Edgar Filing: DYNATEC INTERNATIONAL INC

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

FORM 10-KSB/A

AMENDMENT No. 1

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

For the fiscal year ended: December 31, 2000 or

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

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

Commission File Number: 0-12806

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

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

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

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

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

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

Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the past 12
months (or for such shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for the past 90
days. X Yes No

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

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

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

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

Transitional small business disclosure format. Yes X No

Page 1

TABLE OF CONTENTS

INTRODUCTION

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

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

PART I.

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

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

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

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

PART II.

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

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

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

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

PART III.

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

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

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

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

Item 13. Exhibits and Reports on Form 8-K................................................................64

Page 2

PART I

Item 1. Description of Business

General

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

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

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

Seasonality

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

Telecommunication Headsets and Amplifiers and Telephone Accessories

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

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

Page 3

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

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

Flashlights

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

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

Hardware/Houseware

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

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

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

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

Page 4

Subsidiaries of the Company

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

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

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

Raw Material and Supplies

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

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

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

Page 5

Trademarks and Patents

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

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Trademarks

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

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

Page 6

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

Patents Year of
------- Patent
Patent Expiration
Product Country Granted/Filed or Renewal
--------------------------------------------------------------------------------------------------------------------

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

Inventory Supply and Backlog Orders

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

Major Customers

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

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

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

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

Page 7

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

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

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

Competitive Conditions in the Market

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

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

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

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

Environmental Regulation

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

Employees

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

Page 8

Risk Factors

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

Recent Net Losses

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

Need for Additional Funding

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

Limited Market and Volatility of Stock Price

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

Page 9

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

Nasdaq SmallCap Market Delisting

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

Possible Adverse Effect of Pending Litigation and Administrative
Proceedings

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

Foreign Operations Risks

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

Competition

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

Page 10

No Dividends

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

Effect of Certain Anti-Takeover Provisions of Utah Law

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

Page 11

Item 2. Description of Property

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

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

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

Page 12

Item 3. Legal Proceedings

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

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

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

Page 13

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

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

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

Page 14

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

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

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

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

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

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

Page 15

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

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

Page 16

Part II

Item 5. Market for Common Equity and Related Stockholder Matters

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

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

PRICE RANGE OF COMMON STOCK

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

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

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

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

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

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

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

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

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

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

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

Page 17

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

Results of Operations

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

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

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

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

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

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

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

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

Supplemental Information:

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

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

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

Revenues

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

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

Page 18

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

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

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

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

Operating Costs and Expenses

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

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

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

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

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

Page 19

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

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

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

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

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

Liquidity and Capital Resources

General

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

Page 20

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

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

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

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

December 31, 2000 Compared to December 31, 1999

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

Page 21

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

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

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

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

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

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

Inflation

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

Seasonality

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

Page 22

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

Recent Accounting Pronouncements

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

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

Forward Looking Statements

The foregoing Management's Discussion and Analysis of Financial
Condition and Results of Operations contains certain forward-looking statements
within the meaning of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as amended, which are
intended to be covered by the safe harbors created thereby. Although the Company
believes that the assumptions underlying the forward-looking statements
contained herein are reasonable, any of the assumptions could be inaccurate, and
therefore, there can be no assurance that the forward-looking statements will
prove to be accurate. Factors that could cause actual results to differ from
results discussed in forward-looking statements include, but are not limited to,
potential increases in inventory costs, competition, and the Company's ability
to obtain additional working capital to fund future growth, as well as the other
factors described elsewhere in this Report under the heading "Description of
Business - Risk Factors".

Page 23

Item 7. Financial Statements

Independent Auditors' Report

Report of Tanner +Co.:

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

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

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

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

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

TANNER + CO.

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

Page 24

Report of KPMG, LLP:

The Board of Directors
Dynatec International, Inc.:

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

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

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

/s/ KPMG LLP

Salt Lake City, Utah
March 1, 2000

Page 25

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

ASSETS

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

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

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

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

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

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

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

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

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

See accompanying notes to consolidated financial statements.

Page 26

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

LIABILITIES AND STOCKHOLDERS' EQUITY

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

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

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

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

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

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

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

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

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

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

See accompanying notes to consolidated financial statements.

Page 27

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

See accompanying notes to consolidated financial statements.

Page 28

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

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

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

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

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

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

See accompanying notes to consolidated financial statements.

Page 29

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

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

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

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

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

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

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

See accompanying notes to consolidated financial statements.

Page 30

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

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

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

SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES:

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

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

Retirement of 91,515 treasury shares 915,150 -

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

See accompanying notes to consolidated financial statements.

Page 31

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

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

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

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

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

Principles of Consolidation

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

Use of Estimates

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

Cash and Cash Equivalents

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

Inventories

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

Building and Equipment

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

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

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

Page 32

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

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

Accounting for Impairment of Long-Lived Assets

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

Intangible Assets

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

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

Deferred Loan Costs

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

Revenue Recognition

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

Stock-Based Compensation

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

Concentrations of Credit Risk

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

Page 35

(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

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

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

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

Income Taxes

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

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

Basic and Diluted Net Loss Per Common Share

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

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

December 31,
----------------------------------
2000 1999
--------------- -------------

Basic weighted average number of common shares................... 5,210,000 3,384,000
Weighted average number of common stock options.................. - -
--------------- -------------
Diluted weighted average number of shares.................. 5,210,000 3,384,000
=============== =============

Page 36

Advertising

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

Comprehensive Loss

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

(3) GOING CONCERN

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

(4) INVENTORIES

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

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

Raw materials............................ $423,667 $801,026
Work-in-Process.......................... 65,390 135,931
Finished Goods........................... 761,995 1,839,550
$1,251,052 $2,776,507

(5) INTANGIBLE ASSETS

Intangible assets are comprised of the following as of December 31:

Est. Useful
2000 1999 Life (years)
------------ ------------ ----------------

Goodwill 34,307 34,307 2
License Agreement 203,509 203,509 40
Product rights 160,000 296,262 5-10
Non-compete agreements 25,000 112,500 5
422,816 646,578
Less accumulated amortization 272,688 451,835
$ 150,128 $ 194,743

Page 37

(6) ASSET ACQUISITION

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

The allocation of the $85,000 purchase price among the tangible and
intangible assets is summarized as follows:

Amortization
Period
(years)
-------------------
-------------------
Purchase price allocation:
Net tangible assets acquired $25,693 Intangible assets:

Non-compete agreement 25,000 5
Goodwill 34,307 2
Total purchase price $85,000

(7) SHORT-TERM NOTE PAYABLE

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

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

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

Maximum Outstanding $2,058,176 $2,503,277
Average Outstanding $1,626,202 $2,048,824
Weighted Average Interest Rate 12.98% 10.83%

Page 38

(8) LONG -TERM DEBT

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

2000 1999
----------- -----------
----------- -----------
Term note payable to a bank, interest at prime plus

5.25%, due May 26, 2001, secured by equipment 81,175 163,675

Total long-term debt 81,175 163,675

Less current portion 81,175
82,500

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

(9) LEASES

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

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

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

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

Page 39

(9) LEASES (continued)

At December 31, 2000 the Company is obligated under the terms of
non-cancelable leases on the Company headquarters and warehouse building,
machinery and equipment, and automobiles. The leases have the following minimum
lease commitments:

Capital Operating
leases leases

Year ended December 31: 2001 $408,771 $ 6,501
2002 381,153 6,076
2003 330,915 6,076
2004 335,724 3,038
2005 364,344 -
Later 5,628,633 -
Total minimum lease payments 7,449,540 $ 21,691
Less amount representing interest (at rates
ranging from 3.38% to 29.69%) 4,490,166
Present value of total minimum capital
lease payments 2,959,374
Less current portion 71,848
Capital lease obligations net of
current portion $2,887,526

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

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

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

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

Placement Exercise
Investors Agent Price
----------------- ---------------- ---------------

Series A Warrants....................... 150,000 150,000 $6.50
Series B Warrants....................... 150,000 300,000 $7.15

Page 40

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

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

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

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

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

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

Page 41

(11) INCOME TAXES

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

2000 1999

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

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

2000 1999
Deferred tax assets:

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

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

Net deferred tax assets (liabilities) $ - $ -

Page 42

(11) INCOME TAXES-(continued)

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

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

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

(12) STOCKHOLDERS' EQUITY

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

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

Page 43

(12) STOCKHOLDERS' EQUITY-(continued)

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

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

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

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

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

(13) BUSINESS SEGMENT INFORMATION

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

Page 44

(13) BUSINESS SEGMENT INFORMATION-(continued)

YEARS ENDED DECEMBER 31,
-----------------------------------------
REVENUES: 2000 1999
----------------------------------------------------- --------------- ------------------

Telecommunication Headsets and
Amplifiers and Telephone Accessories.......... $ 6,084,000 $ 7,320,000
Flashlights...................................... 1,819,000 1,810,000
Hardware/Houseware............................... 791,000 845,000
Mass Market...................................... - 992,000
--------------- ------------------

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

YEARS ENDED DECEMBER 31,
-----------------------------------------
OPERATING INCOME (LOSS): 2000 1999
----------------------------------------------------- ---------------- ----------------

Telecommunication Headsets and
Amplifiers and Telephone Accessories.......... $(1,318,000) $(1,234,000)
Flashlights...................................... (1,882,000) (1,251,000)
Hardware/Houseware...............................
(400,000) (536,000)
Mass Market...................................... - 6,000
---------------- ----------------

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

YEARS ENDED DECEMBER 31,
-----------------------------------------
DEPRECIATION AND AMORTIZATION (1): 2000 1999
----------------------------------------------------- ---------------- ------------------

Telecommunication Headsets and
Amplifiers and Telephone Accessories.......... $ 342,000 $ 404,000
Flashlights...................................... 123,000 77,000
Hardware/Houseware............................... 69,000 79,000
Discontinued operations.......................... 37,000 28,000
---------------- ------------------

Total..................................... $ 571,000 $ 588,000
================ ==================

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

Information as to the assets and capital expenditures of the Company is
as follows:

YEARS ENDED DECEMBER 31,
-----------------------------------------
ASSETS (1): 2000 1999
---------------------------------------------------- ---------------- ------------------

Telecommunication Headsets and
Amplifiers and Telephone Accessories.......... $ 4,098,000 $ 5,905,000
Flashlights...................................... 1,111,000 1,943,000
Hardware/Houseware............................... 554,000 742,000
Discontinued operations.......................... 179,000 47,000
---------------- ------------------
Total assets for reportable segments...... 5,942,000 8,637,000

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

Page 45

(13) BUSINESS SEGMENT INFORMATION-(continued)

YEARS ENDED DECEMBER 31,
----------------------------------------
CAPITAL EXPENDITURES: 2000 1999
---------------------------------------------------- ---------------- -----------------

Telecommunication Headsets and
Amplifiers and Telephone Accessories.......... $ 283,000 $ 222,000
Flashlights...................................... 93,000 87,000
Hardware/Houseware............................... - -
Discontinued operations.......................... - 28,000
---------------- -----------------

Total..................................... $ 376,000 $ 337,000
================ =================

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

YEARS ENDED DECEMBER 31,
----------------------------------------
REVENUES: 2000 1999
------------------------------------------ ---------------- -----------------

United States.......................... $ 8,432,000 $ 10,793,000
Other (1).............................. 262,000 174,000
---------------- -----------------

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

(1) Includes Canada, Europe and other miscellaneous.

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

United States.......................... $(3,600,000) $(3,015,000)
================ =================

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

Total........................... $ 6,274,000 $ 9,453,000
================ =================

(14) DISCONTINUED OPERATIONS

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

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

Page 46

(14) DISCONTINUED OPERATIONS-(continued)

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

Net assets of discontinued operations are as follows:

Year ended Year ended
December 31, December 31,
2000 1999
---------------- -----------------
Assets:

Receivables, Net $ 309,707 $ -
Inventory, Net 40,356 186,557
Equipment, Net - 195,573
$ 350,063 $ 382,130

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

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

Condensed discontinued operations are as follows:

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

(15) RELATED PARTY TRANSACTIONS

Page 47

(15) RELATED PARTY TRANSACTIONS (Continued)

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

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

(16) FAIR VALUE OF FINANCIAL INSTRUMENTS

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

(17) STOCK OPTIONS

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

Page 48

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

(17) STOCK OPTIONS-(continued)

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

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

Summary of stock options is as follows for the years ended December 31:

2000 1999
------------------------------ ----------------------------
Weighted Weighted
Average Average
Shares Exercise Shares Exercise
FIXED OPTIONS: (000's) Price (000's) Price

Outstanding at beginning of year......... 937 $1.819 909 $2.500
Granted.................................. 19 $1.625 635 $1.495
Exercised................................ -- -- -- --
Canceled................................. (359) $1.579 (607) $2.500
------------- -------------
Outstanding at end of year............... 597 $1.963 937 $1.819
=============
=============
Options exercisable at year-end.......... 592 $1.966 547 $1.708
============= =============
Weighted average fair value of
options granted during the year....... $1.625 $1.495

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

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

Page 49

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

The following table summarizes information about stock options
outstanding at December 31, 2000:

FIXED OPTIONS OPTIONS OUTSTANDING OPTIONS EXERCISABLE
------------------ ------------------------------------------------- --------------------------------
Weighted-average
remaining Weighted-average Weighted-average
Range of Outstanding contractual exercise Exercisable exercise
exercise prices as of life price as of price
12/31/00 12/31/00
------------------ -------------- -------------- ------------- ------------- -------------

$ 1.00 - 1.50 32,000 9 $1.01 32,000 $1.01
$ 1.51 - 2.25 312,000 9 $1.63 307,375 $1.63
$ 2.26 - 2.50 253,000 7.3 $2.50 253,000 $2.50
597,000 592,375

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

2000 1999

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

(18) EMPLOYEE BENEFITS

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

(19) COMMITMENTS & CONTINGENCIES

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

Page 50

(19) COMMITMENTS & CONTINGENCIES (continued)

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

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

Page 51

(19) COMMITMENTS & CONTINGENCIES (continued)

Page 52

(19) COMMITMENTS & CONTINGENCIES (continued)

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

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

Page 53

(19) COMMITMENTS & CONTINGENCIES (continued)

(20) RECENT ACCOUNTING PRONOUNCEMENTS

Page 54

(21) SUBSEQUENT EVENTS

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

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

Page 55

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

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

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

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

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

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

Page 55

PART III

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

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

Name Age Title

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

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

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

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

Page 56

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

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

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

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

Compliance with Section 16(a) of the Exchange Act

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

Board Compensation

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

Board Committees

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

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

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

Indemnification and Compensation

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

Page 57

Item 10. Executive Compensation

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

Summary Compensation Table

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

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

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

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

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

Employment Agreements

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

Page 58

Item 11. Security Ownership of Certain Beneficial Owners and Management

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

BENEFICIAL OWNERS HOLDING FIVE PERCENT OR MORE OF THE SECURITIES

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

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

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

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

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

Reed Newbold 30,300 (4) *
Director

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

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

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

Directors and Officers as a group 329,400 5.7%

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

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

Page 59

Item 12. Certain Relationships and Related Transactions

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

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

Page 60

Item 13. Exhibits and Reports on Form 8-K

(a) Exhibits

No. Description

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

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

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

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

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

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

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

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

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

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

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

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

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

Page 61

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

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

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

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

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

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

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

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

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

(b) Reports on Form 8-K

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

Page 62

SIGNATURES

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

DYNATEC INTERNATIONAL, INC.

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

Page 63

SIGNATURES

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

Signature Title Date

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

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

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

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

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

Page 64