<PAGE>

                       U.S. 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 Quarter Ended June 30, 1998,
                          Commission file number:  0-12806  
                                          
                            DYNATEC INTERNATIONAL, INC.
                            ---------------------------  
                   (Name of small business issuer in its charter)
                                          
          Utah                                         87-0367267
          ----                                         ----------
          (State or other jurisdiction            (I.R.S. Employer
          of incorporation or                     Identification No.)
          organization)

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

Issuer's telephone  number:       (801) 973-9500
                                  --------------
Securities registered under Section 12(b) of the Exchange Act: None
                                  
Securities registered under to Section 12(g) of the Exchange Act:
           Common Stock (Par Value $0.01 per share)
           ----------------------------------------
                       (Title of Class)

     Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the 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.  Yes X  No
                                                                       ---   ---
     As of August 13, 1998, the Registrant had 2,675,112 shares of Common Stock
outstanding.  The aggregate market value of voting stock held by non-affiliates
of the Company at August 13, 1998 was $13,704,878.
     
Transitional small business disclosure format.  Yes    No  X 
                                                   ---    ---


                                     1
<PAGE>


                          PART I. - FINANCIAL INFORMATION
                                          

ITEM 1 - FINANCIAL STATEMENTS

     Reference is made to the attached Unaudited Consolidated Condensed
Financial Statements for the first six months of the 1998 and 1997 calendar
years.  These condensed financial statements are hereby incorporated by
reference.  The information for the Company's first six months of calendar years
1998 and 1997 ended June 30, 1998 and 1997 is unaudited, but in the opinion of
management reflects all adjustments which are necessary for a fair presentation
of operations for such periods.


                                     2
<PAGE>

ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION 
         AND RESULTS OF OPERATIONS

RESULTS OF OPERATIONS:

     For the six months ended June 30, 1998, the Company generated total
revenues of $8,363,758 compared to total revenues of $6,045,561 in the prior six
month period ended June 30, 1997.  Comparative period revenues increased
$2,318,197 or 38%, reflecting the largest revenues ever earned by the Company
during the first two quarters of any calendar year since the Company's
inception.

     Overall, the Company experienced a net income of $3,233 for the first 
two quarters of 1998 compared to a net loss of $433,144 for the first two 
quarters of 1997, primarily due to the $580,000 sale of non-exclusive rights 
to market Company products to an overseas supplier and increased sales of 
$2,318,197 over the prior year.  These increases were largely offset by the 
one-time, non-cash recognition of warrant premium ($426,000) associated with 
warrants issued to investors who purchased convertible debentures and the 
non-cash recognition of a beneficial conversion premium of $166,667 during 
the second quarter of 1998.  Approximately another $122,500 will be 
recognized in the third quarter relating to warrant premium on the final 
issuance of convertible debentures to take place upon the effective 
registration of the shares underlying the credit agreement as well as 
approximately $400,000 of additional beneficial conversion premium expense as 
non-cash expenses relative to the convertible debentures.  The convertible 
debentures and associated equity line of credit are described more fully in 
the Liquidity and Capital Resources section below.

TELEPHONE ACCESSORIES:

     For the two quarters ended June 30, 1998, there was an overall increase of
$379,542 (13%) in the revenues generated from the Telephone Accessory product
segment of the Company compared to total revenues for the same period in 1997. 
Although the sales mix for various shoulder rests changed slightly, overall 1998
sales of shoulder rests increased by approximately $212,219 over 1997 sales.  
The remainder of the increase was attributable to increased volume on sales of
other telephone accessory products. 

HARDWARE/HOUSEWARES:

     The Hardware/Housewares products segment produced an increase in revenues
during the six month period ended June 30, 1998 of $252,751 or 14% compared to
the period ended June 30, 1997.  During the latter part of 1997, the Company
introduced several new drawer organizer products which have accounted for the
majority of the increase in the current year.  Sales in this segment continue to
grow as the Company continues to aggressively market and expand the housewares
product lines.

MASS MARKET:

     Sales in the Mass Market segment were down from $833,049 for the quarter
ended June 30, 1997 compared to $830,212 for the quarter ended June 30, 1997.  
Virtually all of the sales in 

                                     3
<PAGE>

this segment were to Dolgencorp, Inc. Historically, products in this segment 
have consisted of cameras, audio cassette tapes, crayons, three piece 
flashlights, and disposable lighters.

FLASHLIGHTS:

     Total sales in the Flashlight segment were $635,665 compared to $404,178 
for the periods ended June 30, 1998 and 1997, respectively.   The Company 
continues the development of stronger relationships with overseas vendors to 
ensure the timely delivery of reliable, high-quality flashlight products. 
Earlier plans represented by a letter of intent to form a joint 
venture/partnership with a  flashlight supplier in Taiwan have been 
determined to not be in the best interest of the Company.

TELECOMMUNICATIONS HEADSETS

     Revenues in the Telecommunication  Headset segment were $895,787 for the
six month period ending June 30, 1998 compared to $-0- for the same period in
1997.  The Company has been aggressively developing a line of telecommunications
products to include wired and wireless telephone headsets, telephones,
conference speakers, and other products.   In the first quarter of 1998, initial
orders for telephonic amplifiers and headsets were filled with Lucent
Technologies.  The Company has been able to secure pages in several catalogues
of providers for various office products coming out during the second and third
quarters.

     In the period ended March 31, 1998, the Company recognized revenue related
to an agreement with an overseas supplier whereby non-exclusive rights to market
Company products internationally were sold for $580,000.  According to the
agreement, the purchase price was paid by the sale of Company stock owned by the
supplier.  

EXPENSES

     Overall gross margins of the Company, excluding the non-exclusive sale of
product rights for $580,000, for the six months ending June 30, 1998 and 1997
were 35% and 32% , respectively.  This overall increase in gross margin is
largely attributable to increased sales of telephone accessory and headset
products which have gross margins ranging from 35% to 50%. 

     The Company spent $73,695 and $167,878 in research and development expenses
for the six months ending June 30, 1998 and 1997.  Most of the research and
development expenses over these two periods was spent in developing the headset
and flashlight product lines. Research and development expenses have decreased
during 1998, as current year research and development efforts relate to product
enhancements as opposed to initial product development.
 
LIQUIDITY AND CAPITAL RESOURCES:

     At June 30, 1998, the Company experienced a net decrease in its cash
position of $111,908 from December 31, 1997.  The Company had a decrease in cash
from operations of  

                                     4
<PAGE>

$1,569,629.  The majority of this decrease was caused by increases in 
accounts receivable ($1,011,812) and inventory ($1,712,002) partially offset 
by income from the first two quarters. The increase in inventories reflects 
purchases made to prepare for catalogue sales of telephony headset products 
and to fill mass merchandise orders received for the third and fourth 
quarters. The Company experienced a net increase in cash position resulting 
from financing activities reflecting the receipt of funds ($940,000) pursuant 
to a future Regulation S stock offering, as authorized by the Board of 
Directors in March of 1997, and the issuance of $1,500,000 pursuant to the 
sale of convertible debentures (explained more fully below).   A net use of 
cash in investing activities reflects the capital expenditures of $356,232 
during the first two quarters of 1998.  The Company anticipates that the 
inventory and related payables will increase throughout 1998 as sales 
increase in the flashlight and telecommunication headset segments.
                              
     Current assets increased from $5,092,374 at December 31, 1997 to $7,224,092
at June 30, 1998.   Of this increase, approximately $1,712,002 reflects
increases in inventory partially funded by increases under the line of credit
facility of $307,545 as the Company prepares for increased sales in calendar
year 1998.  Additionally, accounts receivable also increased due to increased
first quarter sales of approximately $656,509 over fourth quarter 1998. 

     On May 22, 1998, the Company closed a transaction that has provided net
capital proceeds of $1,335,000.  These funds have been raised pursuant to the
sale by the Company of a Convertible Debenture in the face amount of $1,500,000
to meet immediate cash needs under an equity line of credit.  The debentures are
convertible into common stock of the Company at the lessor of:  (i) seventy five
percent of the average of the three lowest closing bid prices of the Common
Stock during the ten day trading period immediately preceding the conversion
date or (ii) one hundred percent of the closing bid price on the trading day
immediately preceding the closing date of the agreement.  The transaction has
been accomplished pursuant to a Convertible Debenture and Private Equity Line of
Credit Agreement (the "Credit Agreement") between the Company and a group of
five investors which have not previously been shareholders of the Company.  In
addition, the Company can use a "put" mechanism to periodically draw down up to
$10,000,000.  Under the terms of the Credit Agreement, a minimum of $1,000,000
must be drawn in increments of not less than $50,000 in exchange for common
stock of the Company issued at 80 percent of the average of the three lowest bid
prices during the six day valuation period consisting of three days prior to the
put and ending two days after the put date.   The put mechanism cannot be 
utilized until after the effective date of the registration statement for the 
underlying stock of the Credit Agreement.  Additionally, upon registration of 
the underlying shares which may be purchased pursuant to the convertible 
debentures, the Company will receive an additional $500,000 of gross sales 
proceeds.

     In connection with the Credit Agreement, the investors and placement agent
were issued warrants.  These warrants have been issued as Series A and Series B
as follows:

<TABLE>
<CAPTION>
                                     Placement  Exercise
                         Investors     Agent     Price
                         ---------   ---------  --------
     <S>                 <C>         <C>        <C>
     Series A Warrants    150,000     150,000    $6.50
     Series B Warrants    150,000     300,000    $7.15
</TABLE>
 
                                        5
<PAGE>

The Company is to issue an additional 50,000 Series A warrants each to both 
the placement agent and the investors upon receipt of the additional $500,000 
of gross sales proceeds.  The market value for the Series A warrants issued to 
the investors has been written off as a one-time, non-cash debt issuance cost 
of $426,000 as the warrants are immediately exercisable.   The market value of 
the Series A warrants issued to the placement agent have been capitalized and 
will be written off by the Company over the 36 month life of the debentures. 
Although these debt issuance costs are non-cash items, current GAAP requires 
disclosure for the market value of warrants issued along with convertible 
debentures.  In addition, because the debentures are convertible at a 25 
percent discount from the market value, an additional $500,000 (the intrinsic 
value of the beneficial conversion premium) of the proceeds received were 
established as a contra-debt account and $166,667 of this premium was written 
off as a non-cash expense for the second quarter of 1998. These non-cash 
amortization and write-off of the market value of warrants issued is included 
with interest expense in the income statement.  Upon the effective date of the 
registration statement, the market value of the warrants issued to the 
investors in connection with the $500,000 of convertible debentures will also 
be written off (estimated to be an additional third quarter non-cash expense 
of $121,500) and the remaining beneficial conversion premium will be written 
off as a third quarter, non-cash item.  The Series B warrants which have been 
issued have no current impact to the Company financial statements, as they 
were issued in connection with the equity line of credit.

     On May 27, 1998, the Company obtained a new, revolving line-of-credit from
a financing institution up to $5,000,000 bearing interest at a rate of prime
plus one percent with interest payable monthly.  The line is secured by both
accounts receivable and inventories.  The note is due May 26, 2001.  Under the
terms of the agreement, the Company is required to maintain certain covenants
and ratios including book net worth, net income, and debt service coverage.  

PART II - OTHER INFORMATION

ITEM 1 - LEGAL PROCEEDINGS

     On June 16, 1998, Canaccord Capital Corporation ("Canaccord"), a Canadian 
broker/dealer, filed an action against the Company in the U.S. District Court 
in Salt Lake City, Utah.  The action seeks an order compelling the issuance of 
125,000 shares of Dynatec stock.  Canaccord and the Company agree that the 
Company, or its transfer agent, had erroneously over-issued shares of stock to 
Canaccord in early 1997.  In September 1997, Canaccord tendered certificates 
for other shares in acknowledgment of a separate over-issuance.  Management of 
the Company believed that an additional 125,000 shares had been over issued.  
The disputed certificate was subsequently returned to the transfer agent and 
cancelled under the direction of the Board of Directors of the Company.  This 
action was taken by the Company based upon the understanding of management 
that the entity believed by the Company based upon the understanding of 
management that the entity believed by the Company to be holding the 
beneficial interest in the certificate had not paid for the shares, and was 
not a holder in due course or a "protected person" under applicable Uniform 
Commercial Code provisions. On August 3, 1998, the Court entered an order 
granting the preliminary injunction in favor of Canaccord and compelling the 
issuance of a stock certificate to Canaccord's designee for the disputed 
125,000 shares of stock.  If one of the other entities now named in the 
litigation should subsequently establish a right to the issuance of 125,000 
shares of the stock of the Company, Dynatec may be required to issue 
additional shares.  Dynatec intends to continue to pursue its claim for 
damages and declaratory relief in this litigation.

                                        6
<PAGE>

     As disclosed in the Form SB-2 registration statement of the Company filed 
with the SEC on June 26, 1998, the Company has received a telephonic contact 
from the SEC indicating that the SEC anticipates filing an administrative 
proceeding in the later part of calendar year 1998 against various individuals 
and entities which had engaged in business transaction with a British Columbia 
corporation and/or a non-U.S. business trust.  The SEC representative 
indicated that the Company and its chief executive officer may be named in 
such agency action.  The Company has submitted a Wells Submission to the SEC 
to clarify its position as to why it and its CEO should not be named in the 
administrative proceeding. The Company did enter into two 1994 subscription 
agreements with the British Columbia corporation and two simultaneous 
subscription agreements with the business trust in early 1995. However, none 
of the transactions were fully consummated and the Company received no 
consideration with regard to the transactions. The Company believes that its 
actions involving the four referenced subscription agreements are 
significantly different from the transactions engaged in with such entities by 
other public companies. In this regard, the Company insisted on the use of a 
different restrictive legend on its stock certificates which were to be held 
in escrow pursuant to the proposed transactions. Further, the Company made a 
press release on the day following the first such transaction, and mailed Form 
8-K reports to the SEC no later than the day following each of the 
transactions. Such actions were intended to immediately put all third parties, 
and the investigating public, on notice of the unpaid nature of the 
subscriptions. Although the SEC is not bound by comments of its staff members, 
the SEC representative which communicated with the Company has stated that the 
sole remedy which might be pursued against the Company would be a cease and 
desist order precluding the Company from engaging in transactions of this 
nature. The Company has not pursued any such transaction since early 1995 and 
has no intention of doing so. The SEC representative has also indicated that 
the staff is not recommending any monetary penalties against the Company. The 
SEC Representative further acknowledges that, unlike other companies under 
investigation in the matter, the Company had received no funds in the 
transactions and that no disgorgement of proceeds would be sought. Based upon 
this information, the Company does not presently anticipate any material 
financial statement impact as a result of the referenced investigation. 

ITEM 5 - OTHER INFORMATION

For a period of approximately one year, the NASD has requested from the Company
through several letters certain documents related to the foregoing litigation,
stock transactions and related matters. The Company is traded on the Nasdaq
SmallCap market and has a contractual obligation to provide such requested
information. The Company has cooperated in providing such documentation.

The Board of Directors of the Company has unanimously approved an 
investigation of the matters referred to in the Legal Proceedings Section 
above. The Company's relationship and practices with the Company's transfer 
agent, certain related party transactions and other issues which were the 
subject of a recent preliminary inquiry conducted by certain members of the 
Board of Directors, the actions of officers of the Company with regard to such 
matters, and other related and unrelated corporate activities to assure that 
proper safeguards and policies are in place or are implemented which will 
assist the Board of Directors in monitoring the business activities of the 
Company. The Board is to be assisted in this review by independent outside 
counsel who will coordinate his efforts with current corporate counsel.

                                        7
<PAGE>

ITEM  6 - EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES AND REPORTS ON FORM -8K

(a.)   Exhibit List.
       Exhibit 27-SDS
     
(b.)   Reports on Form 8-K.
       None

                                 SIGNATURES


     Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized on the August 16,1998


                              DYNATEC INTERNATIONAL, INC.


                              -------------------------------------
                              Donald M. Wood
                              Chief Executive Officer--Chairman


                              -------------------------------------
                              Jerry R. Andersen
                              Chief Financial Officer--Vice President


                                        8
<PAGE>

 EXHIBIT 1















                             DYNATEC INTERNATIONAL, INC. 
                                           
                            CONDENSED FINANCIAL STATEMENTS

                                June 30, 1998 and 1997











                                        1
<PAGE>



                                   C O N T E N T S 

     

                                                                           Page

CONDENSED BALANCE SHEETS                                                     3

CONDENSED STATEMENTS OF OPERATIONS                                           5

CONDENSED STATEMENTS OF CASH FLOWS                                           6

NOTES TO CONDENSED FINANCIAL STATEMENTS                                      8



                                        2
<PAGE>


                            DYNATEC INTERNATIONAL, INC.
                              Condensed Balance Sheets
                        JUNE 30, 1998 AND DECEMBER 31, 1997


<TABLE>
<CAPTION>
                                                              June 30, 1998   Dec. 31, 1997
                                                                (Unaudited)      (Audited)
                                                            ---------------   ------------
<S>                                                          <C>              <C>
ASSETS
CURRENT ASSETS
 Cash                                                           $   220,986     $  332,894
 Trade accounts receivable, net of allowance for doubtful
      accounts of $31,257 in 1998 and $29,684 in 1997             2,551,700      1,549,888
 Related party and other receivables                                 43,728        426,131
 Inventories (Note 2)                                             4,234,151      2,522,149
 Prepaid expenses                                                   151,997        234,120
 Other                                                               21,530         27,192
                                                            ---------------   ------------
          TOTAL CURRENT ASSETS                                    7,224,092      5,092,374

PROPERTY, PLANT AND EQUIPMENT, NET                                4,014,377      3,941,587

OTHER ASSETS
 Deposits                                                            69,425        107,631
 Debt issue costs (Note 9)                                          682,150              -
 Intangible assets, net                                             236,834        267,825
                                                            ---------------   ------------
          TOTAL OTHER ASSETS                                        988,409        375,456
                                                            ---------------   ------------
                    TOTAL ASSETS                                $12,226,878     $9,409,417
                                                            ---------------   ------------
                                                            ---------------   ------------
</TABLE>

The accompanying notes are an integral part of these condensed financial
statements.

                                        3
<PAGE>


                            DYNATEC INTERNATIONAL, INC.
                        CONDENSED BALANCE SHEETS (CONTINUED)
                        JUNE 30, 1998 AND DECEMBER 31, 1997
<TABLE>
<CAPTION>
                                                              June 30, 1998  Dec. 31, 1997
                                                               (Unaudited)     (Audited)
                                                            ---------------  ------------
<S>                                                           <C>             <C>
LIABILITIES AND EQUITY                     
CURRENT LIABILITIES
  Short-term note payable                                       $ 1,638,714   $ 1,331,169 
  Current portion of long-term debt                                 174,673     1,003,477 
  Current portion of capital lease obligations                       15,892        15,699 
  Accounts payable                                                  947,216       992,632 
  Accounts payable-other (Note 7)                                 1,232,375        85,000 
  Accrued expenses                                                  205,110       238,121 
  Accrued advertising                                               191,595       350,000 
  Accrued royalties payable                                          38,235        17,882 
  Accrued income taxes                                                    -             - 
                                                            ---------------  ------------
              TOTAL CURRENT LIABILITIES                           4,443,810     4,033,980 

LONG-TERM LIABILITIES
  Long-term debt                                                  2,118,937     1,994,355 
  Capital lease obligations                                          37,507        46,086 
  Deferred income taxes                                               5,036         5,036 
  Convertible debentures                                          1,186,393         5,036 
                                                            ---------------  ------------
              TOTAL LIABILITIES                                   7,791,683     6,084,493 

STOCKHOLDERS' EQUITY (Note 7)
  Common stock, $.01 par value, authorized 100,000,000 shares
     2,766,627 issued at June 30, 1998 and
     2,859,940 issued at December 31, 1997                           27,667        28,599 
  Treasury stock, at cost, 91,515 shares                           (915,150)     (915,150)
  Additional paid-in capital                                      6,699,774     5,596,840 
  Accumulated deficit                                            (1,377,096)   (1,380,329)
                                                            ---------------  ------------
              TOTAL STOCKHOLDERS' EQUITY                          4,435,195     3,329,960 

TOTAL LIABILITIES & STOCKHOLDERS' EQUITY                        $12,226,878   $ 9,414,453 
                                                            ---------------  ------------
                                                            ---------------  ------------
</TABLE>

The accompanying notes are an integral part of these condensed financial
statements.


                                        4
<PAGE>


                            DYNATEC INTERNATIONAL, INC.
                         CONDENSED STATEMENTS OF OPERATIONS
             FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 1998 AND 1997
                                    (UNAUDITED)

<TABLE>
<CAPTION>
                                                Three Months    Three Months      Six Months      Six Months
                                               Ended June 30,  Ended June 30,  Ended June 30,   Ended June 30,
                                                     1998          1997              1998            1997
                                              --------------  --------------   -------------   -------------
<S>                                           <C>              <C>             <C>              <C>
REVENUE AND PRODUCT RIGHTS (Note 10)              $4,135,972      $3,490,943      $8,363,758      $6,045,561
COST OF SALES                                      2,746,298       2,344,651       5,027,349       4,124,434
                                              --------------  --------------   -------------   -------------
GROSS PROFIT                                       1,389,674       1,146,292       3,336,409       1,921,127
EXPENSES                                                                                         
  Selling expenses                                   721,364         531,829       1,387,131       1,119,578
  Research and development                            40,495          31,724          73,695         167,878
  General and administration expenses                510,755         468,030         949,970         925,594
  Provision for losses on accounts receivable         10,000           8,500          10,000          13,500
                                              --------------  --------------   -------------   -------------
         TOTAL EXPENSES                            1,282,614       1,040,083       2,420,796       2,226,550
                                              --------------  --------------   -------------   -------------
OPERATING GAIN (LOSS)                                107,060         106,209         915,613        (305,423)

OTHER INCOME/(EXPENSE)                                                                           
  Interest income                                          -           2,033           3,340           6,015
  Interest expense (Note 9)                         (787,379)       (120,058)       (894,388)       (223,772)
  Loss on sale of asset                                 (326)              -         (21,332)              -
  Miscellaneous                                            -          90,536               -          90,536
                                              --------------  --------------   -------------   -------------
TOTAL OTHER EXPENSE                                 (787,705)        (27,489)       (912,380)       (127,221)
                                              --------------  --------------   -------------   -------------
INCOME (LOSS) FROM CONTINUING OPERATIONS            (680,645)         78,720           3,233        (432,644)
INCOME TAX EXPENSE (Note 6)                                -               -               -            (500)
                                              --------------  --------------   -------------   -------------
NET INCOME (LOSS)                                 $ (680,645)     $   78,720      $    3,233      $ (433,144)
                                              --------------  --------------   -------------   -------------
                                              --------------  --------------   -------------   -------------
BASIC NET INCOME (LOSS) PER SHARE                 $    (0.24)     $     0.04      $     0.00      $    (0.20)
                                              --------------  --------------   -------------   -------------
                                              --------------  --------------   -------------   -------------
DILUTED NET INCOME (LOSS) PER SHARE (Note 3)      $    (0.24)     $     0.03      $     0.00      $    (0.20)
                                              --------------  --------------   -------------   -------------
                                              --------------  --------------   -------------   -------------
</TABLE>

The accompanying notes are an integral part of these condensed financial
statements.


                                        5
<PAGE>



                            DYNATEC INTERNATIONAL, INC.
                         CONDENSED STATEMENTS OF CASH FLOWS
             FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 1998 AND 1997
                                    (UNAUDITED)

<TABLE>
<CAPTION>
                                                           Six Months      Six Months
                                                         Ended June 30,   Ended June 30,
                                                              1998            1997
                                                         --------------   --------------
<S>                                                      <C>              <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)                                          $     3,233    $  (433,144)
Adjustments to reconcile net income (loss) to net cash
 used in operating activities:
Depreciation                                                   203,198        224,220
Amortization                                                    30,741         32,134
Interest expense on convertible debentures (Note 9)            624,226              -
Loss on sale of assets                                          21,332              -
Provision for losses on accounts receivable                     10,000         13,500
Changes in operating assets and liabilities:
  Trade accounts receivable                                 (1,011,812)      (617,979)
  Related party and other accounts receivable                  382,403           (410)
  Inventories                                               (1,712,002)      (403,990)
  Prepaid expenses                                              82,123       (173,531)
  Other                                                          5,662        (87,492)
  Deposits                                                      38,206        (96,032)
  Accounts payable                                             (45,416)       107,174
  Accounts payable-other                                       (42,625)             -
  Accrued expenses                                             (20,846)       289,439
  Accrued advertising                                         (158,405)             -
  Accrued royalties payable                                     20,353         11,555
  Income tax payable                                                 -           (100)
                                                         --------------   --------------
NET CASH USED IN OPERATING ACTIVITIES                      $(1,569,629)   $(1,134,656)
                                                         --------------   --------------
</TABLE>

The accompanying notes are an integral part of these condensed financial
statements.

                                      6
<PAGE>

                             DYNATEC INTERNATIONAL, INC.
                  CONSDENSED STATEMENTS OF CASH FLOWS (CONTINUED)
             FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 1998 AND 1997
                                    (UNAUDITED)

<TABLE>
<CAPTION>
                                                                Six Months Ended   Six Months Ended
                                                                   June 30, 1998      June 30, 1997
                                                                ----------------   ----------------
<S>                                                             <C>                <C>
CASH FLOWS FROM INVESTING ACTIVITIES:                                               
  Proceeds from sales of assets                                       $   47,000        $        -
  Receivable from related parties                                              -           115,419
  Capital expenditures                                                  (356,232)         (132,293)
                                                                ----------------   ----------------
NET CASH USED IN INVESTING ACTIVITIES                                   (309,232)          (16,874)
                                                                ----------------   ----------------
CASH FLOWS FROM FINANCING ACTIVITIES:                                               
  Net borrowings under line of credit agreements                         307,545           249,080
  Increase in debt issuance costs                                       (267,983)                -
  Net borrowings (payments) on long-term debt                           (704,222)          285,433
  Net borrowings (payments) on capital lease obligations                  (8,387)          (12,784)
  Net borrowings under convertible debentures (Note 9)                 1,500,000    
  Cash received for future Regulation S offerings (Note 7)               940,000                 -
  Issuance of Stock pursuant to Regulation S offerings                         -           500,000
                                                                ----------------   ----------------
NET CASH PROVIDED BY FINANCING ACTIVITIES                              1,766,953         1,021,729
                                                                ----------------   ----------------
DECREASE IN CASH                                                        (111,908)         (129,801)
CASH AT BEGINNING OF PERIOD                                              332,894           240,145
                                                                ----------------   ----------------
CASH AT END OF PERIOD                                                 $  220,986        $  110,344
                                                                ----------------   ----------------
                                                                ----------------   ----------------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW                                               
  INFORMATION:                                                                      
Cash paid for interest                                                $  118,818        $   93,587
Cash paid for income taxes                                                   --                400
Share certificate cancelled (Note 7)                                     250,000    
Debt issuance cost attributable to warrants to placement agent           426,000    
Convertible debt discount associated with warrants to investors          426,000    
Beneficial conversion premium on debentures                              166,667
</TABLE>

The accompanying notes are an integral part of these condensed financial
statements.

                                      7
<PAGE>

                            DYNATEC INTERNATIONAL, INC.
                      NOTES TO CONDENSED FINANCIAL STATEMENTS
                 FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND 1997

NOTE 1 -  BASIS OF PRESENTATION

          The accompanying unaudited, condensed financial statements have been
          prepared in accordance with the instructions to Form 10-QSB, and
          therefore, do not include all information and footnotes necessary for
          a complete presentation of the results of operations, the financial
          position, and cash flows, in conformity with generally accepted
          accounting principles.  This report on Form 10-QSB for the six months
          ended June 30, 1998 should be read in conjunction with the Company's
          annual report on form 10-KSB for the year ended December 31, 1997.
               
          The accompanying unaudited condensed consolidated financial balance
          sheets, statements of operations and cash flows reflect all normal
          recurring adjustments which are, in management's opinion, necessary
          for a fair presentation of the Company's financial position, results
          of operation, and cash flows.  The results of operations for the
          interim period ended June 30, 1998 are not necessarily indicative of
          the results to be expected for the full year.
     
NOTE 2  - INVENTORIES
               
          Effective January 31, 1998, the Company changed its method of
          determining the cost of inventory from last-in, first-out (LIFO)
          to first-in, first-out (FIFO).  Historically, the difference
          between the LIFO and current costs of inventories has been
          immaterial.
               
          Inventories, consisting principally of telephone accessory,
          hardware/houseware, flashlights, telecommunication headsets, and
          other miscellaneous products sold to mass market merchandisers as
          of June 30, 1998 and December 31, 1997 are summarized as follows:

<TABLE>
<CAPTION>
                                               June 30        December 31
                                                1998              1997
                                            -----------       -----------
                    <S>                      <C>               <C>
                    Raw                      $1,382,766        $  831,483
                    Finished                  2,851,385         1,690,666
                                            -----------       -----------
                                             $4,234,151        $2,522,149
                                            -----------       -----------
                                            -----------       -----------
</TABLE>

NOTE 3 -  NET EARNINGS PER SHARE
               
          On December 31, 1997, the Company adopted the provisions of FAS No.
          128, Earnings Per Share.  FAS 128 requires the presentation of both
          basic and diluted earnings per share (EPS).  Basic EPS is the amount
          of net income or loss divided by the weighted average number of shares
          of common stock outstanding. Diluted EPS is the amount of income or
          loss for the period divided by the weighted average number of shares
          plus all potentially dilutive common shares.
               
          In calculating EPS, the earnings were the same for both the basic and
          diluted calculation.  The effect of common stock options is not
          included in the 1997 calculation as such options would 

                                      8
<PAGE>


          be anti-dilutive.  A reconciliation between the basic and diluted 
          weighted-average number of shares outstanding as of June 30, 1998 
          and 1997 is summarized as follows:

<TABLE>
<CAPTION>
                                                                              1998          1997
                                                                         -----------     ----------
          <S>                                                            <C>             <C>
          Basic weighted-average number of shares                          2,786,799      2,160,913
          Weighted-average number of shares of potential common stock        658,517        150,336
                                                                         -----------     ----------
          Diluted weighted-average number of shares                        3,445,316      2,311,249
                                                                         -----------     ----------
</TABLE>
     
NOTE 4 -  YEAR 2000
               
          During 1997, the Company developed a plan to deal with the Year 2000
          problem and began converting its computer systems to be Year 2000
          compliant.  During the fourth quarter of 1997 and the first quarter of
          1998, the Company began converting to a new accounting and materials
          resource planning software program.  The Year 2000 problem is the
          result of the computer programs being written using two digits rather
          than four to define the applicable year.  The Company is capitalizing
          costs associated with the new software as the new software is being
          implemented to provide better inventory tracking and accounting
          controls.  All other system changes are being expensed as incurred.  
          The Company does not anticipate any year 2000 compliance problems.
     
NOTE 5 -  NEW ACCOUNTING PRONOUNCEMENTS
               
          The Company adopted Financial Accounting Standards No. 130 (SFAS 130),
          Reporting Comprehensive Income, effective January 1, 1998.  SFAS 130
          establishes standards for reporting and displaying comprehensive
          earnings and its components in financial statements.  As of March 31,
          1998, the Company has no items to report as components of
          comprehensive income.
               
NOTE 6  - INCOME TAXES
          
          The Company has net operating loss carryforwards from prior years
          which will exceed the income generated for the first two quarters of
          1998. The deferred tax asset related to these carryforwards was fully
          reserved for as of December 31, 1997.  The income tax expense
          reflected in the second quarter of 1998 reflects anticipated
          alternative minimum tax.

NOTE 7 -  STOCKHOLDERS' EQUITY
          
          As of June 30, 1998, $940,000 in funds, which is included in accounts
          payable-other in the accompanying condensed balance sheet, has been
          received in anticipation of future Regulation S common stock offerings
          as approved by the Board of Directors in March 1997.  The terms and
          agreements for these stock offerings are still under negotiation. 
          Regulation S stock is typically sold at a significant discount from
          market value because of its restricted nature.
          
          On June 16, 1998, Canaccord Capital Corporation ("Canaccord"), a
          Canadian broker/dealer, filed 

                                      9
<PAGE>

          an action against the Company in the U.S. District Court in Salt 
          Lake City, Utah.  The action seeks an order compelling the issuance 
          of 125,000 shares of Dynatec stock. Canaccord and the Company agree 
          that the Company, or its transfer agent, had erroneously 
          over-issued shares of stock to Canaccord in early 1997.  In 
          September 1997, Canaccord tendered certificates for other shares in 
          acknowledgment of a separate over-issuance. Management of the 
          Company believed that an additional 125,000 shares had been over 
          issued.  The disputed certificate was subsequently returned to the 
          transfer agent and cancelled under the direction of the Board of 
          Directors of the Company.  This action was taken by the Company 
          based upon the understanding of management that the entity believed 
          by the Company based upon the understanding of management that the 
          entity believed by the Company to be holding the beneficial interest 
          in the certificate had not paid for the shares, and was not a holder 
          in due course or a "protected person" under applicable Uniform 
          Commercial Code provisions. On August 3, 1998, the Court entered an 
          order granting the preliminary injunction in favor of Canaccord and 
          compelling the issuance of a stock certificate to Canaccord's 
          designee for the disputed 125,000 shares of stock.  If one of the 
          other entities now named in the litigation should subsequently 
          establish a right to the issuance of 125,000 shares of the stock of 
          the Company, Dynatec may be required to issue additional shares. 
          Dynatec intends to continue to pursue its claim for damages and 
          declaratory relief in this litigation.

NOTE 8 -  STOCK OPTIONS
          
          A summary of stock options is as follows for the period ended June 30,
          1998:

               FIXED OPTIONS:

<TABLE>
<CAPTION>
                                                       Shares         Exercise
                                                        (000)           Price
                                                     --------        ---------
               <S>                                   <C>             <C>
               Outstanding at December 31, 1997           934            $2.50
               Granted                                    100            $6.50
               Exercised                                  (12)           $2.50
                                                       ------
               Outstanding at June 30, 1998             1,022          Various
                                                       ------
                                                       ------
               Options exercisable at June 30, 1998       284            $2.50
                                                       ------
                                                       ------
               Weighted average fair value of
                 options granted during first quarter   $3.69

               Weighted average remaining
                 contractual life for exercisable
                 options at June 30, 1998              3.55 years
</TABLE>

                                      10
<PAGE>

               VARIABLE OPTIONS:

<TABLE>
<CAPTION>
                                                         Shares         Exercise
                                                          (000)           Price
                                                       --------        ---------
               <S>                                      <C>             <C>

               Outstanding at December 31, 1997             945            $2.50
               Granted                                      840            $6.50
                                                       --------        
               Outstanding at June 30, 1998               1,785          Various
                                                       --------        
                                                       --------        
               Weighted average fair value of
                 options granted during first quarter     $5.58
</TABLE>

NOTE 9 -  CONVERTIBLE DEBENTURES

          On May 22, 1998, the Company closed a transaction that has provided 
          net capital proceeds of $1,335,000.  These funds have been raised 
          pursuant to the sale by the Company of a Convertible Debenture in 
          the face amount of $1,500,000.  The debentures are convertible into 
          common stock of the Company at the lessor of:  (i) seventy five 
          percent of the average of the three lowest closing bid prices of 
          the Common Stock during the ten day trading period immediately 
          preceding the conversion date or (ii) one hundred percent of the 
          closing bid price on the trading day immediately preceding the 
          closing date of the agreement.  The transaction has been 
          accomplished pursuant to a Convertible Debenture and Private Equity 
          Line of Credit Agreement (the "Credit Agreement") between the 
          Company and a group of five investors which have not previously 
          been shareholders of the Company.  In addition, the Company can use 
          a "put" mechanism to periodically draw down up to $10,000,000.  
          Under the terms of the Credit Agreement, a minimum of $1,000,000 
          must be drawn in increments of not less than $50,000 in exchange 
          for common stock of the Company issued at 80 percent of the average 
          of the three lowest bid prices during the six day valuation period 
          consisting of three days prior to the put and ending two days after 
          the put date. The put mechanism cannot be utilized until after the 
          effective date of the registration statement for the underlying 
          stock of the Credit Agreement.  Additionally, upon registration of 
          the underlying shares which may be purchased pursuant to the 
          convertible debentures, the Company will receive an additional 
          $500,000 of gross sales proceeds.

          In connection with the Credit Agreement, the investors and placement 
          agent were issued warrants.  These warrants have been issued as 
          Series A and Series B as follows: 

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

          The Company is to issue an additional 50,000 Series A warrants each to
          both the placement agent and the investors upon receipt of the
          additional $500,000 of gross sales proceeds. The

                                      11
<PAGE>


          market value for the Series A warrants issued to the investors 
          has been written off as a one-time, non-cash debt issuance cost of 
          $426,000 as the warrants are immediately exercisable.   The market 
          value of the Series A warrants issued to the placement agent have 
          been capitalized and will be written off by the Company over the 36 
          month life of the debentures. Although these debt issuance costs 
          are non-cash items, current GAAP requires disclosure for the market 
          value of warrants issued along with convertible debentures.  In 
          addition, because the debentures are convertible at a 25 percent 
          discount from the market value, an additional $500,000 (the 
          intrinsic value of the beneficial conversion premium) of the 
          proceeds received were established as a contra-debt account and 
          $166,667 of this premium was written off as a non-cash expense for 
          the second quarter of 1998. These non-cash amortization and 
          write-off of the market value of warrants issued is included with 
          interest expense in the income statement.  Upon the effective date 
          of the registration statement, the market value of the warrants 
          issued to the investors in connection with the $500,000 of 
          convertible debentures will also be written off (estimated to be an 
          additional third quarter non-cash expense of $121,500) and the 
          remaining beneficial conversion premium will be written off as a 
          third quarter, non-cash item.  The Series B warrants which have been 
          issued have no current impact to the Company financial statements, 
          as they were issued in connection with the equity line of credit.

NOTE 10 - OTHER
          
          In the period ended March 31, 1998, the Company recognized revenue
          related to an agreement with an overseas supplier whereby 
          non-exclusive rights to market Company products internationally were 
          sold for $580,000.  According to the agreement, the purchase price was
          paid by the sale of Company stock owned by the supplier.
          
          The Board of Directors of the Company has unanimously approved an
          investigation of the matters referred to in the Legal Proceedings
          Section above. The Company's relationship and practices with the 
          Company's transfer agent, certain related party transactions and 
          other issues which were the subject of a recent preliminary inquiry 
          conducted by certain members of the Board of Directors, the actions 
          of officers of the Company with regard to such matters, and other 
          related and unrelated corporate activities to assure that proper 
          safeguards and policies are in place or are implemented which will 
          assist the Board of Directors in monitoring the business activities 
          of the Company. The Board is to be assisted in this review by 
          independent outside counsel who will coordinate his efforts with 
          current corporate counsel.

                                        12