 the Company announced a workforce  reduction of approximately 15% of its
workforce.  The  reduction was  effective  immediately  and included a severance
package  of  approximately  $90,000,  which will be  accounted  for in the third
quarter of 2000.


                                       16

<PAGE>


ITEM  2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION

Results of Operations

     The  following  table  sets  forth,  for  the  periods  indicated,  certain
information  relating  to the  operations  of the Company  expressed  in dollars
(rounded)  and  percentage  changes  from  period to  period.  Data in the table
reflects  the  consolidated  results of the Company for the three and  six-month
periods ended June 30, 2000 and 1999, respectively. As supplemental information,
the table also segregates the Company's revenues by product line type.

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

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




                                                            .

Unaudited Statement of Operations
Data:
<S>                                 <C>           <C>           <C>     <C>           <C>           <C>
       Product sales.............   $ 3,418,000   $3,690,000    (7.4)%  $ 7,258,000   $7,334,000    (1.0)%
       Cost of sales.............     2,169,000    2,169,000     0.0      4,331,000    4,378,000    (1.1)
                                    ------------  ------------          ------------  ----------
              Gross margin......      1,249,000    1,521,000   (17.9)     2,927,000    2,956,000    (1.0)
                                    ------------  ------------          ------------  ----------


Operating Costs and Expenses:

       Selling expenses..........     1,055,000      834,000    26.5      2,216,000    1,664,000    33.2
       General and administrative       624,000      784,000   (20.4)     1,421,000    1,615,000   (12.0)
       Research and development..        57,000       38,000    50.0        152,000       64,000   137.5
                                    ------------  ------------          ------------  ----------
          Total operating costs and   1,736,000    1,656,000     4.8      3,789,000    3,343,000    13.3
            Expenses..............  ------------  ------------          ------------  ----------


Other Income (Expense), net:
       Interest expense..........      (157,000)     (273,000) (42.5)      (292,000)    (545,000)  (46.4)
       Other income (expense)....      (169,000)            -      -       (167,000)       2,000  8450.0
                                    ------------  ------------          ------------  ----------
          Net loss...............   $  (813,000)  $  (408,000) (99.3)%  $(1,321,000)  $(930,000)    42.0%
                                    ============  ============          ============  ==========

Unaudited Supplemental Information:

Revenue by product line type:
    Telecommunication headsets and
          amplifiers and telephone
          accessories               $ 1,565,000   $ 1,937,000  (19.2)%  $ 3,431,000   $3,772,000   (9.0)%
    Home storage and organization     1,336,000     1,181,000   13.1      2,721,000    2,171,000   25.3
    Flashlights..................       517,000       188,000  175.0      1,106,000      399,000  177.2
    Miscellaneous/Mass market.                -       384,000      -              -      992,000      -
                                    ------------  ------------          ------------  ----------
              Total product sales.. $  3,418,000  $  3,690,000  (7.4)%  $ 7,258,000   $7,334,000   (1.0)%
                                    ============  ============          ============  ==========
</TABLE>


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

Revenues

     Total Product Sales.  Total product sales  decreased by $272,000,  or 7.4%,
from  $3,690,000 to $3,418,000 for the three months ended June 30, 2000 compared
to the three months ended June 30, 1999.

     Telecommunication Headsets and Amplifiers and Telephone Accessories.  Sales
of telecommunication headsets and amplifiers and telephone accessories decreased
$372,000,  or 19.2%,  from  $1,937,000 to $1,565,000  for the three months ended
June 30, 2000  compared to the three months ended June 30, 1999.  This  decrease
was primarily attributable to a $235,000 decrease in sales of telephone shoulder
rests, a decrease in sales of $78,000 in telephone accessories and a decrease in
sales of telephone  headsets and  amplifiers of $59,000.  These  decreases are a
result  of lower  sales to the  Company's  office  supply  catalogue  customers.
Overall  gross  margins in this  category  decreased to 53.2% from 54.8% for the
three months ended June 30, 1999, as a result of the sales mix.

     Home  Storage and  Organization.  Home  storage and  organization  revenues
increased $155,000, or 13.1%, from $1,181,000 to $1,336,000 for the three months
ended June 30,  2000  compared  to the three  months  ended June 30,  1999.  The
increase  is  primarily   attributable   to  an  increase  of  $216,000  in  the
"Expand-A-Drawer"  product line,  and $36,000 in the Company's  "Expand-A-Shelf"
product  line..  These  increases  are the results of the  Company's  efforts to
improve the retail  packaging of this product line.  These increases were offset
in part by a $77,000  decrease  in the  doorstops  product  line,  a decrease of
$13,000 in the baskets  product line and $7,000 in the  miscellaneous  houseware

                                       17

<PAGE>

products  line.  Overall gross  margins for products in this category  decreased
from 36.4% to 30.9% for the three  months  ended June 30, 2000 when  compared to
June 30, 1999,  as a result of an increase in the price of raw  materials due to
increased petroleum prices.

     Flashlights.  Flashlight  revenues  increased  $329,000,  or  175.0%,  from
$188,000 to $517,000 for the three  months  ended June 30, 2000  compared to the
three months ended June 30, 1999.  This increase was primarily the result of the
addition of new major foreign and domestic customers as a result of a successful
increase in the Company's  selling and  marketing  efforts in this product line.
Overall gross margins for products in this category decreased from 30.2% to 0.7%
for the three  months ended June 30, 2000 when  compared to June 30, 1999,  as a
result of an increase in costs related to upgrading the retail packaging of this
product  line,  as well as an increase in freight costs to expedite the delivery
of the product from the Company's  overseas vendors,  in order to meet ship date
requirements.

     Miscellaneous  and Mass  Market.  Miscellaneous  and mass  market  revenues
decreased  $384,000,  from  $384,000 to -0- for the three  months ended June 30,
2000  compared to the three months ended June 30,  1999.  This  decrease was the
result of the Company's decision to discontinue its efforts in this product line
and the resulting December 24, 1998 agreement with Grandway China  ("Grandway").
The  agreement  provided for the transfer of inventory,  distribution  and sales
rights of products  that the  Company was then  supplying  to  Dolgencorp.  Upon
execution,  Grandway  agreed to purchase  approximately  $1,800,000 of inventory
that had been  acquired  by the Company and  earmarked  for sale to  Dolgencorp.
Management  does  not  presently  anticipate  future  significant  sales in this
product line.

Operating Costs and Expenses

     Selling  Expenses.  Selling expenses  increased  $221,000,  or 26.5%,  from
$834,000 to $1,055,000  for the three months ended June 30, 2000 compared to the
three months ended June 30, 1999. This increase is due in part to an increase in
salaries for sales  personnel  of $99,000 due to the  addition of the  Executive
Vice President of Sales,  a national  sales manager for the  housewares  product
line and a European sales manager for the  flashlights  product line, as well as
increases in  advertising  expense  resulting  from the  placement of additional
pages in office product  catalogues.  Travel  expenses  increased by $32,000 and
trade show  expenses  increased  by $38,000 due to  increased  travel to foreign
trade shows.  Also,  freight expenses increased by $34,000 due to increased fuel
prices.

     General and Administrative  Expenses.  General and administrative  expenses
decreased  $160,000,  or 20.4%,  from  $784,000 to $624,000 for the three months
ended June 30,  2000  compared  to the three  months  ended June 30,  1999.  The
decrease in general and  administrative  expenses was  primarily the result of a
decrease in legal expense of $111,000, a decrease of $30,000 in travel expenses,
and a decrease in employee recruitment and education of $19,000.

     Research and Development. Research and development increased by $19,000, or
50.0%, from $38,000 to $57,000 for the three months ended June 30, 2000 compared
to the three months ended June 30, 1999. The increase was primarily attributable
to the Company's  increased research and development efforts associated with the
Company's  flashlight  line  to  improve  the  function  and  appearance  of the
products.

     Total  Operating  Costs and Expenses.  Total  operating  costs and expenses
increased by $80,000,  or 4.8%,  from  $1,656,000  to  $1,736,000  for the three
months ended June 30, 2000 compared to the three months ended June 30, 1999, for
the reasons discussed above.

     Interest  Expense.  Interest expense  decreased  $116,000,  or 42.3%,  from
$273,000 to $157,000 for the three  months  ended June 30, 2000  compared to the
three months ended June 30, 1999.  This decrease was primarily  associated  with
the  retirement of the  Convertible  Debentures on February 14, 2000. The normal
non-cash  interest that was recognized on the Convertible  Debentures at 12% per
annum in the three months ended June 30, 1999 was $44,000 and liquidated damages
were assessed against the Company in the amount of $123,000 due to the Company's
failure to have effective a registration statement covering the shares of common
stock issuable upon  conversion of the  Convertible  Debentures  within the time
specified in a registration  rights  agreement  executed in connection  with the
sale of the  Convertible  Debentures.  These decreases were offset in part by an
increase in interest expense related to 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.

     Other income (expense).  Other income (expense)  increased by $169,000 from
-0- to $169,000 for the three  months ended June 30, 2000  compared to the three
months ended June 30, 1999. The increase is due to the one time non-cash expense
related to the April 4, 2000  recognition  as having been  previously  issued of
208,000 shares of the Company's

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<PAGE>

common stock. This non-cash expense is equal to the difference  between the fair
market  value of the  208,000  shares on April 4, 2000 and the funds  recovered
from the  settlement  (see  note 3 to the  accompanying  condensed  consolidated
financial statements).

     Net Loss.  The net loss increased by $405,000,  or 99.3%,  from $408,000 to
$813,000 for the three  months ended June 30, 2000  compared to the three months
ended June 30, 1999 due to the factors described above.

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

Revenues

     Total Product  Sales.  Total product sales  decreased by $76,000,  or 1.0%,
from $7,334,000 to $7,258,000 for the six months ended June 30, 2000 compared to
the six months ended June 30, 1999.

     Telecommunication Headsets and Amplifiers and Telephone Accessories.  Sales
of telecommunication headsets and amplifiers and telephone accessories decreased
$341,000,  or 9.0%,  from $3,772,000 to $3,431,000 for the six months ended June
30, 2000  compared to the six months  ended June 30,  1999.  This  decrease  was
primarily  attributable  to a $213,000  decrease in sales of telephone  shoulder
rests as well as a decrease in sales of $101,000 in telephone  accessories and a
decrease  of $27,000  in sales  of  telephone  headsets  and  amplifiers.  These
decreases are  primarily a result of lower sales to the Company's  office supply
catalogue  customers.  Overall gross margins in this category remained unchanged
at 55.5% for the six months ended June 30, 2000 when  compared to the six months
ended June 30, 1999.

     Home  Storage and  Organization.  Home  storage and  organization  revenues
increased  $550,000,  or 25.3%, from $2,171,000 to $2,721,000 for the six months
ended June 30, 2000 compared to the six months ended June 30, 1999. The increase
is primarily  attributable  to an increase of $466,000 in the  "Expand-A-Drawer"
product line, and $149,000 in the Company's "Expand-A-Shelf" product line. These
increases  are the  results  of the  Company's  efforts  to  improve  the retail
packaging  of this  product  line.  These  increases  were  offset  in part by a
decrease of $31,000 in the baskets product line, a $17,000  decrease in the both
the doorstops  product line and in the  miscellaneous  houseware  products line.
Overall  gross  margins for products in this  category  decreased  from 35.4% to
34.3% for the six months ended June 30, 2000 when  compared to June 30, 1999, as
a result of the sales mix.

     Flashlights.  Flashlight  revenues  increased  $707,000,  or  177.2%,  from
$399,000 to  $1,106,000  for the six months ended June 30, 2000  compared to the
six months ended June 30, 1999.  This  increase was  primarily the result of the
addition of new major foreign and domestic customers as a result of a successful
increase in the Company's  selling and  marketing  efforts in this product line.
Overall gross margins for products in this category decreased from 22.7% to 8.2%
for the six months  ended June 30,  2000 when  compared to June 30,  1999,  as a
result of an increase in costs related to upgrading the retail packaging of this
product  line,  as well as an increase in freight costs to expedite the delivery
of the product from the Company's  overseas  vendors in order to meet sales ship
date requirements.

     Miscellaneous  and Mass  Market.  Miscellaneous  and mass  market  revenues
decreased $992,000,  from $992,000 to -0- for the six months ended June 30, 2000
compared to the six months ended June 30, 1999.  This decrease was the result of
the Company's  decision to discontinue  its efforts in this product line and the
resulting  December 24, 1998  agreement with Grandway  China  ("Grandway").  The
agreement provided for the transfer of inventory,  distribution and sales rights
of products that the Company was then supplying to Dolgencorp.  Upon  execution,
Grandway agreed to purchase approximately  $1,800,000 of inventory that had been
acquired by the Company and earmarked for sale to  Dolgencorp.  Management  does
not presently anticipate future significant sales in this product line.

Operating Costs and Expenses

     Selling  Expenses.  Selling expenses  increased  $552,000,  or 33.2%,  from
$1,664,000 to $2,216,000  for the six months ended June 30, 2000 compared to the
six months ended June 30, 1999.  This  increase is due in part to an increase in
salaries for sales  personnel  of $204,000 due to the addition of the  Executive
Vice President of Sales,  a national  sales manager for the  housewares  product
line and a European sales manager for the  flashlights  product line, as well as
increases in  advertising  expense  resulting  from the  placement of additional
pages in office product  catalogues.  Travel  expenses  increased by $73,000 and
trade show  expenses  increased  by $38,000 due to  increased  travel to foreign
trade shows.  Also,  freight expenses increased by $97,000 due to increased fuel
prices.

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<PAGE>


     General and Administrative  Expenses.  General and administrative  expenses
decreased  $194,000,  or 12.0%, from $1,615,000 to $1,421,000 for the six months
ended June 30, 2000 compared to the six months ended June 30, 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. As well
as, a decrease  in legal  expense of  $109,000,  a decrease of $41,000 in travel
expenses, and a decrease in employee recruitement and education of $19,000. This
decrease was offset in part by increases in consulting  expense of $65,000,  and
Directors and Officers and group health insurance premiums of $51,000.

     Research and Development. Research and development increased by $88,000, or
137.5%, from $64,000 to $152,000 for the six months ended June 30, 2000 compared
to the six months ended June 30, 1999.  The increase was primarily  attributable
to the Company's  increased research and development efforts associated with the
Company's  flashlight  line  to  improve  the  function  and  appearance  of the
products.

     Total  Operating  Costs and Expenses.  Total  operating  costs and expenses
increased by $446,000,  or 13.3%,  from  $3,343,000  to  $3,789,000  for the six
months ended June 30, 2000  compared to the six months ended June 30, 1999,  for
the reasons discussed above.

     Interest  Expense.  Interest expense  decreased  $253,000,  or 46.4%,  from
$545,000 to $292,000 for the six months ended June 30, 2000  compared to the six
months ended June 30, 1999.  This  decrease was  primarily  associated  with the
retirement  of the  Convertible  Debentures  on February  14,  2000.  The normal
non-cash  interest that was recognized on the Convertible  Debentures at 12% per
annum in the six months ended June 30, 1999 was $88,000 and  liquidated  damages
were assessed against the Company in the amount of $258,000 due to the Company's
failure to have effective a registration statement covering the shares of common
stock issuable upon  conversion of the  Convertible  Debentures  within the time
specified in a registration  rights  agreement  executed in connection  with the
sale of the  Convertible  Debentures.  These decreases were offset in part by an
increase in interest expense related to 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.

     Other income (expense).  Other income (expense)  increased  $169,000,  from
$2,000 to $(167,000)  for the six months ended June 30, 2000 compared to the six
months ended June 30, 1999. The increase is due to the one time non-cash expense
related to the April 4, 2000  recognition  as having  previously  been issued of
208,000 shares of the Company's common stock.  This non-cash expense is equal to
the  difference  between the fair market value of the 208,000 shares on April 4,
2000  and  the  monies  recovered  from  the  settlement  (see  note  3  to  the
accompanying condensed consolidated financial statements).

     Net Loss.  The net loss increased by $391,000,  or 42.0%,  from $930,000 to
$1,321,000  for the six months  ended June 30,  2000  compared to the six months
ended June 30, 1999 due to a combination of the factors described above.

Liquidity and Capital Resources

General

     The  Company's   principal   sources  of  liquidity  are  cash  flows  from
operations,  cash on hand and  borrowing  under the Company's  existing  secured
revolving  credit  facility.  On May 27, 1998, the Company  obtained its secured
revolving  credit  facility  from a  regional  financing  institution  for up to
$5,000,000,  bearing interest at a rate of prime plus one percent, with interest
payable  monthly.  The credit  facility  is secured  by the  Company's  accounts
receivable and inventories. The note underlying the revolving credit line is due
May 26, 2001. Under the terms of the loan agreement,  the Company is required to
maintain  financial  covenants and ratios,  including book net worth, net income
and debt  service  coverage.  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.
At June 30, 2000 the Company  was in default of certain of these  covenants.  On
August 4, 2000 the Company and its lending  institution  entered  into an Eighth
Amendment to the Credit  Agreement  (the "Eighth  Amendment").  Pursuant to this
amendment  certain  definitions have been modified as follows:  (i) the accounts
receivable  advance rate decreases from 78% to 77.5% and shall be reduced by one
half of one percent on August 7, 2000 and on each Monday  thereafter  until such
rate is equal to 70%. (ii) the interest rate on the equipment  loan changes from
prime plus 3 percent to prime plus 5.25 percent, (iii) the interest rate on the

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<PAGE>

revolving  line of credit  increases  from  prime plus 3 percent to prime plus 5
percent, (iv) the inventory advance rate decreases to 47.5% and shall be reduced
by one-half of one percent on August 7, 2000 and on each Monday thereafter until
such rate is equal to 30%, and (v) the maximum line decreases from $2,500,000 to
$2,200,000.

     On May 22, 1998, the Company 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
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

                                       21

<PAGE>

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
the court to award to the Company the  proceeds of the sales by WAC and/or Muito
Bem of the shares that the Company was  compelled by Merrill  Lynch to reinstate
on the  basis  that  those  entities  and  their  principals  had been  unjustly
enriched.  In a settlement  among Wood,  WAC,  Muito Bem,  Merrill Lynch and the
Company,  the Company  received cash in the amount of $200,714,  in exchange for
which it released its claims for further  damages  against Wood,  WAC, Muito Bem
and Merrill Lynch.

     On April 4, 2000 the Company  recognized as having  previously  been issued
the 208,000 shares of common stock.  As a result,  the Company  recognized a one
time  non-cash  expense of $169,733,  which is the  difference  between the fair
market value of the 208,000 shares on the date of such recognition, or $370,447,
and the $200,714 cash received.

     June 30, 2000 Compared to December 31, 1999

     As of June  30,  2000,  the  Company  had  liquid  assets  (cash  and  cash
equivalents and  receivables) of $2,425,000,  an increase of 24.9%, or $484,000,
from  December  31, 1999 when  liquid  assets were  $1,941,000.  Cash  decreased
$176,000,  or 71.9%,  to $69,000 at June 30, 2000 from  $245,000 at December 31,
1999. The decrease in cash was primarily the result of the Company utilizing its

                                       22

<PAGE>

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
$526,000,  or 31.0%,  to $2,222,000 at June 30, 2000 from $1,696,000 at December
31, 1999 due to the nature and timing of payments received.

     Current  assets  increased by $303,000,  or 5.7%, to $5,623,000 at June 30,
2000 from  $5,320,000  at December 31, 1999.  This  increase was  primarily  the
result of an increase in trade  accounts  receivable  of $526,000,  as discussed
above, and accounts receivable-other of $60,000. The increase was offset in part
by a decrease in cash of $176,000,  discussed above,  inventory levels decreased
by $143,000 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 $39,000.

     Long-term  assets  decreased  $136,000,  or 3.0%, to $4,332,000 at June 30,
2000 from  $4,468,000  at December 31, 1999.  This  decrease was  primarily  the
result  of  recurring  depreciation  expense  on  building  and  equipment,  and
amortization of deferred loan costs, and other intangibles.

     Current  liabilities  decreased by $1,311,000,  or 21.5%,  to $4,800,000 at
June 30, 2000 from  $6,111,000 at December 31, 1999. This decrease was primarily
due to a decrease of  $1,649,000  in  convertible  debentures as a result of the
Company's February 14, 2000 agreement to retire the convertible  debentures,  as
well as a decrease in accrued  advertising  of $171,000.  These  decreases  were
off-set in part by an increase of $460,000 in trade accounts payable as a result
of the Company negotiating extended terms with some of its major suppliers,  and
$49,000 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  $1,614,000,  or 204.0%,  to
$823,000 at June 30, 2000 from  ($791,000) at December 31, 1999, for the reasons
described above.

     The Company used net cash of $1,032,000 in operating  activities during the
six months ended June 30, 2000,  primarily from the net loss incurred during the
period,  an  increase  in trade  accounts  receivable  and a decrease in accrued
advertising,  offset in part by decreased  inventory levels and prepaid expenses
as well as an increase in accounts payable.

     The Company  used net cash of $121,000 in investing  activities  during the
six  months  ended  June  30,  2000,  primarily  for  capital  expenditures  for
equipment.

     The Company provided net cash of $978,000 from financing  activities during
the six months ended June 30, 2000.  The increase was  primarily due to proceeds
from the issuance of common stock  related to two separate  private  placements,
proceeds  from  the  deposit  for  stock  issuance  and from  proceeds  from the
reissuance  of common  stock  (see 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.

     Based on current  operations  and, after  accounting for  anticipated  cost
savings  through  an  aggressive  restructuring  plan and  associated  operating
efficiencies and reductions in selling, and general and administrative expenses,
the Company  believes that its present sources of liquidity will not be adequate
to meet its projected  requirements for working capital,  capital  expenditures,
scheduled debt service requirements and other general corporate purposes for the
remainder  of 2000.  The Company  therefore  will pursue  additional  sources of
liquidity in the form of commercial  credit or additional sales of the Company's
debt or equity  securities  during the second half 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.

                                       23

<PAGE>

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.


                                       24

<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

                                       25

<PAGE>

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
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  June 30, 2000,  the Company had received no response  from
the Enforcement  Division about whether the SEC plans to name the Company in any
administrative action.

     In addition, the Company has previously disclosed that it has been informed
of an investigation  by the Enforcement  Division of the Securities and Exchange
Commission.  The Company  believes this  investigation  concerns certain trading
activity in the  Company's  common stock and other  transactions  involving  the
Company's  securities,  however,  the  Company  has  not  been  informed  of the
specifics of such  investigation.  The Company is  cooperating  fully with these
administrative  proceedings.  Any finding or order of the Commission  adverse to
the Company or any judgment against the Company in any of the pending litigation
matters,  would have an adverse effect on the business,  financial  condition or
results of operations of the Company, or the market for its common stock.

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

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

                                       26


<PAGE>

Item 2.  Changes in Securities and Use of Proceeds

     In July 2000, the Company  conducted a private  placement of its restricted
common stock to three investors pursuant to a Stock Purchase Agreement dated May
18,  2000.  The closing of that  private  placement  occurred on July 11,  2000,
although funds were received by the Company in connection with that placement on
various dates in May, June and July 2000.  Pursuant to the private placement the
Company  received  proceeds  of  $775,000,  all of which was used for  operating
capital. The purchase price of such securities was 100% of the closing bid price
of the Company's common stock, as quoted by The Nasdaq Stock Market,  on May 18,
2000,  the day as of  which  the  Stock  Purchase  Agreement  was  executed.  In
connection  with the private  placement,  the Company  issued a total of 590,476
shares of its restricted common stock to the three investors. 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  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.

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).

         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).

                                       27

<PAGE>

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

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

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

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

         10.16    Stock Purchase Agreement between the Company and three
                  investors, dated as of May 18, 2000.

         27       Financial Data Schedule.

(b)    Forms 8-K

None

                                       28

<PAGE>




                                   SIGNATURES

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

DYNATEC INTERNATIONAL, INC.

/s/ Frederick W. Volcansek, Sr.                      August 14, 2000
--------------------------------------               ---------------
Frederick W. Volcansek, Sr.                          Date
Chairman & Chief Executive Officer

/s/ Mark W. Sperry                                   August 14, 2000
--------------------------------------               ---------------
Chief Accounting Officer                             Date