SECURITIES AND EXCHANGE COMMISSION
                            WASHINGTON, D.C. 20549
                                  FORM 10-K
                ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
                    OF THE SECURITIES EXCHANGE ACT OF 1934

  For Fiscal Year ended April 30, 1998         Commission File Number 0-21475

                         DYNAMIC INTERNATIONAL, LTD.
            (Exact Name of Registrant as Specified in its Charter)

            Nevada                                            93-1215401
(State or other jurisdiction of                            (I.R.S. Employer
 incorporation or organization)                           Identification Number)

 58 Second Avenue, Brooklyn, New York                            11215
(Address of Principal Executive Offices)                       (Zip Code)

 Registrant's telephone number, including Area Code:          (718) 369-4160

         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 $.001 per share)
                                 Title of Class


Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding twelve (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 ninety (90) days.
                                                             Yes [X]     No [ ]

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
registrant's best knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K.                                                                  [ ]

                     ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS
                              DURING THE PAST FIVE YEARS

Check whether the issuer has filed all documents and reports required to be
filed by Section 12, 13 or 15(d) under the Securities Exchange Act of 1934 after
the distribution of securities under a plan confirmed by a court.
                                                                 Yes [X] No [ ]

The aggregate market value of voting stock held by non-affiliates of the
Registrant was $4,235,518 on July 24, 1998.

The number of shares  outstanding  of  Registrant's  Common Stock as of June 30,
1998: 4,418,258

<PAGE>
                                    PART I

ITEM 1.  BUSINESS

Statements contained herein which are not historical facts are forward-looking
statements. Forward-looking statements involve a number of risks and
uncertainties including, but not limited to, general economic conditions, the
Company's ability to complete development and then market its products and
competitive factors and other risk factors detailed herein.

General

Dynamic International, Ltd., a Nevada corporation ("DIL"), is engaged in the
design, marketing and sale of a diverse line of hand exercise and light exercise
equipment, including hand grips, running weights, jump ropes and aerobic steps
and slides. It markets these products under the licensed trademarks SPALDING(TM)
and KATHY IRELAND(TM) as well as under its own trademarked name SHAPE SHOP(TM).
In addition, it designs and markets sports bags and luggage, which are marketed
primarily under the licensed name JEEP(TM) and under its own names Santa Fe(TM),
Polaris Expedition(TM) and SPORTS GEAR(TM). The Company's objective is to become
a designer and marketer of goods that are associated with a free-spirited
lifestyle and leisure time.

The Company is the successor to Dynamic Classics, Ltd., a Delaware corporation,
incorporated in 1986 ("DCL," together with DIL, the "Company"), which was the
successor to a New York company incorporated in 1964. In August 1996, DCL merged
with and into DIL, which had been newly formed for the purpose of this merger.
The objective of the merger was to change the Company's state of incorporation
from Delaware to Nevada.

Plan of Reorganization

In 1994, the Company added a new line of products consisting primarily of
treadmills and ski machines. Initially, the Company was successful in marketing
these products. For the fiscal year ended April 30, 1995, sales of these
products represented approximately 53% of the Company's gross sales. However,
due to serious manufacturing defects and poor construction of the Company's
products delivered by the Company's manufacturers, primarily located in the
People's Republic of China, the Company was forced to allow substantial charge
backs by its customers. Although, pursuant to a written agreement, one of the
manufacturers, China National Metals and Minerals ("CNM"), acknowledged the
defects and agreed to pay for returns and to provide replacement goods at no
cost, it breached this agreement soon thereafter. In March 1995, CNM sued the
Company for monetary damages, alleging, among other things, breach of contract.
The Company and CNM subsequently settled the matter by releasing each other from
any claims and allowing CNM to collect an aggregate of $15,000 from the Company.
The Company suffered severe losses from its venture into this line of business
and in August 1995 filed a voluntary petition requesting relief under Chapter 11
of the Bankruptcy Code.

In May 1996, the Bankruptcy Court approved a Plan of Reorganization (the "Plan")
pursuant to which creditors received partial satisfaction of their claims. MG
Holding Corp. ("MG"), which had purchased a promissory note from the Company's
principal financial institution, received 2,976,000 shares of Common Stock,
representing approximately 93% of the then issued and outstanding shares thereby
gaining absolute control over the Company's affairs. See ITEM 12. SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT and ITEM 13. CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS. In addition, as part of the Plan, the
Company, then known under the name DCL, merged into DIL, a newly formed Nevada
corporation, for the purpose of changing its state of incorporation. See ITEM 3.
LEGAL PROCEEDINGS and ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.

Products

Exercise Equipment - The Company's line of exercise equipment consists primarily
of handheld products, including dumbbells, ankle and wrist weights, hand grips,
jump ropes, exercise suits, slimmer belts and strength training products. In
addition, the Company markets light weight equipment such as aerobic steps and
slides and exercise mats. The Company also carries a line of small electronic
devices designed to monitor physical activity such as stopwatches, pedometers,
pulse meters and calorie counters. 

                                        -2-

<PAGE>
Sports Bags/Luggage - The Company's line of sports bags/luggage consists
primarily of duffle bags, weekend bags, garment bags, suitcases, pilot cases and
flight attendant wheeled cases. Some of the models are equipped with wheels
and/or retractable handles.

Other Products - The Company, through a wholly-owned subsidiary,  has obtained
the  exclusive  rights to the patents  underlying  the technology  used in an
insulated bag  incorporating  a  wrap-around  gel pack or freeze pack with the
ability to cool and preserve food and other products for an extended period of
time.  In  addition,  it  obtained  the  trademarks  Polaris Surround  Chill(TM)
Freezy Bag(TM) and Polaris Surround Chill(TM) Freezy Gel(TM) under  which  the
products  are  sold.  See   "Intellectual   Property--License Agreements".
The  Company  is  currently  testing  the  marketability  of these products.

The Company has obtained the exclusive  right to  manufacture,  distribute and
sell a hand held, portable total home gym product. This product will be sold
under the trademark SPALDING(TM) Rotoflex(TM).

The Company may from time to time  manufacture  and/or  market  additional
products under its own names or under licensed names.

Design and Development

The Company usually designs its own exercise equipment and creates its own molds
and tooling. Such molds and tooling are used by the manufacturers to produce the
equipment. The Company retains an ownership interest in the molds which are
returned to it upon the termination of the Company's relationship with a
particular manufacturer. The Company has been granted a number of design patents
with respect to certain of its products. See "Intellectual Property--License
Agreements". The Company employs a designer on a full-time basis for the design
of its sports bags/luggage products. During the most recent fiscal year the
Company spent approximately $178,000 on design activities, including fees to
designers and patent attorneys. The Company may, from time to time, utilize the
services of consultants for product and package design.

Most of the Company's products are manufactured in the Phillippines, Hong Kong,
and Indonesia, which in the most recent fiscal year accounted for approximately
42%, 17%, and 15%, respectively, of the Company's products. In addition, the
Company's products are manufactured in the United States, Taiwan, Korea, China
and Bangladesh. Exercise equipment is usually shipped by the manufacturers to
the Company within 45 days of the placement of an order. Orders for sports
bags/luggage, which for the most part are produced in the Philippines and China,
usually require a period of 90 to 120 days before they are shipped. The Company
ordinarily has its products manufactured based on purchase orders and it has no
long term relationships with any of its manufacturers. The Company believes
that, if necessary, it will be able to obtain its products from firms located in
other countries at little if any additional expense. As a consequence, the
Company believes that an interruption in deliveries by a manufacturer located in
a particular country will not have a material adverse impact on the business of
the Company. Nevertheless, because of political instability in a number of the
supply countries, occasional import quotas and other restrictions on trade or
otherwise, there can be no assurance that the Company will at all times have
access to a sufficient supply of merchandise.

Sales and Marketing

The Company sells its products on a wholesale  basis only.  Most of its
products are sold to catalog showrooms,  drug chains,  discount stores and
sporting goods chains.  For the fiscal year ended April 30, 1998, Kmart and
Sears each accounted for 12% of the Company's revenue.  No other customer
accounted for more than 10% of the Company's revenues. For the fiscal year
ended April 30, 1998, sales of exercise equipment accounted for approximately
45% of the Company's revenues while 55% of the Company's revenues were derived
from the sale of sports bags/luggage.

                                      -3-


<PAGE>
The Company sells its products primarily through independent sales agents on a
commission-only basis. The Company currently engages approximately 22 sales
agents either on an individual basis or through independent sales organizations.
Although it has written agreements with a number of its agents, all of such
agreements are terminable at will. The Company has no long term arrangements
with any of its agents. The Company usually pays commissions ranging from 1% to
5% of the net sales price of its products. Although the Company believes that
its sales agents sell products exclusively on behalf of the Company, there are
no agreements that prohibit them from selling competing products.

In addition, on a small scale, the Company markets existing products to
retailers for resale under their own private labels. The Company has begun
deliveries to Service Merchandise Co., Inc. and Kohl's Department Stores.
Although the scope of this marketing effort is currently limited, the Company
intends to expand the number of private label transactions. No assurance can be
given that its efforts in this area will be successful.

The Company currently anticipates that it may increasingly focus its attention
on direct response marketing. The Company believes that its products are
particularly well suited for so-called impulse buys. On February 12, 1998, the
Company entered into an infomercial production agreement with Script to Screen
Inc., to produce a twenty eight minute infomercial designed to sell the
Spalding(TM) Rotoflex(TM) by means of direct response by customers. As of April
30, 1998, payments of $142,000 had been made under the agreement. As of June 30,
1998, the Company had paid $284,000 to Script to Screen Inc. for production of
the infomercial. The payment of $142,000 has been classified as a prepaid
expense as of April 30, 1998. See ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS 
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

Competition

The Company's exercise products compete with products marketed and sold by a
number of companies. The Company believes that its main competitors are Icon
Health and Fitness, Inc., Bollinger Industries and Legacy International Inc. All
of these companies possess far greater financial and other resources, including
sales forces, than the Company's. However, the Company believes that as a result
of its ability to use the trademarked names SPALDING(TM) and KATHY IRELAND(TM)
it will be able to retain its share of the market. Nevertheless, there can be no
assurance that the Company will be able to effectively compete with these
companies as well as with other smaller entities.

The Company's sports bags/luggage products compete with products designed by a
number of the largest companies in the industry, including Samsonite, Sky Way
and American Tourister. The Company believes that because of its concentration
on the upscale lifestyle and more specialized leisure market that are associated
with the trademark JEEP(TM) the Company will be able to continue to grow its
sports bags/luggage business. Nevertheless, there can be no assurance that the
Company will be able to effectively compete with these companies as well as with
other smaller entities.

Intellectual Property--License Agreements

The Company owns a number of  trademarks,  including  Shaper Shop RX(TM),  Santa
Fe(TM) and Polaris Expedition(TM).

     License  Agreements - The Company sells a number of its products  under
     licensed names.  The Company has entered into licensee  agreements
     which provide for the grant of licenses to the Company and the payment of
     royalties by the Company, as follows:

          Jeep -- Under an  agreement  dated  January 8, 1993,  as amended by
     letter amendment  dated  January  8,  1996,   between  the  Company  and
     the  Chrysler Corporation (as so amended,  the "Jeep Agreement"),  the
     Company was granted the exclusive  license to use the names JEEP,
     WRANGLER and  RENEGADE in  connection with the manufacture, sale and
     distribution of sports bags/luggage products. The current  expiration date
     of the Jeep Agreement is December 31, 1998. The parties have  started
     negotiations  regarding  the terms of an extension of the current
     agreement.


                                          -4-


<PAGE>
     Spalding  --Under an agreement dated October 1, 1997,  between the Company
     and Spalding & Evenflo  Companies  Inc.,  the Company was granted the  
     exclusive right to use the name Spalding in connection  with the sale and  
     distribution of hand held exercise  products.  The agreement will expire 
     September 30, 1999. The Company has the option to renew the agreement 
     until September 30, 2001.

          Kathy Ireland -- Under an agreement with Kathy Ireland, Inc., dated
     December 22, 1994, Ms. Ireland approves and endorses certain exercise
     equipment designed and manufactured by the Company. Under the agreement,
     the Company has the right to use her name in connection with the equipment
     and Ms. Ireland will make appearances to promote such equipment. In
     addition, the Company has the right to use her photograph and likeness in
     connection with the sale of the equipment. The agreement, which expired 
     in June 1998, has been renewed until June 2000.

          Freezy-Bag/FreezyGel -- Under an agreement dated November 1, 1996,
     between New Century Marketing & Distributors, Inc. and a wholly-owned
     subsidiary of the Company, the Company obtained the exclusive rights to a
     patented technology as well as to the trademarked names FREEZY-BAG and
     FREEZYGEL. The technology has the ability to cool foods and other products
     and is used in the wrapping of such products. The agreement has a term of
     two years but is renewable, at the option of the Company, for additional
     one-year periods.

          Rotoflex -- Under an agreement dated December 17, 1997 with Connelly
     Synergy Systems LLC, the Company has obtained the exclusive right to
     manufacture, distribute and sell a hand held portable total home gym
     product to be sold under the trademark Spalding(TM) Rotoflex(TM).

Management Agreement with Achim Importing Co., Inc.

Pursuant to a Warehousing and Service Agreement dated as of September 1, 1996
(the "Warehousing Agreement") between the Company and Achim, Achim performs
certain administrative services on behalf of the Company. Under the Warehousing
Agreement, Achim assists, among other things, in the maintenance of financial
and accounting books and records, in the preparation of monthly financial
accounts receivable aging schedules and other reports and in the performance of
credit checks on the Company's customers.

In consideration for these services, Achim receives an annual fee, payable
monthly, calculated as a percentage of the Company's invoiced sales originating
at the warehouse ranging from 4% of invoiced sales under $30 million to 3% for
sales of $60 million or more. For sales not originating at the warehouse, Achim
receives a service fee in the amount of 1.5% of the Company's invoiced sales to
customers and accounts located in the United States if payment is made by letter
of credit and 1% if such customers and accounts are located outside the United
States, irrespective of manner of payment.

In addition, under the Warehousing Agreement, Achim provides warehousing
services consisting of receiving, shipping and storing of the Company's
merchandise. The Company pays Achim a monthly fee of 3% of its invoiced sales
originating at the warehouse in connection with these warehousing services
performed by Achim under the Warehousing Agreement.

The Warehousing Agreement has a term of two years and is automatically renewable
for additional one-year periods unless written notice of termination is given at
least six months prior to the commencement of a renewal period. During the
fiscal year ended April 30, 1998, the Company accrued approximately $183,095 in
fees under the Warehousing Agreement.

Achim is wholly owned by Marton B. Grossman, the Company's Chairman and
President. The Company believes that the terms of the Warehousing Agreement with
Achim are at least as favorable as would have been obtained from an unaffiliated
third party.

                                         -5-

<PAGE>
In addition, pursuant to an unwritten understanding, Achim arranges for the
issuance by its financial lender of letters of credit in favor of the Company's
overseas suppliers thereby enabling the Company to finance the purchases of its
inventory. Also, in the event of domestic suppliers, from time to time, Achim
will purchase the products directly from the manufacturer and resell them to the
Company in order to accommodate Achim's commercial lenders who often require a
security interest in the merchandise until it has been sold and the lender has
been repaid. The Company pays Achim for the amount actually paid to the supplier
(including any applicable discounts) without markup, reimburses Achim for its
bank charges and pays it interest at the prime rate plus 1% on the unpaid
balance of the purchases. As of April 30, 1998, no monies were owed to Achim 
under this arrangement.

Employees

As of June 30, 1998, the Company employed 11 persons, of whom five were
executive officers, two were engaged in administrative and clerical activities,
two were engaged in sales and two were involved in warehousing and shipping.
None of the Company's employees is represented by a union and no work stoppages
have occurred.

ITEM 2. PROPERTIES

The Company occupies a warehouse consisting of approximately 54,400 square feet,
of which 4,500 square feet are dedicated to office space, located at 58 Second
Avenue, Brooklyn, New York. The property is owned by Sym Holding Corp. which is
owned by Isaac Grossman and one of his siblings. Isaac Grossman is the Company's
Vice Chairman, Treasurer and Secretary. Since Achim occupied the premises before
it became affiliated with the Company, it remains the lessee under the lease.
Achim makes the property available to the Company on an at-will basis. See ITEM
1. BUSINESS "Management Agreement with Achim Importing Co., Inc." and ITEM 13.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

ITEM 3. LEGAL PROCEEDINGS

On August 23, 1995, the Company filed a petition under Chapter 11 of the
Bankruptcy Code in the United States Bankruptcy Court for the Southern District
of New York (the "Court"). On May 23, 1996, the Court entered an Order
confirming the Company's plan of reorganization. See ITEM 7. MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

Not applicable.
                                         -6-

<PAGE>
                                   PART II

ITEM 5.  MARKET PRICE OF REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER 
         MATTERS

Until 1995, the Company's common stock was traded in the over the counter 
market. As a result of the Company's petition under Chapter 11 of the 
Bankruptcy Code in August 1995, no trading information was available after the 
fiscal quarter ended July 31, 1995.

On December 27, 1997, the Company completed a public sale of 1,200,000 units:
each unit consisting of one share of Common Stock, one redeemable Class A 
warrant and one redeemable Class B Warrant. The Common Stock and the Warrants 
became separately traded on March 12, 1998. The Units, Common Stock, Class A 
Warrants and the Class B Warrants are quoted on the OTC Bulletin Board under 
the symbols DYNIU, DYNI, DYNIW and DYNIZ, respectively.

The following quotes have been reported by The Nasdaq Stock Market Inc., OTC 
Bulletin Board. Such quotations reflect interdealer prices, without retail 
markup, markdown or commission and may not necessarily represent actual 
transactions

                          Fiscal            High              Low
Security/Symbol          Quarter             Bid              Bid
-----------------------------------------------------------------------
Units/DYNIU           January 31, 1998      5.625            5.625
                      April 30, 1998        5.625            5.625

Common Stock/DYNI           (1)

A Warrants/DYNIW            (2)

B Warrants/DYNIZ            (3)

(1) No quotes were posted to the OTC Bulletin Board for this security until 
    July 1998.
(2) This security has only one Market Maker. A minimum of two Market Makers 
    must post both bid and ask quotations to calculate the inside market from 
    which the summary quote data is derived.
(3) No quotes are available on the OTC Bulletin Board for this security.

The Company has not paid a cash dividend on its Common Stock. The Company
intends to retain all earnings for the foreseeable future for use in the
operation and expansion of its business and, accordingly, the Company does not
contemplate paying any cash dividends on its Common Stock in the near future.

ITEM 6.  SELECTED FINANCIAL DATA

The following table summarizes certain financial data that are qualified by the 
more detailed financial statements included herein. Effective August 8, 1996, 
the Company emerged as the surviving entity in a merger with DCL. The balance 
sheet of the combined entity was substantially similar to that of DCL 
immediately prior to the merger. As a consequence, the financial data of the 
Company for the reporting periods July 31, 1996 and prior consist of those of 
DCL.

Due to the reorganization (see Note 2 to the Financial Statements), operating
results of the reorganized company may not be comparable to those of the
predecessor company.


                                     -7-

<PAGE>

<TABLE>
<CAPTION>


              REORGANIZED     REORGANIZED
              COMPANY*(1)     COMPANY*(1)                        PREDECESSOR COMPANY
            9 Months Ended  9 Months Ended   3 Months Ended                  Year Ended April 30
                4/30/98         4/30/97           7/31/96        1996         1995         1994
            --------------------------------------------------------------------------------------
<S>           <C>             <C>                <C>          <C>         <C>          <C>

Net Sales     $8,001,138      $ 7,492,729        $1,983,164   $7,151,715  $32,533,097  $29,497,353
--------------------------------------------------------------------------------------------------
Income
(Loss)
for Year         128,951           10,082           (76,364)   6,945,299  (11,227,335)     244,308
--------------------------------------------------------------------------------------------------
Net Income
(Loss)
per Share            .03             .003
--------------------------------------------------------------------------------------------------
<CAPTION>
Selected Balance Sheet Data:
<S>           <C>             <C>                <C>          <C>         <C>          <C>
Working
Capital
(Deficit)      4,919,226           (9,901)                      (293,884)  (7,493,435)   3,094,821
--------------------------------------------------------------------------------------------------
Total
Assets         5,715,417        4,831,122                      4,253,396    6,414,185   16,677,772
--------------------------------------------------------------------------------------------------
Long Term
Obligations
Including
Capitalized
Lease
Obligations       -0-             215,254                         23,965      116,124      127,877
--------------------------------------------------------------------------------------------------

<FN>
*Management's assumptions used in determining the Company's reorganization value are discussed
 in Note 2 to the Financial Statements.
</FN>
</TABLE>

(1) Due to the reorganization (see Note 2 to the financial statements),
operating results and earnings per share of the reorganized company may not be 
comparable to those of the predecessor company. Management's assumptions used 
in determining the Company's reorganization value are discussed in Note 2 to 
the financial statements.

(2) In 1994, the Company added a new line of products consisting
primarily of treadmills and ski machines. Sales of these products began in June
1994. Total sales of these products amounted to approximately $24,000,000 from
June 1, 1994 to August 23, 1995, the date the Company filed its Chapter 11
petition. Approximately 73% of these products were shipped directly to
customers. Due to serious manufacturing defects and poor construction of the
Company's products delivered by the Company's manufacturers, primarily located
in the People's Republic of China, the Company was forced to allow substantial
chargebacks by its customers. Although, pursuant to a written agreement, one of
the manufacturers acknowledged the defects and agreed to pay for returns and to
provide replacement goods at no cost, it breached this agreement soon
thereafter. As a result, during April 1995, the Company issued credits to
customers in the aggregate amount of approximately $5,000,000 for the fiscal
year ended April 30, 1995. The Company issued an additional $3,211,000 in
credits from defective merchandise during the fiscal year ended April 30, 1996.
In May 1996, the Company's Plan was approved by the Bankruptcy Court. During
July and August 1996, the Company satisfied its obligations under the Plan
through cash payments and the issuance of common stock.

ITEM 7.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND 
         RESULTS OF OPERATIONS

Statements contained herein which are not historical facts are forward-looking
statements. Forward-looking statements involve a number of risks and
uncertainties including, but not limited to, general economic conditions, the
Company's ability to complete development and then market its products and
competitive factors and other risk factors detailed herein.

General

The following discussion should be read in conjunction with the Consolidated
Financial Statements and related notes thereto of the Company included elsewhere
herein. The discharge of claims under the bankruptcy proceedings described
immediately below, has been reflected in the financial statements for the fiscal
year ended April 30, 1996. Effective August 8, 1996, the Company completed a
migratory merger from Delaware to Nevada by merging into a newly formed Nevada
entity, thereby changing its name from Dynamic Classics, Ltd. to Dynamic
International, Ltd. The balance sheet of the combined entity was substantially
identical to that of the Company prior to the merger. The Company and its
predecessor are herein together referred to as the "Company."

As a consequence of the Company's fresh-start accounting, as described below,
which the Company adopted on July 31, 1996, reporting for the year ended April
30, 1997 is accomplished by combining the financial results for the three-month
period ended July 31, 1996 and those of the nine-month period ended April 30,
1997.

                                     -8-
<PAGE>
Because of the application of fresh-start reporting, the financial statements
for the periods after reorganization are not comparable in any respects to the
financial statements for the periods prior to the reorganization.

Plan of Reorganization

In August 1995, the Company filed a voluntary petition requesting relief under
Chapter 11 of the Bankruptcy Code.

In 1994, the Company added a new line of products consisting primarily of
treadmills and ski machines. Initially, the Company was successful in marketing
these products. For the fiscal year ended April 30, 1995, sales of these
products represented approximately 53% of the Company's gross sales. However,
due to serious manufacturing defects and poor construction of the Company's
products delivered by the Company's manufacturers, primarily located in the
People's Republic of China, the Company was forced to allow substantial
chargebacks by its customers. Although, pursuant to a written agreement, one of
the manufacturers, China National Metals and Minerals ("CNM"), acknowledged the
defects and agreed to pay for returns and to provide replacement goods at no
cost, it breached this agreement soon thereafter. In March 1995, CNM sued the
Company for monetary damages alleging, among other things, breach of contract.
The Company and CNM subsequently settled the matter by releasing each other from
any claims and allowing CNM to collect an aggregate of $15,000 from the Company.
The Company suffered severe losses from its venture into this line of business
and in August 1995 filed a voluntary petition for relief under Chapter 11 of the
Bankruptcy Code.

In May 1996, the Bankruptcy Court approved a plan of reorganization (the "Plan")
pursuant to which creditors received partial satisfaction of their claims. The 
amount of claims allowed under the bankruptcy proceedings, aggregated 
approximately $17,223,800, which exceeded the assets as recorded immediately 
subsequent to the confirmation of the Plan by approximately $12,970,400. Under 
the Plan, the Company made cash payments in the amount of approximately 
$515,800. MG, which had purchased a promissory note from the Company's principal
financial institution, received 2,976,000 shares of Common Stock in satisfaction
of such promissory note, representing approximately 93% of the then issued and 
outstanding shares thereby gaining absolute control over the Company's affairs.
See ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT and
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS. An additional 160,000 
shares and 62,798 shares were issued to the Company's unsecured creditors and 
the Company's existing security holders, respectively. The value of the cash
and securities distributed under the plan of reorganization aggregated
$531,561. An amount of $16,692,193, representing the difference between the
value of the total distribution and the amount of allowable claims under
the bankruptcy, was recorded as an extraordinary gain.

In addition, under the Plan, the Company merged with a newly formed Nevada
corporation, for the purpose of changing its state of incorporation. The
balance sheet of the combined entity was substantially similar to the balance 
sheet of the Company prior to the merger.

Upon emergence from bankruptcy, the Company adopted fresh-start reporting
on July 31, 1996 (see Note 2 to the Financial Statements). Under fresh-start 
accounting, all assets and liabilities were restated to reflect their 
reorganization value which approximated book value at July 31, 1996. The 
reorganization value in excess of amounts allocable to identifiable assets is 
amortized over a period of eleven years.

Pending the resolution of the bankruptcy proceedings, the Company restructured 
its operations and relocated its administrative headquarters and warehouse 
facilities.


                                      -9-

<PAGE>
Results of  Operations  for the Fiscal Year Ended April 30, 1998 Compared to the
Nine Months Ended April 30, 1997 and Three Months Ended July 31, 1996.

Financial results for the nine months ended April 30, 1997 have been restated
for a change in the method of determining the cost of inventories from the
last-in, first-out (LIFO) method to the first-in, first-out (FIFO) method.

Sales of $8,001,000 for the fiscal year ended April 30, 1998 were $1,475,000 or
16% less than combined sales of $9,476,000 for the nine months ended April 30,
1997 and the three months ended July 31, 1996 of $7,493,000 and $1,983,000,
respectively. Sales of exercise equipment of $3,578,000 for the fiscal year
ended April 30, 1998 were 1,506,000 or 30% less than combined sales of exercise
equipment of $5,084,000 for the nine months ended April 30, 1997 and three
months ended July 31, 1996 of $4,124,000 and $960,000 respectively. Sales of
sports bags/luggage products of $4,404,000 for the fiscal year ended April 30,
1998 were $13,000 or .3% higher than combined sales of sports bags/luggage
products of $4,391,000 for nine months ended April 30, 1997 and the three months
ended July 31, 1996 of $3,368,000 and $1,023,000, respectively. Sales for the
fiscal year ended April 30, 1998 include sales of insulated bags with a wrap
around gel pack or freeze pack with the ability to cool and preserve food and
other products for and extended period of time of $19,000.

The Company's gross profit of $2,751,000 for the fiscal year ended April 30,
1998 was $376,000 or 12% less than the combined gross profit of $3,127,000 for
the nine months ended April 30,1997 and three months ended July 31, 1996 of
$2,588,000 and $539,000, respectively. The reduced gross profit is the result of
the lower sales for the fiscal year ended April 30, 1998. However, the gross 
profit percentage for the fiscal year ended April 30, 1998 of 34.2% was 1.5% 
higher than the combined gross profit percentage of 32.7% for the nine months 
ended April 30, 1997 and the three months ended July 31, 1996 of 34.2% and 
27.0%, respectively.

The Company believes that the decline in sales for the fiscal year is primarily
attributable to a shift in focus from increasing sales revenue to generating
revenues from merchandise that produces a higher gross profit. As a result the
decrease in sales of the Company's products were due to a decrease in sales to
one customer to whom the Company no longer wishes to sell products at prices
that would have an adverse impact on its gross profit percentage. The Company
believes that the decision to shift its focus from emphasis on revenues to
profit as discussed above, represents a positive development. Nevertheless, 
there can be no assurance that the Company will continue to be successful in 
attaining a higher gross profit percentage.

Operating expenses of $2,349,000 for the fiscal year ended April 30, 1998 were
$435,000 less than combined operating expense of $2,784,000 for the nine months
ended April 30, 1997 and three months ended July 31, 1996 of $2,227,000 and
$557,000, respectively.

Due to the application of fresh start accounting, the financial statements for
the periods after reorganization are not comparable in any respects to the
financial statements for the periods prior to reorganization. Therefore, a
discussion of the changes in operating expenses will compare the nine months
ended April 30, 1998 to the nine months ended April 30, 1997. Decreases for the
nine months ended April 30, 1998 compared to the nine months ended April 30,
1997 are represented approximately by net changes in the following expenses:

                                      -10-

<PAGE>
                                     Decrease
                                    (Increase)
Promotional expense                 ($240,000)
Product development                  ($40,000)
Shipping fees                        $244,000
Sales commissions                     $73,000
Salesman Salaries                    ($65,000)
Officers' salaries                    $76,000
Professional fees                    $221,000
Postage                               $10,000
Provision for bad debts               $28,000
Depreciation                          $11,000

Promotional expenses increased by $240,000 primarily due to promotional fees 
paid to two customers to promote sales of the Company's products. Product 
development  expenses increased $40,000 because the Company has hired a 
consultant  to develop new products and to further develop existing  product
lines.  Shipping fees decreased by $244,000 due to the decrease  in  sales 
and an increase in direct sales to customers from the manufacturer. Sales 
commissions decreased by $73,000 due to the decrease in revenues. Salesman 
salaries increased by $65,000 due to the hiring of an executive Vice President 
of Sales. Officers' salaries  decreased by $76,000 due to the departure of the
former  president of the Company in March 1997.  Professional fees were reduced 
by $221,000 due to decreased need for outside legal and accounting fees during 
the nine months ended April 30, 1998. Postage  decreased  by $10,000. Provision 
for bad debts decreased by $11,000. Depreciation expense decreased by $27,000. 
During the nine months ended April, 30, 1998, the Company reported as prepaid
expenses approximately $480,000 in package design,  displays and direct
responses  advertising costs for several new products that were not introduced
until after April 30, 1998.

The Company's pretax profit of $268,000 for the fiscal year ended April 30, 1998
was $231,000 or 624% higher than the combined pretax profit of $37,000 which was
comprised of a $76,000  pretax loss for the three months ended July 31, 1996 and
a $113,000 pretax profit for the nine months ended April 30, 1997. During the 
fiscal year ended April 30, 1998, the gross profit decreased by $376,000 due to
the decrease in volume. This decrease in gross profit was offset by a 
reduction in operating expenses, interest expense and reorganization expenses of
$435,000, $122,000 and $50,000, respectively.

The  following  table  sets  forth the  results of  operations  for the  periods
discussed above:

<TABLE>
<CAPTION>

                                            Reorganized                Reorganized               Redecessor
                                              Company                    Company                   Company
                                            Fiscal Year                Nine Months               Three Months
                                               Ended                      Ended                     Ended
                                              4/30/98                    4/30/97                   7/31/96
                                            ---------                  ---------                 ---------
<S>                                         <C>                        <C>
Sales                                       8,001,000                  7,493,000                 1,983,000
                                               42,000                     55,000                    10,000
                                            ---------                  ---------                 ---------
                                            8,043,000                  7,548,000                 1,993,000

Cost of sales                               5,292,000                  4,959,000                 1,454,000
                                            ---------                  ---------                 ---------
Gross profit                                2,751,000                  2,589,000                   539,000

Operating expenses                          2,349,000                  2,227,000                   557,000
Interest expense                              134,000                    199,000                    57,000
                                            ---------                  ---------                 ---------
                                            2,483,000                  2,426,000                   614,000
Reorganization expense                              0                     49,000                     1,000
                                            ---------                  ---------                 ---------
Pretax income (loss)                          268,000                    114,000                   (76,000)
Tax                                           139,000                    104,000                         0
                                            ---------                  ---------                 ---------
Net income (loss)                             129,000                     10,000                   (76,000)

</TABLE>

                                -11-
<PAGE>
Results of Operations for the Nine Months Ended April 30, 1997 and the Three
Months Ended July 31, 1996 Compared to the Fiscal Year Ended April 30, 1996

Total sales of $7,493,000 and $1,983,000 for the nine months ended April 30,
1997 and the three months ended July 31, 1996, respectively, were, on a combined
basis, $2,324,000 or 32% higher than the previous fiscal year. Sales of exercise
equipment of $4,124,000 and $960,000 for the nine months ended April 30, 1997,
and the three months ended July 31, 1996, respectively, were $5,084,000, on a
combined basis. These combined sales of exercise products were $532,000 or 9%
less than the previous fiscal year. Sales of sports bags/luggage products of
$3,368,000 and $1,023,000 for the nine months ended April 30, 1997 and the three
months ended July 31, 1996, respectively, were $4,391,000, on a combined basis.
These combined sales of sports bags/luggage products were 7% less than the
previous fiscal year. Sales for the fiscal year ended April 30, 1996 were
reduced by $3,211,000 of customer credits for a discontinued line of manual
treadmills and ski machines. The Company does not believe that the decrease in
sales of its products represents a material trend. The Company believes that the
decrease is primarily the result of the reorganization proceedings. The Company
will attempt to reverse this trend by expanding its product lines and increasing
the attractiveness of its products by developing new packaging. There can be no
assurance that the Company will be successful in this effort.

Operating expenses of $2,227,000 and $558,000 for the nine months ended April
30, 1997 and three months ended July 31, 1996, respectively, were, on a combined
basis, $3,899,000 less than the fiscal year ended April 30, 1996, due to the
reorganization.

The  following is a discussion  of the effect of the  Company's reorganization  
and  adoption of  fresh-start  reporting  on the various  income statement line 
items during the nine-month period ended April 30, 1997. For this purpose, the 
nine months ended April 30, 1997 are compared to the nine months ended April
30, 1996. Decreases for the nine months ended  April 30, 1997 compared to the 
nine months ended April 30, 1996 are  represented  approximately by net changes 
in the following expenses:

Freight out.......................$ 10,000
Insurance claims..................$ 70,000
Lawsuits..........................$289,000
Showroom rent.....................$319,000
Officers' salaries................$ 81,000
Office salaries...................$262,000
Warehouse salaries................$115,000
Salesmen salaries.................$ 57,000
Payroll taxes.....................$ 45,000
Fringe benefits...................$  2,000
Repairs & maintenance.............$  4,000

Travel & Entertainment............$ 30,000
Office equipment rental...........$  7,000
Miscellaneous.....................$  8,000
Consultant fees...................$105,000
Promotional material..............$189,000
Pension costs.....................$726,000
Telephone.........................$ 31,000
Data-processing...................$  6,000
Postage...........................$ 10,000
Bad debt expense..................$666,000

Freight out decreased by $10,000 due primarily to reduced volume.
Insurance claims and lawsuits  decreased by $70,000 and $289,000, 
respectively, as a result of the  accrual  of  proofs of claim  filed  during 
the  bankruptcy proceeding as liabilities  subject to compromise  during the 
nine-month  period ended April 30, 1996.

Showroom rent decreased by $319,000 since a proof of claim for the balance of
the lease was  recorded  during the  nine-month  period ended April 30,  1996. 
The  showroom was closed in October  1995.

Officers  salaries decreased by $81,000 due to  reduction in the salary of the
former  President of the Company in September 1995, and the elimination of a
Chief Operating  Officer position in December  1995.  These changes  resulted
in decreases of $37,000 and $44,000,  respectively.

Office salaries decreased by $262,000 due primarily to the elimination of the
Vice President of Operations position in June 1996 which accounted for $119,000
of the reduction. In addition, the position of Credit Manager was eliminated in
May 1996 resulting in a savings of $45,000. The balance of $98,000 is due to the
overall reduction of the office staff as a part of the reorganization.

Warehouse salaries  decreased  by $115,000  due to the  elimination  of
warehouse employees under the reorganization.

    Salesmen  salaries  decreased  by  $57,000  due to the  elimination  of a 
    sales position in August 1996.  

    Payroll taxes and fringe benefits decreased by $45,000 and $2,000, 
    respectively, due primarily to the positions and employees eliminated 
    during the reorganization.

    Repairs and maintenance decreased by $4,000.

    Travel and  entertainment  expenses  decreased by $30,000 due to the 
    decrease in executive and sales personnel.

                                     -12-


<PAGE>
Office  equipment  rental  decreased  by  $7,000  due  to a  reduction  of the
equipment rented due to the reorganization.

Miscellaneous taxes  decreased by $8,000 as a  consequence  of the change in the
Company's sate of incorporation from Delaware to Nevada which resulted
in the elimination of Delaware franchise taxes.

Consultantfees   decreased  by  $105,000   because  the  Company  did  not  hire
consultants during the nine months ended April 30, 1997.

Promotional  materials decreased by $189,000 due to decreased spending for these
materials. 

Pension costs decreased by $726,000 because a proof of claim filed by the
Pension Benefit Guarantee Corp. for this amount was recorded as part of the 
reorganization during the nine months ended April 30, 1996. 

Telephone expenses decreased by $31,000 due to the closing of the showroom in 
October 1995.  

Data-processing costs decreased by $6,441 due to the reorganization of the 
Company.

Postage decreased by $10,000 due to improved cost management.

Bad debt  expense  decreased  by $666,000  because of improved collections  and
decreased sales volume.

Interest  expense of $198,800  and  $57,300 for the nine months  ended April
30, 1997 and July 31, 1996, respectively, were, on a combined basis, $127,400
or 33% lower than the previous fiscal year.  This decrease is the result of a
$223,000 decrease in contractual interest which was offset by an increase in
related party interest of $96,000.  See ITEM 13. CERTAIN RELATIONSHIPS AND
RELATED PARTY TRANSACTIONS.

The Company's pre-tax profits of $147,000 for the fiscal year ended April 30,
1997 is comprised of a $76,000 loss for the period of May 1, 1996 to July 31,
1996, and a $223,000 profit for the period August 1, 1996 to April 30, 1997. As
a result of the merger of Dynamic Classics, Ltd. into Dynamic International,
Ltd. (see Note 2 to the Financial Statements) and the ownership change due to
the reorganization, for tax purposes, the $76,000 loss is reportable in the
Company's final tax return (see Note 5 to the Financial Statements). As there is
a loss for the period, no current tax provision was recorded for the period May
1, 1996 to July 31, 1996. The Company also has net operating loss carry-forwards
of approximately $19,500,000, out of which approximately $16,700,000 would be
utilized to offset the extraordinary gain on the discharge of pre-Petition
liabilities in its final tax return. All deferred taxes arising from the
preconfirmation net operating losses were offset entirely by a valuation
allowance. Effectively, no deferred tax benefits were realized from
preconfirmation net operating losses. Any loss carry-forward not utilized in the
Company's final tax return is lost. Accordingly, the Company has no deferred
taxes as of July 31, 1996. The Company's new tax period ending April 30, 1997
commenced on August 9, 1996. The current income tax provision of $104,000 for
the fiscal year ended April 30, 1997 is based on pretax profits of $223,000 for
the period August 9, 1996 to April 30, 1997. The effective tax rate is 46%
comprised of 26% of federal taxes and 20% of state and local taxes.

                                     -13-

<PAGE>
The  following  table  sets  forth the  results of  operations  for the  periods
discussed above:


                         Reorganized
                           Company               Predecessor Company
                       -------------     -------------------------------------
                        For 9 Months     For 3 Months          For Fiscal Year
                       Ended 4/30/97     Ended 7/31/96          Ended 4/30/96
                       -------------     -------------         ---------------
Sales                    7,492,700         1,983,200               7,151,700
Other income                54,600            10,200                  98,300
                         ---------         ---------              ----------
                         7,547,300         1,993,400               7,250,000
Cost of sales            4,959,300         1,454,600               9,480,500
                         ---------         ---------              ----------
Gross profit (loss)      2,588,000           538,800              (2,230,500)
                         ---------         ---------              ----------
Operating Expenses       2,226,600           556,500               6,683,200
Interest                   198,800            57,300                 383,500
                         ---------         ---------              ----------
                         2,425,400           613,800               7,066,700
                         ---------         ---------              ----------
Reorganization              48,900             1,300                 449,700
                         ---------         ---------              ----------
Pretax income (loss)       113,700           (76,300)             (9,746,900)
Tax                        103,700               ---              (7,511,000)
                         ---------         ---------              ----------
Income (loss) before
   extraordinary item       10,000           (76,300)             (2,235,900)
                         ---------         ---------              ----------
Extraordinary item
  gain on discharge of
  pre-petition liabilities     ---               ---              16,692,200
Tax                            ---               ---               7,511,000
                         ---------         ---------              ----------
Extraordinary gain,
  net of tax                   ---               ---               9,181,200
                         ---------         ---------              ----------
NET INCOME (LOSS)           10,000           (76,300)              6,945,300
                         ---------         ---------              ----------
                         ---------         ---------              ----------

On July 10, 1997, the Company and MG agreed that no further payments shall be
payable to MG under the Note (see ITEM 13. CERTAIN RELATIONSHIPS AND RELATED
TRANSACTIONS) until the consummation of the Company's contemplated public
offering or at the scheduled maturity of the Note, whichever occurs earlier.

Liquidity and Capital Resources

Fiscal Year Ended April 30, 1998

During the fiscal year April 30, 1998, cash used by operating activies amounted
to $2,090,000. This was the result of increases in prepaid expenses as 
discussed above, and decreases in accrued expenses of $609,000 and $2,806,000 
respectively, which were offset by net income, decreases in accounts receivable 
and due from suppliers, inventory and prepaid and refundable income taxes of 
$129,000, $186,000, $967,000 and $14,000 respectively.

Investing activies used cash of $67,900 for molds related to a new product.

Financing activities provided cash of $3,689,000 as proceeds of a stock
offering of approximately $4,800,000, which was completed on December 27, 1997, 
were used to pay accounts payable and accrued expenses of approximately 
$2,800,000. The use of proceeds in this way produced the use of cash for 
operating activities of $2,090,000. An additional $1,059,785 of the proceeds 
of the stock offering was used to pay related party debt. The Company had a 
positive cash flow of $1,532,000. The Company expects that based upon the cash 
flow for the fiscal year ended April 30, 1998 and the anticipated future cash 
flows, that the reorganization value in excess of amounts allocable to 
identifiable assets of $112,000 as of April 30, 1998 will be fully recoverable.

                                    -14-
  

<PAGE>
Nine Months Ended April 30, 1997

During the first nine months after the Company's reorganization, cash used in
operations amounted to $294,371.  Cash used to pay creditors during the
reorganization  amounted  to  $515,638.  Cash  was also  used to  increase
inventory  by  $923,000  during the  nine-month  period.  The  increase in
inventory was due to an anticipated  increase in sales and the purchase of
larger volumes to take advantage of the decreased  costs  associated  with the
higher-volume purchases.

Accounts receivable and amounts due from suppliers decreased by  $482,254,
prepaid expenses decreased by $122,017, miscellaneous  receivables decreased by
$132,379 and prepaid and refundable income  taxes decreased by $252,046. These
amounts partially offset expenditures  for inventory and payments to credits.

Cash of $332,957 provided by financing activities was primarily the result
of a  $600,000  loan  from MG  Holding  and was  used  to pay the  creditors 
in accordance with the Company's  Plan.  Cash provided by financing  activities
was used to repay $145,324 of the note payable to MG Holding. In addition, 
payments were made for capital leases, insurance notes, and deferred stock
offering costs of $29,656, $62,020, and $30,043,  respectively. The Company had
a positive cash flow of $38,586.

Three Months Ended July 31, 1996

During the three months ended July 31, 1996, cash used by operating activities
amounted to $64,800. This was the result of a net loss of $76,400, increases in
accounts receivable and due from supplier, and prepaid expenses of $221,300 and
$100,600, respectively, which were offset by a decrease in inventory and an
increase in accounts payable and accrued expenses of $115,600 and $155,800,
respectively.

Financing activities provided cash of $43,200. Proceeds from insurance notes
payable of $77,200 were offset by repayments of insurance notes payable, and
repayments of capital lease obligation of $15,200 and $18,800, respectively. The
Company had a negative cash flow of $21,600 for the three months ended July 31,
1996.

Current Position

On April 30, 1998 the Company entered into a credit agreement with The Chase
Manhattan Bank ("Chase") for maximum borrowing of $1,500,000 in the form of 
letters of credit and bankers acceptances. The agreement also provides for a 
security interest in the inventory and notes and accounts receivables of the 
Company. In addition the agreement provides for the personal guarantee of the 
President and major shareholder of the Company in the amount of $250,000. As of 
June 30, 1998 the Company's aggregate balance of $1,072,159 consisted of 
$500,000 in bankers acceptances and $572,159 in outstanding letters of credit.

Pursuant to an unwritten understanding, Achim arranges for the issuance by its
financial lender of letters of credit in favor of the Company's overseas
suppliers, thereby enabling the Company to finance the purchases of its
inventory. Also, in the event of domestic suppliers, from time to time, Achim
purchases products from the manufacturer and resells them to the Company in
order to accommodate Achim's commercial lenders who often require a security
interest in the merchandise until it has been sold and the lender has been
repaid. The Company pays Achim for the amount actually paid to the supplier
(including any applicable discounts) without markup, reimburses Achim for its
bank charges and pays it interest at the prime rate plus 1% on the unpaid
balance of the purchases. As of April 30, 1998, no monies were owed to Achim
under this arrangement. See ITEM 13. CERTAIN RELATIONSHIPS AND RELATED
TRANSACTIONS. The weighted average interest rate paid by the Company to Achim at
April 30, 1997 and April 30, 1996 was 9.25% and 11.5%, respectively.

                                  -15-
<PAGE>
The Company believes that the proceeds from the stock offering, the Chase
Manhattan Bank credit line and the availability of Achim's credit line will be
sufficient to finance its operations for the next twelve months.

Seasonality and Inflation

The Company's business is highly seasonal with higher sales typically in the
second and third quarter of the fiscal year as a result of shipments of exercise
equipment and sports bags/luggage related to the holiday season.

Management does not believe that the effects of inflation will have a material
impact on the Company, nor is it aware of changes in prices of material or other
operating costs or in the selling price of its products and services that will
materially affect the Company's profits.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The financial statements are included herein commencing on page F-1.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND 
        FINANCIAL DISCLOSURE

On June 26, 1996, the Company dismissed Hoberman, Miller & Co., P.C. as its
independent accountants ("Hoberman"). This action had been approved by the
Company's Board of Directors. During the past two years Hoberman did not issue a
report on the Company's financial statements that either contained an adverse
opinion or a disclaimer of opinion, or was qualified or modified as to
uncertainty, audit scope or accounting principles.

During the period of their engagement from June 30, 1973 until June 26, 1996,
there were no disagreements between the Company and Hoberman on any matter of
accounting principles or practices, financial statement disclosure, or audit
scope and procedure, which disagreement, if not resolved to the satisfaction of
Hoberman, would have caused them to make reference to the subject matter of the
disagreement in connection with any report that was to have been, or will be,
prepared for the Company.

On July 11, 1996 the Company's Board of Directors appointed Moore Stephens,
P.C. as its independent accountants.

                                    -16-

<PAGE>
                                   PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

Officers and Directors

The officers and directors of the Company are as follows:

         Name                   Age       Position
         ----                   ---       --------          
         Marton B. Grossman     67        Chairman and President
         Isaac Grossman         36        Vice Chairman, Treasurer and Secretary
         Sheila Grossman        58        Director
         William P. Dolan       45        Vice President--Finance
         John Holodnicki        45        Vice President--Sales
         Harry Braunstein       48        Director*
         Bernard Goldman        77        Director*
         Gordon Sulltrop        62        Executive Vice President

         *Member of the Company's Audit Committee.

         Marton B. Grossman has been the Chairman and Chief Executive Officer
of the Company since July 29, 1996.  For the past 34 years, he has been
President of Achim, a privately-held company engaged in the import and export
of window coverings and accessories.  In addition, he is President of MG
Holding Corp., a privately-held financial holding company.  Mr. Grossman is the
father of Isaac Grossman, the Company's Vice Chairman, Treasurer and Secretary. 
Mr. Grossman spends approximately 20% of his time working for the Company.

         Isaac Grossman has been the Company's Vice Chairman, Treasurer and
Secretary since July 1996, and Vice President of Achim since 1989.  He is the
son of Marton B. Grossman, the Company's Chairman and President.  Mr. Grossman
spends approximately 20% of his time working for the Company.

         Sheila Grossman was elected a director in October 1997. From 1962 to 
1987 she was affiliated with Achim where she performed a variety of functions 
including Secretary to the President. Ms. Grossman is the spouse of Marton 
Grossman, the Company's Chairman and President.

         William P. Dolan has been the Company's Vice President-Finance since
July 1996.  Prior thereto, he had been the Company's Treasurer and Secretary
since 1989.  Mr. Dolan graduated from the William Paterson College of New
Jersey and is a Certified Public Accountant.

         John Holodnicki has been a Vice President--Sales at the Company since 
1994. From 1981 to 1994, he was a Vice President--Sales at HIT Industries, an 
importer of business computer cases. Mr. Holodnicki earned a degree in Marketing
from the University of Illinois in 1975.

         Harry Braunstein was elected a member of the Board in October 1997. 
Mr. Braunstein has been a member of Hertzfeld & Rubin, a New York based law
firm, since 1984.  He is member of the Board of Directors of Gotham Bank of New
York, Lark Holding Corp., the parent company of WDF, Inc., a privately held
plumbing supply company and Sentery Detection, Inc. a home alarm business.  Mr.
Braunstein earned a J.D. degree from Brooklyn Law School in 1974.

         Bernard Goldman was elected a member of the board in October 1997. 
Mr. Goldman was the Chief Executive Officer of Goldman's Department Store, a
chain consisting of 12 stores, from 1957 to 1979.  Mr. Goldman has been and
continues to be a member of the Board of Directors and an executive officer of
a number of community and charitable institutions and organizations.

                                    -17-

<PAGE>
Gordon Sulltrop was appointed Executive Vice President in September 1997. 
Prior to joining the Company, from 1988 to 1997, he was employed by Rubbermaid
Specialty Products Division.  At that company he acted as National Accounts
Sales Manager from 1996, Central Region Manager from 1991-1995, Military and 
Premium Sales Manager from 1990 to 1991 and National Accounts Manager from 
1988 to 1990. Mr. Sulltrop earned a B.S. in Education from Missouri Valley 
College, Marshall, Missouri.

Board of Directors

Each director is elected at the Company's annual meeting of stockholders and
holds office until the next annual meeting of stockholders, or until his
successor is elected and qualified. At present, the Company's bylaws require no
fewer than one director. Currently, there are three directors of the Company. 
The bylaws permit the Board of Directors to fill any vacancy and the new 
director may serve until the next annual meeting of stockholders or until his 
successor is elected and qualified. Officers are elected by the Board of 
Directors and their terms of office are, except to the extent governed by 
employment contracts, at the discretion of the Board.

The underwriting agreement, for the stock offering completed on December 27, 
1997, provides that the underwriter has the right to designate one member of the
Board of Directors for a period of three years following the consummation of the
Company's public offering on December 27, 1997. To date, no person has been 
designated by the Underwriter.

ITEM 11. EXECUTIVE COMPENSATION

The following table sets forth the compensation paid or accrued by the Company
during the three fiscal years ended April 30, 1997 (I) to its Chief Executive
Officer, (ii) its other two Executive Officers and (iii) two additional
non-Executive Officers whose cash compensation exceeded $100,000 per year in any
such year:

                       SUMMARY COMPENSATION TABLE (1) (2) 
                       ----------------------------------
Name/Principal        Year Ended       Annual Compensation        All Other
Position               April 30        Salary        Bonus     Compensation (3)
--------------------------------------------------------------------------------
Marton B. Grossman       1998           $0                         $31,200
Chairman & President     1997           $0                         $31,200
                         1996           $0                         $18,200
--------------------------------------------------------------------------------
Isaac Grossman           1998           $0                         $32,240
Director, Treasurer      1997           $0                         $32,240
                         1996           $0                         $18,200
--------------------------------------------------------------------------------
William P. Dolan         1998           $112,976                   $0
Vice President-Finance   1997           $100,000                   $0
                         1996           $100,000                   $0
--------------------------------------------------------------------------------
John Holodnicki          1998           $124,538                   $0
Vice President           1997           $120,000                   $0
                         1996           $120,000                   $0
--------------------------------------------------------------------------------
Marvin Cooper (4)        1998           $0                         $0
Executive Vice President 1997           $128,125                   $0
                         1996           $182,876                   $0
--------------------------------------------------------------------------------
(1) The above compensation does not include the use of an automobile and other
personal benefits, the total value of which does not exceed as to any named
officer or director or group of executive officers the lesser of $50,000 or 10%
of such person's or persons' cash compensation.

(2) Pursuant to the regulations promulgated by the Securities and Exchange
Commission, the table omits columns reserved for types of compensation not
applicable to the Company.

(3) Consists of estimated portion of the fees payable to Achim under the
Warehousing Agreement attributable to Marton Grossman's and Isaac Grossman's
activities performed on behalf of the Company. Marton Grossman is the sole
shareholder, and Isaac Grossman is an employee of Achim. See ITEM 13. CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS.

(4) Mr. Cooper resigned his position in March 1997.

None of the individuals listed in the table above receive any long-term
incentive plan awards during the fiscal year.


                                   -18-

<PAGE>
Marton B. Grossman, the Company's Chairman and President, does not have an
employment agreement and is not being paid a salary. However, in April 1997, the
Company entered into a Bonus Agreement with Mr. Grossman which provides for the
issuance to Mr. Grossman of an aggregate of 2,000,000 shares of Common Stock if
the Company reaches certain earnings milestones, as follows: If the Company's
earnings before taxes for the fiscal year ending April 30, 1998, are no less
than $500,000, he will be issued 400,000 shares. If the Company's earnings 
before taxes for the fiscal year ending April 30, 1999, are no less than 
$1,000,000, he will be issued 600,000 shares. If the Company's earnings before 
taxes for the fiscal year ending April 30, 2000, are no less than $1,500,000, he
will be issued 1,000,000 shares. The stated earnings criteria are cumulative so 
that in the event of an earnings shortfall during a fiscal year, shares relating
to two fiscal years will be issued provided that the Company, during the 
succeeding fiscal year, realizes earnings that in the aggregate are equal to two
years of earnings as set forth in the Agreement. The Agreement also provides for
piggyback registration rights with respect to the Common Stock to be issued.

The following table sets forth the number of shares of Common Stock to be issued
to Marton Grossman under the Bonus Agreement:

<TABLE>
<CAPTION>

                                           Performance or Other
                       Number of Shares,       Period Until          Estimated Future Payments
                        Units or Other        Maturation or               Under Non-Stock
 Name                       Rights               Payout                 Price-Based Plans
 ----                  -----------------   --------------------      -------------------------
                                                                     Threshold Target Maximum
                                                                     -------------------------
<S>                       <C>                 <C>                    <C>
 Marton B. Grossman       2,000,000           April 30, 2000            *       *       *
----------------------------------------------------------------------------------------------
<FN>
*The number of shares to be issued in a particular fiscal year is based on the
criteria set forth above.

</FN>
</TABLE>

Compliance with Section 16(a) of the Securities Exchange Act of 1934

Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
officers and directors, and persons who own more than ten percent of a
registered class of the Company's equity securities, to file reports of
ownership and changes in ownership with the Securities and Exchange Commission.
Officers, directors and greater-than-ten-percent shareholders are required by
SEC regulation to furnish the Company with copies of all Section 16(a) forms
they file.

Based solely on review of the copies of such forms furnished to the Company, or
written representations that no Forms 5 were required, the Company believes that
during the period from May 1, 1996 through April 30, 1997, other than Forms 3
that were filed late with respect to Messrs. Marton and Isaac Grossman and
William Dolan and the Marton Grossman Annuity Trust, all Section 16(a) filing
requirements applicable to its officers, directors and greater-than-10%
beneficial owners were complied with.

401K Plan

The Company terminated the 401K plan as of December 31, 1997.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The following table sets forth, as of July 28, 1998, information regarding the
beneficial ownership of the Company's Common Stock based upon the most recent
information available to the Company for (I) each person known by the Company to
own beneficially more than five (5%) percent of the Company's outstanding Common
Stock, (ii) each of the Company's officers and directors, and (iii) all officers
and directors of the Company as a group. Each stockholder's address is c/o the
Company, 58 Second Avenue, Brooklyn, New York 11215, unless otherwise 
indicated.

                                       -19-
<PAGE>


                                               Shares Owned Beneficially
                                                   and of Record (1)
                                             -----------------------------
  Name and Address                           No. of Shares      % of Total
  ----------------                           -------------      ----------
  Marton B. Grossman (2)                       2,976,000           67.3
  Isaac Grossman (3)                           2,976,000           67.3
  Sheila Grossman (2)                          2,976,000           67.3
  Harry Braunstein
  40 Wall Street
  New York, NY 10004                                 -0-              *
  Bernard Goldman
  2100 Boca West Drive
  Laurel Oaks, FL                                    -0-              *
  William P. Dolan                                   123              *
  John Holodnicki                                     11              *
  Gordon Sulltrop                                    -0-              *
  All Officers and Directors
    as a Group (8 persons)                     2,976,134           67.3
--------------------------------------------------------------------------------
* Less than 1%

(1) Includes  shares  issuable  within 60 days upon the exercise of all
options and  warrants.  Shares  issuable  under options or warrants are
owned  beneficially but not of record. 

(2) Consists of shares of Common Stock held by a family foundation and a series
of trusts (collectively, the "Grossman Trust") for the benefit of relatives of 
Mr. Grossman. Mr. Isaac Grossman and two of his relatives are the trustees of 
the Grossman Trusts. Under its terms,  the Grossman Trust will return to Mr. 
Grossman  annually until August  1998 56% of the  value  of the  shares 
(payable  in cash or in shares)  when  deposited  into each of the Grossman 
Trusts.  Since the number of shares to be  returned  to Mr.  Grossman is based
on the then current  market  price of the  Common  Stock,  such  number  cannot 
be determined at the present time. To date, 201,023 shares have been returned
to Mr. Grossman under this arrangement.   Mr.  Grossman  disclaims beneficial
ownership in the shares held by the Grossman Trust that will not be returned 
to him.

(3)  Consists of shares held by the  Grossman Trust of which Mr.  Isaac 
Grossman is  currently a  beneficiary  as to 464,600 shares.  The actual number
of shares held by the Grossman Trust as to which Isaac Grossman is a
beneficiary  may be smaller since under the  terms of the  Grossman  Trust,  a 
portion  of the  shares  may be returned to Marton  Grossman as described in
footnote (2). Mr. Grossman is a trustee of the Grossman  Trust and in that
capacity  shares voting power as to the shares held by the Grossman Trust.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

In connection with the plan of reorganization, MG purchased from the Company's
principal lender a note in the principal amount of approximately $6,822,530. 
MG is wholly owned by Marton B. Grossman, the Company's Chairman and President. 
The note was subsequently repaid by the Company  through the issuance of
2,976,000  shares of Common Stock to MG. MG assigned the Common Stock to a
trust for the benefit of members of Mr. Grossman's family.

Also in connection with the Plan, MG Holding loaned approximately $1,205,000 to
the Company to consummate the Plan and for related expenses. The Company issued
a promissory note to MG Holding evidencing the loan and granted it a security
interest in all of the Company's assets. The promissory note is to be paid in 24
monthly installments commencing September 5, 1996. The note accrues interest at
the Citibank prime rate plus 1%. The weighted average interest rate as of the
date hereof and at April 30, 1997 was 9.35% and 9.25%, respectively. As of April
30, 1997, the Company had accrued interest in the amount of $37,219 in
connection with this loan. As of June 30, 1997, the amount of interest owed
amounted to $54,197. In July 1997, the Company and MG Holding agreed that no
principal or interest payments under the note would be due until the
consummation of this offering or the scheduled maturity of the note, whichever
occurred earlier. The note and all accrued interest was paid in full on December
23, 1997 with the proceeds of the stock offering.

Pursuant to the Warehousing Agreement, Achim performs certain administrative
services on behalf of the Company. Under the Warehousing Agreement, Achim
assists, among other things, in the maintenance of financial and accounting
books and records, in the preparation of monthly financial accounts receivable
aging schedules and other reports and credit checks on the Company's customers.

In consideration of these services, Achim receives an annual fee, payable
monthly, calculated as a percentage of the Company's invoiced sales originating
at the warehouse ranging from 4% of invoiced sales under $30,000,000 to 3% for
sales of $60,000,000 or more.

                                      -20-

<PAGE>
For sales not originating at the warehouse, Achim receives a service fee in the
amount of 1.5% of the Company's invoiced sales to customers and account located
in the United States if payment is made by letter of credit and 1% if such
customers and accounts are located outside the United States, irrespective of
manner of payment.

In addition, under the Warehousing Agreement, Achim provides warehousing
services consisting of receiving, shipping and storing of the Company's
merchandise. The Company pays Achim a monthly fee of 3% of its invoiced sales
originating at the warehouse in connection with these warehousing services
performed by Achim under the Warehousing Agreement.

The Warehousing Agreement has a term of two years and is automatically renewable
for additional one-year periods unless written notice of termination is given at
least six months prior to the commencement of a renewal period. During the
fiscal year ended April 30, 1997, the Company accrued approximately $183,095 in
fees under the Warehousing Agreement.

Achim is wholly owned by Marton B. Grossman, the Company's Chairman and
President. The Company believes that the terms of the Warehousing Agreement with
Achim are at least as favorable as would have been obtained from an unaffiliated
third party.

On April 30, 1998 the Company  entered  into a credit  agreement  with The
Chase Manhattan  bank for maximum  borrowings  of $1,500,000 in the form of
letters of credit and banker acceptances. The agreement also provides for a
security interest in the inventory and notes and accounts receivable of the
Company. The agreement also provides for the personal guarantee of the
President and major shareholders of the Company in the amount of $250,000.

In addition, pursuant to an unwritten understanding, Achim arranges for the
issuance by its financial lender of letters of credit in favor of the Company's
overseas suppliers, thereby enabling the Company to finance the purchases of its
inventory. Also, from time to time, when taking deliveries from domestic
suppliers, Achim purchases products from the manufacturer and resells them to
the Company in order to accommodate Achim's commercial lenders who often require
a security interest in the merchandise until it has been sold and the lender has
been repaid. The Company pays Achim for the amount actually paid to the supplier
(including any applicable discounts) without markup, reimburses Achim for its
bank charges and pays it interest at the prime rate plus 1% on the unpaid
balance of the purchases. As of April 30, 1998, no monies were owed to Achim
under this arrangement. See ITEM 13. CERTAIN RELATIONSHIP AND RELATED
TRANSACTIONS. The weighted average interest rate paid by the Company to Achim at
June 30, 1997, April 30, 1997 and April 30, 1996 was 9.37%, 9.25% and 11.5%,
respectively.

The Company occupies a warehouse consisting of approximately 54,400 square feet,
of which 4,500 square feet are dedicated to office space, located at 58 Second
Avenue, Brooklyn, New York. The property is owned by Sym Holding Corp. which is
owned by Isaac Grossman and one of his siblings. Isaac Grossman is the Company's
Vice Chairman, Treasurer and Secretary. The property is leased to Achim which
makes the property available to the Company. Other than the fees payable by the
Company under the Warehousing Agreement, the Company pays no rent for the
property. See ITEM 1. BUSINESS "Management Agreement with Achim Importing Co.,
Inc" and ITEM 2. PROPERTIES.

                                      -21-

<PAGE>
PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K

(a)      1. and 2.         Financial Statements and Schedules

         The  financial   statements  are  listed  in  the  Index  to  Financial
         Statements on page F-1 and are filed as part of this annual report.

         3.                Exhibits

         The Index to  Exhibits  following  the  Signature  Page  indicates  the
         exhibits  which are being filed  herewith  and the  exhibits  which are
         incorporated herein by reference.

(b)                        Reports on Form 8-K

         No Reports on Form 8-K were filed during the last quarter of the fiscal
         year ended April 30, 1998.

                                        -22-


<PAGE>
DYNAMIC INTERNATIONAL, LTD. AND SUBSIDIARY
--------------------------------------------------------------------------------


INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------


                                                                   Page to Page

Item 8:  Financial Statements

Independent Auditor's Report...................................... F-1..........

Consolidated Balance Sheets as of April 30, 1998 and 1997......... F-2.......F-3

Consolidated  Statements  of Operations  for the year ended April 30, 1998,  the
nine months ended April 30, 1997, the three months ended July 31, 1996
and the year ended April 30, 1996................................. F-4.......F-5

Consolidated  Statements  of  Stockholders'  Equity for the year ended April 30,
1998, the nine months ended April 30, 1997, the three
months ended July 31, 1996 and the year ended April 30, 1996...... F-6..........

Consolidated  Statements  of Cash Flows for the year ended April 30,  1998,  the
nine months ended April 30, 1997, the three months ended July 31, 1996
and the year ended April 30, 1996................................. F-7.......F-9

Notes to Consolidated Financial Statements........................ F-10.....F-22



<PAGE>

                          INDEPENDENT AUDITOR'S REPORT


To the Board of Directors and Shareholders
   Dynamic International, Ltd.


                  We have audited the accompanying consolidated balance sheet of
Dynamic  International,  Ltd. [formerly Dynamic Classics,  Ltd., see Note 2] and
its  subsidiary  as of April 30,  1998 and 1997,  and the  related  consolidated
statements  of  operations,  stockholders'  equity,  and cash flows for the year
ended April 30, 1998,  the nine months  ended April 30,  1997,  the three months
ended July 31,  1996,  and the year ended  April 30,  1996.  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 audits.

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

                  In our opinion, the consolidated financial statements referred
to above present fairly, in all material  respects,  the consolidated  financial
position of Dynamic  International,  Ltd. [formerly Dynamic Classics,  Ltd.] and
its  subsidiary  as of  April  30,  1998  and  1997,  and the  results  of their
operations  and their  cash flows for the year ended  April 30,  1998,  the nine
months ended April 30, 1997,  the three months ended July 31, 1996, and the year
ended  April  30,  1996,  in  conformity  with  generally  accepted   accounting
principles.

                  As  explained  in  Note 3 to  the  financial  statements,  the
Company  had given  retroactive  effect  to the  change  in  accounting  for its
inventories from the LIFO method to the FIFO method


                                           /s/ MOORE STEPHENS, P. C.

                                           MOORE STEPHENS, P. C.
                                           Certified Public Accountants

New York, New York
July 15, 1998

                                       F-1

<PAGE>
Item 8:

DYNAMIC INTERNATIONAL, LTD. AND SUBSIDIARY
--------------------------------------------------------------------------------

CONSOLIDATED BALANCE SHEETS
--------------------------------------------------------------------------------

<TABLE>
<CAPTION>

                                                                                                    April 30,
                                                                                                    ---------
                                                                                            1 9 9 8             1 9 9 7
                                                                                            -------             -------
                                                                                                              [Restated]
<S>                                                                                   <C>                 <C>
Assets: 
Current Assets:
   Cash and Cash Equivalents                                                          $     1,575,248     $        43,543
   Accounts Receivable - Trade [Net of Allowance for
     Doubtful Accounts of $122,685 and $167,000 in 1998
     and 1997, Respectively]                                                                  810,447             887,089
   Due from Suppliers                                                                          36,142              65,273
   Inventory                                                                                2,359,022           3,325,795
   Prepaid Expenses                                                                           669,133              60,272
   Miscellaneous Receivables                                                                       --               2,658
   Prepaid and Refundable Income Taxes                                                         26,201              39,914
                                                                                      ---------------     ---------------

   Total Current Assets                                                                     5,476,193           4,424,544
                                                                                      ---------------     ---------------

Property and Equipment:
   Tools and Dies                                                                             775,839             707,939
   Furniture and Equipment                                                                    102,205             102,205
   Capitalized Equipment Leases                                                               576,071             576,071
                                                                                      ---------------     ---------------

   Totals - At Cost                                                                         1,454,115           1,386,215
   Less:  Accumulated Depreciation                                                         (1,329,269)         (1,260,924)
                                                                                      ---------------     ---------------

   Property and Equipment - Net                                                               124,846             125,291
                                                                                      ---------------     ---------------

Other Assets:
   Due from Supplier                                                                               --              36,142
   Security Deposits                                                                            2,050               4,650
   Deferred Stock Offering Costs                                                                   --             116,023
   Reorganization Value in Excess of Amount Allocable
     to Identifiable Assets - Net                                                             112,328             124,472
                                                                                      ---------------     ---------------

   Total Other Assets                                                                         114,378             281,287
                                                                                      ---------------     ---------------

   Total Assets                                                                       $     5,715,417     $     4,831,122
                                                                                      ===============     ===============


The Accompanying Notes are an Integral Part of These Consolidated Financial Statements.
</TABLE>


                                       F-2

<PAGE>
DYNAMIC INTERNATIONAL, LTD. AND SUBSIDIARY
------------------------------------------------------------------------------

CONSOLIDATED BALANCE SHEETS
------------------------------------------------------------------------------
<TABLE>
<CAPTION>


                                                                                                    April 30,
                                                                                                    ---------
                                                                                            1 9 9 8             1 9 9 7
                                                                                            -------             -------
                                                                                                              [Restated]
<S>                                                                                   <C>                 <C>
Liabilities and Stockholders' Equity:
Current Liabilities:
   Accounts Payable and Accrued Expenses - Non-Related                                $       458,359     $       846,234
   Accounts Payable and Accrued Expenses - Related Party                                       19,186           2,627,580
   Capital Lease Obligations - Current                                                             --              24,228
   Income Taxes Payable                                                                        79,422              91,872
   Loan Payable- Related Party                                                                     --             844,531
                                                                                      ---------------     ---------------

   Total Current Liabilities                                                                  556,967           4,434,445
                                                                                      ---------------     ---------------

Other Liabilities:
   Loan Payable- Related Party                                                                     --             215,254
                                                                                      ---------------     ---------------

Commitment and Contingencies [6]                                                                   --                  --
                                                                                      ---------------     ---------------

Stockholders' Equity:
   Common Stock - Par Value, $.01 Per Share; Authorized
     5,000,000 Shares; No Shares Issued

   Common Stock - Par Value $.001 Per Share; Authorized
     50,000,000 Shares; Issued 4,418,798 and 3,198,798 Shares                                   4,419               3,199

   Additional Paid-in Capital                                                               4,869,796              22,940

   Retained Earnings                                                                          284,238             155,287
                                                                                      ---------------     ---------------

   Totals                                                                                   5,158,453             181,426
   Less:  Treasury Stock - At Cost - 540 Shares                                                    (3)                 (3)
                                                                                      ---------------     ---------------

   Total Stockholders' Equity                                                               5,158,450             181,423
                                                                                      ---------------     ---------------

   Total Liabilities and Stockholders' Equity                                         $     5,715,417     $     4,831,122
                                                                                      ===============     ===============



The Accompanying Notes are an Integral Part of These Consolidated Financial Statements.
</TABLE>


                                       F-3

<PAGE>
DYNAMIC INTERNATIONAL, LTD. AND SUBSIDIARY
------------------------------------------------------------------------------

CONSOLIDATED STATEMENTS OF OPERATIONS
------------------------------------------------------------------------------

<TABLE>
<CAPTION>

                                                         Reorganized       Reorganized       Predecessor
                                                           Company           Company           Company         Predecessor
                                                           For the        For the Nine      For the Three        Company
                                                         Year Ended       Months Ended      Months Ended       Year Ended
                                                          April 30,         April 30,         July 31,          April 30,
                                                           1 9 9 8           1 9 9 7           1 9 9 6           1 9 9 6
                                                           -------           -------           -------           -------
                                                                           [Restated]
<S>                                                       <C>                  <C>              <C>                <C>
Revenues:
   Sales                                                  $  8,001,138     $  7,492,729     $  1,983,164     $  7,151,715
   Other Income                                                 41,938           54,642           10,201           98,272
                                                          ------------     ------------     ------------     ------------

   Total Revenues                                            8,043,076        7,547,371        1,993,365        7,249,987

Cost of Sales                                                5,291,768        4,959,319        1,454,637        9,480,484
                                                          ------------     ------------     ------------     ------------

   Gross Profit                                              2,751,308        2,588,052          538,728       (2,230,497)
                                                          ------------     ------------     ------------     ------------

Operating Expenses:
   Research and Development                                     60,493            4,042               --          101,992
   Shipping Expense                                            273,459          452,093          116,894          738,681
   Selling Expense                                             865,223          686,214          198,993        1,254,006
   Advertising and Promotion                                   413,271          152,563            1,819          389,672
   General and Administrative                                  736,738          931,683          238,791        4,198,800
   Interest and Bank Charges - Non-Related
     [Contractual Interest of $806,937 for
     the year ended April 30, 1996]                              8,441           21,462            4,174          248,625
   Interest and Bank Charges - Related Party                   125,481          177,339           53,096          134,928
                                                          ------------     ------------     ------------     ------------

   Total Operating Expenses                                  2,483,106        2,425,396          613,767        7,066,704
                                                          ------------     ------------     ------------     ------------

Reorganization Items:
   Bankruptcy Administration Costs                                  --           48,874            1,325          449,693
                                                          ------------     ------------     ------------     ------------

Income [Loss] Before Provisions
   for Income Taxes                                            268,202          113,782          (76,364)      (9,746,894)
                                                          ------------     ------------     ------------     ------------

Income Tax Provision [Benefit]:
   Current                                                     139,251          103,700               --               --
   Deferred                                                         --               --               --       (7,511,000)
                                                          ------------     ------------     ------------     ------------

   Total Tax Provision [Benefit]                               139,251          103,700               --       (7,511,000)
                                                          ------------     ------------     ------------     ------------

   Income [Loss] Before Extraordinary
     Item                                                      128,951           10,082          (76,364)      (2,235,894)
                                                          ------------     ------------     ------------     ------------

Extraordinary Item:
   Gain on Discharge of Prepetition
     Liabilities                                                    --               --               --       16,692,193
   Income Tax Provision                                             --               --               --       (7,511,000)
                                                          ------------     ------------     ------------     ------------

   Extraordinary Gains Net of Income Tax                            --               --               --        9,181,193
                                                          ------------     ------------     ------------     ------------

   Net Income [Loss]                                      $    128,951     $     10,082     $    (76,364)    $  6,945,299
                                                          ------------     ------------     ------------     ------------


The Accompanying Notes are an Integral Part of These Consolidated Financial Statements.
</TABLE>


                                       F-4

<PAGE>



DYNAMIC INTERNATIONAL, LTD. AND SUBSIDIARY
-------------------------------------------------------------------------------

CONSOLIDATED STATEMENTS OF OPERATIONS
-------------------------------------------------------------------------------

<TABLE>
<CAPTION>

                                                                                          Reorganized        Reorganized
                                                                                            Company            Company
                                                                                            For the         For the Nine
                                                                                          Year Ended        Months Ended
                                                                                           April 30,          April 30,
                                                                                            1 9 9 8            1 9 9 7
                                                                                            -------            -------
                                                                                                             [Restated]
<S>                                                                                   <C>                 <C> 
   Income Per Share of Common Shares                                                  $           .03     $            --
                                                                                      ===============     ===============

   Weighted Average Number of Common Shares                                           $     3,655,758     $     3,198,258
                                                                                      ===============     ===============

The  earnings  per  share  as it  related  to  the  predecessor  company  is not
meaningful due to the reorganization.

The Accompanying Notes are an Integral Part of These Consolidated Financial Statements.
</TABLE>

                                       F-5

<PAGE>



DYNAMIC INTERNATIONAL, LTD. AND SUBSIDIARY
---------------------------------------------------------------------------


CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
---------------------------------------------------------------------------
<TABLE>
<CAPTION>

                                                          Additional                          Treasury           Total
                                              Common        Paid-in          Retained          Stock -       Stockholder's
                                               Stock        Capital          Earnings          At Cost          Equity
                                          ------------  ---------------  --------------     ------------   --------------
<S>                                       <C>           <C>              <C>                <C>            <C>
   Balance - May 1, 1995                  $     17,444  $       590,291  $(   7,582,536)    $    (17,500)  $   (6,992,301)

Net Income                                          --               --       6,945,299               --        6,945,299
                                          ------------  ---------------  --------------     ------------   --------------

   Balance - April 30, 1996                     17,444          590,291        (637,237)         (17,500)         (47,002)

Net [Loss] for the three months
   ended July 31, 1996                              --               --         (76,364)              --          (76,364)
                                          ------------  ---------------  --------------     ------------   --------------

   Balance - July 31, 1996                      17,444          590,291        (713,601)         (17,500)        (123,366)

Eliminate Predecessor Equity
   Accounts and to Reflect
   New Issuance of Shares in
   Connection with Fresh Start                  (1,450)        (580,146)        713,601           17,497          149,502
                                          ------------  ---------------  --------------     ------------   --------------

                                                15,994           10,145              --               (3)          26,136

To Reflect 1 for 5 Reverse
   Stock Split                                 (12,795)          12,795              --               --               --
                                          ------------  ---------------  --------------     ------------   --------------

   Balance - July 31, 1996                       3,199           22,940              --               (3)          26,136

Adjustment at the Date of the
   Implementation of Fresh Start
   Accounting for the Cumulative
   Effect of Applying Retroactively
   the New Method of Valuing
   Inventories at August 1, 1996                    --               --         145,205               --          145,205

Net Income for the nine months
   ended April 30, 1997 - Restated                  --               --          10,082               --           10,082
                                          ------------  ---------------  --------------     ------------   --------------

   Balance - April 30, 1997                      3,199           22,940         155,287               (3)         181,423

Issuance of 20,000 Shares for
   Legal Expenses in Connection
   with the Public Offering                         20           74,635              --               --           74,655

Net Proceeds from Issuance of
   1,200,000 Shares of Common
   Stock [Offering Costs of
   $1,251,924] in December 1997                  1,200        4,772,221              --               --        4,773,421

Net Income for the year ended
   April 30, 1998                                   --               --         128,951               --          128,951
                                          ------------  ---------------  --------------     ------------   --------------

   Balance - April 30, 1998               $      4,419  $     4,869,796  $      284,238     $         (3)  $    5,158,450
                                          ============  ===============  ==============     ============   ==============


The Accompanying Notes are an Integral Part of These Consolidated Financial Statements.
</TABLE>


                                       F-6

<PAGE>



DYNAMIC INTERNATIONAL, LTD. AND SUBSIDIARY
-------------------------------------------------------------------------------


CONSOLIDATED STATEMENTS OF CASH FLOWS
-------------------------------------------------------------------------------
<TABLE>
<CAPTION>

                                                         Reorganized       Reorganized       Predecessor
                                                           Company           Company           Company         Predecessor
                                                           For the        For the Nine      For the Three        Company
                                                         Year Ended       Months Ended      Months Ended       Year Ended
                                                          April 30,         April 30,         July 31,          April 30,
                                                           1 9 9 8           1 9 9 7           1 9 9 6           1 9 9 6
                                                           -------           -------           -------           -------
                                                                           [Restated]
<S>                                                   <C>               <C>              <C>               <C>
Operating Activities:
   Net Income [Loss]                                  $        128,951  $        10,082  $        (76,364) $     6,945,299
   Adjustments to Reconcile Net Income
     [Loss] to Net Cash Provided by
     [Used for] Operating Activities:
     Depreciation and Amortization                              80,489           87,681            26,191          220,400
     Reserve for Bad Debt                                      (44,315)              --                --          167,000
     Loss on Disposal of Property
       and Equipment                                                --               --                --           71,030
     Deferred Income Taxes                                          --               --                --       (7,511,000)
     Income on Partial Discharge of
       Capital Lease Obligations                                    --               --                --          (77,403)
     Interest Converted to Principal                                --           11,439            36,670               --
     Reorganization Item:
       Gain on Discharge of Debt - Net
         of Income Tax                                              --               --                --       (9,181,193)
       Cash Distribution                                            --         (515,638)               --               --

   Change in Assets and Liabilities:
     [Increase] Decrease in:
       Accounts Receivable and Due
         from Suppliers                                        186,230          482,254          (221,255)         220,882
       Inventory                                               966,773         (923,565)          115,616        1,065,821
       Prepaid Expenses                                       (608,861)         122,017          (100,596)         168,856
       Miscellaneous Receivables                                 2,658          132,379                --         (108,179)
       Prepaid and Refundable Income Taxes                      13,713          252,046              (812)              --
       Security Deposits                                         2,600               --                --           86,858

     Increase [Decrease] in:
       Prepetition Liabilities                                      --               --                --        8,614,728
       Accounts Payable and
         Accrued Expenses                                   (2,805,591)         (56,766)          155,784       (1,828,715)
       Income Taxes Payable                                    (12,450)         103,700                --               --
                                                      ----------------  ---------------  ----------------  ---------------

   Net Cash - Operating Activities -
     Forward                                          $     (2,089,803) $      (294,371) $        (64,766) $    (1,145,616)


The Accompanying Notes are an Integral Part of These Consolidated Financial Statements.
</TABLE>

                                       F-7

<PAGE>



DYNAMIC INTERNATIONAL, LTD. AND SUBSIDIARY
------------------------------------------------------------------------------


CONSOLIDATED STATEMENTS OF CASH FLOWS
------------------------------------------------------------------------------
<TABLE>
<CAPTION>

                                                         Reorganized       Reorganized       Predecessor
                                                           Company           Company           Company         Predecessor
                                                           For the        For the Nine      For the Three        Company
                                                         Year Ended       Months Ended      Months Ended       Year Ended
                                                          April 30,         April 30,         July 31,          April 30,
                                                           1 9 9 8           1 9 9 7           1 9 9 6           1 9 9 6
                                                           -------           -------           -------           -------
                                                                           [Restated]
<S>                                                   <C>               <C>              <C>               <C>
   Net Cash - Operating Activities -
     Forwarded                                        $     (2,089,803) $      (294,371) $        (64,766) $    (1,145,616)
                                                      ----------------  ---------------  ----------------  ---------------

Investing Activities:
   Purchase of Property and Equipment                          (67,900)              --                --          (47,933)
                                                      ----------------  ---------------  ----------------  ---------------

Financing Activities:
   Proceeds from Notes Payable                                      --               --                --        3,393,628
   Repayment of Notes Payable                                       --               --                --               --
   Proceeds from Note Payable -
     Related Party                                                  --          600,000                --               --
   Repayment from Notes Payable -
     Related Party                                                  --         (145,324)               --               --
   Proceeds from Loan Payable -
     Related Party                                                  --               --                --          557,000
   Repayment of Loan Payable - Related Party                (1,059,785)              --                --               --
   Proceeds from Bankers Acceptances                                --               --                --        1,118,556
   Repayment of Bankers Acceptances                                 --               --                --       (4,127,139)
   Repayment of Officers' Loans Payable                             --               --                --               --
   Repayment of Capital Lease Obligations                      (24,228)         (29,656)          (18,812)         (64,552)
   Proceeds from Insurance Note Payable                             --               --            77,225               --
   Repayment of Insurance Note Payable                              --          (62,020)          (15,205)              --
   Payment of Deferred Offering Costs                               --          (30,043)               --               --
   Net Proceeds from Issuance of 1,200,000
     Share Common Stock                                      4,773,421               --                --               --
                                                      ----------------  ---------------  ----------------  ---------------

   Net Cash - Financing Activities                           3,689,408          332,957            43,208          877,493
                                                      ----------------  ---------------  ----------------  ---------------

   Increase [Decrease] in Cash and
     Cash Equivalents                                        1,531,705           38,586           (21,558)        (316,056)

Cash and Cash Equivalents -
   Beginning of Periods                                         43,543            4,957            26,515          342,571
                                                      ----------------  ---------------  ----------------  ---------------

   Cash and Cash Equivalents -
     End of Periods                                   $      1,575,248  $        43,543  $          4,957  $        26,515
                                                      ================  ===============  ================  ===============

Supplemental Disclosures of Cash Flow Information:
   Cash paid during the periods for:
     Interest                                         $        133,922  $        25,451  $          1,553  $       203,964
     Income Taxes                                     $        163,529  $            --  $             --  $            --



The Accompanying Notes are an Integral Part of These Consolidated Financial Statements.
</TABLE>


                                       F-8

<PAGE>



DYNAMIC INTERNATIONAL, LTD. AND SUBSIDIARY
----------------------------------------------------------------------------

CONSOLIDATED STATEMENTS OF CASH FLOWS
----------------------------------------------------------------------------

Supplemental Disclosures of Non-cash Investing And Financing Activities:

    In July 1996,  pursuant to a Plan of Reorganization  under Chapter 11 of the
United  States  Bankruptcy  Code,  the Company  discharged  approximately  $17.2
million of allowed claims including a secured loan in the amount of $6.8 million
owed to one creditor.  The claims were  discharged by a cash payment of $515,638
and the issuance of 34,198,798 shares of common stock. Of this amount, 2,976,000
shares were issued to one creditor which also satisfied $15,923 of loans made by
the chief executive officer of the Company to the Company.

    The Company  issued  20,000 shares for legal  services  valued at $74,655 in
connection with the Company's public offering.



The Accompanying Notes are an Integral Part of These Consolidated Financial 
Statements.

                                       F-9

<PAGE>
DYNAMIC INTERNATIONAL, LTD. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
-------------------------------------------------------------------------------

[1] Summary of Significant Accounting Policies

The Company - Dynamic International, Ltd. [the "Company"] is engaged in the sale
and  distribution  of a  diverse  line  of  hand  exercise  and  light  exercise
equipment, and sports bags/luggage which are distributed throughout the United 
States.

Revenue - Revenue is recognized when the goods are shipped to the customer.

Fresh Start Reporting - Financial  accounting  during a Chapter 11 proceeding is
prescribed in "Statement of Position 90-7 of the American Institute of Certified
Public  Accountants,"  titled "Financial Reporting by Entities in Reorganization
Under the Bankruptcy  Code" ["SOP 90-7"],  which the Company  adopted  effective
July 31, 1996.  The  emergence  from the Chapter 11  proceeding  resulted in the
creation of a new reporting entity without any accumulated  deficit and with the
Company's  assets and liabilities  restated at their estimated fair values [also
see Note 2 Reorganization  and Management  Plan].  Because of the application of
fresh start reporting, the financial statements for periods after reorganization
are not comparable in all respects to the financial statements for periods prior
to reorganization.

Principles of Consolidation - The consolidated  financial statements include the
accounts  of  the  Company  and  the  wholly  owned  inactive  subsidiary.   All
significant intercompany accounts and transactions have been eliminated.

Cash and Cash Equivalents - The Company considers all highly liquid  investments
with a maturity of three months or less when purchased to be cash equivalents.

Inventories - Inventories  consist  principally of finished goods and are stated
at the lower of cost; first-in, first-out method, ["FIFO"] or market.

Property,  Equipment  and  Depreciation  - Property and  equipment are stated at
cost.  Depreciation  is  provided  generally  by  accelerated  methods  over the
estimated  useful lives of the assets.  Expenditures for maintenance and repairs
are  charged  against  income.   Estimated  useful  lives  used  in  calculating
depreciation are as follows:

Tools and dies                                       5 years
Furniture and equipment                              5 years to 7 years
Capitalized Equipment Leases                         5 years to 7 years

Deferred Offering Costs - Legal and accounting costs incurred in connection with
the public  offering of the  Company's  common stock were charged to  additional
paid-in capital upon completion of the public offering.

Advertising  and  Promotion  -  Advertising  and  promotion  expense,  primarily
comprised of print media  distributed  to current and  potential  customers,  is
expensed as incurred.

Prepaid Expenses - The Company has deferred certain packaging design,  displays,
and direct  response  advertising  costs for several new products  that were not
introduced as of April 30, 1998. These costs of  approximately  $480,000 will be
amortized over a period of twelve months from the  introduction  of each product
and are classified as prepaid expenses at April 30, 1998.

Loss Per Share - The Financial  Accounting  Standards Board has issued Statement
of Financial  Accounting Standards ["SFAS"] No. 128, "Earnings per Share"; which
is effective for financial  statements  issued for periods ending after December
15, 1997.  Accordingly,  earnings per share data in the financial statements for
the year ended April 30, 1998,  have been calculated in accordance with SFAS No.
128. Prior periods  earnings per share data have been  recalculated as necessary
to conform prior years data to SFAS No. 128. Prior  periods'  earnings per share
data have been restated to give retroactive  effect for the one for five reverse
stock split in September of 1997.

                                      F-10

<PAGE>
DYNAMIC INTERNATIONAL, LTD. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Sheet #2
-------------------------------------------------------------------------------
[1] Summary of Significant Accounting Policies [Continued]

Loss Per Share [Continued] - SFAS No. 128 supersedes Accounting Principles Board
Opinion No. 15,  "Earnings  per Share," and  replaces  its primary  earnings per
share with a new basic  earnings per share  representing  the amount of earnings
for the period  available to each share of common stock  outstanding  during the
reporting  period.  SFAS No. 128 also requires a dual  presentation of basic and
diluted  earnings per share on the face of the statement of  operations  for all
companies with complex capital  structures.  Diluted earnings per share reflects
the amount of earnings  for the period  available  to each share of common stock
outstanding  during the  reporting  period,  while giving effect to all dilutive
potential common shares that were outstanding during the period,  such as common
shares that could result from the potential exercise or conversion of securities
into common stock.

The  computation  of diluted  earnings  per share  does not  assume  conversion,
exercise,  or contingent issuance of securities that would have an anti-dilutive
effect on earnings  per share [i.e.,  increasing  earnings per share or reducing
loss per share].  The dilutive  effect of  outstanding  options and warrants and
their   equivalents  are  reflected  in  dilutive  earnings  per  share  by  the
application  of the treasury  stock method which  recognizes the use of proceeds
that could be  obtained  upon  exercise of options  and  warrants  in  computing
diluted  earnings  per share.  It  assumes  that any  proceeds  would be used to
purchase common stock at the average market price during the period. Options and
warrants will have a dilutive  effect only when the average  market price of the
common  stock  during the period  exceeds the  exercise  price of the options or
warrants.

Potential common shares of 4,640,000 are not currently  dilutive,  but may be in
the future.

Use of Estimates - The  preparation of 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 and
disclosure of  contingent  assets and  liabilities  at the date of the financial
statements  and the  reported  amounts  of  revenues  and  expenses  during  the
reporting period.
Actual results could differ from those estimates.

Stock Options and Similar Equity Instruments Issued to Employees - The Financial
Accounting  Standards  Board ["FASB"] issued  Statement of Financial  Accounting
Standards  ["SFAS"]  No. 123,  "Accounting  for  Stock-Based  Compensation,"  in
October  1995.  SFAS No. 123 uses a fair value based  method of  accounting  for
stock  options and similar  equity  instruments  as  contrasted to the intrinsic
value based method of  accounting  prescribed  by  Accounting  Principles  Board
["APB"] Opinion No. 25,  "Accounting for Stock Issued to Employees." The Company
adopted SFAS No. 123 on April 1, 1996 for financial note disclosure purposes and
will continue to apply APB Opinion No. 25 for financial reporting purposes.

Reorganization Value in Excess of Amounts Allocable to Identifiable Assets - The
excess  reorganization  value is amortized  over a period of eleven years on the
straight  line  basis  [see Note 2].  Management  re-evaluates  the  periods  of
amortization to determine whether  subsequent  events and circumstances  warrant
revised  estimates of useful lives. If impairment is deemed to exist, the excess
reorganization  value will be written down to fair value or projected discounted
cash flows from related operations. As of April 30, 1998, management expects the
asset to be fully recoverable.

[2] Reorganization and Management Plan

On August 23,  1995,  the Company  filed a voluntary  petition  for relief under
Chapter 11 of the United States  Bankruptcy Code. A Plan of  Reorganization  was
filed by the Company on October 30, 1995 and  subsequently  amended and modified
on  February  22,  1996.  On April 5, 1996,  the  creditors  voted to accept the
amended and modified Plan [the "Plan"], and on May 23, 1996, the court confirmed
the Plan. The Plan was substantially  consummated in August 1996. For accounting
purposes, the Company assumed that the Plan was consummated on July 31, 1996.

                                      F-11

<PAGE>
DYNAMIC INTERNATIONAL, LTD. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Sheet #3
------------------------------------------------------------------------------
[2] Reorganization and Management Plan [Continued]

As  contemplated  by the Plan, a new company,  Dynamic  International,  Ltd. was
formed on July 29,  1996.  On August 8, 1996,  the Company  merged into  Dynamic
International,  Ltd. The capital structure and the balance sheet of the combined
entity,  immediately after the merger,  were  substantially the same as those of
the company prior to the merger.  The "new common stock" is referred to below as
the common stock of Dynamic International, Ltd.

Chapter 11 claims  filed  against the Company  and  subsequently  allowed in the
bankruptcy  proceeding totaled  approximately $17.2 million. The Plan discharged
such claims through distributions of cash of approximately $515,000 and issuance
of shares of new common stock. The cash  distributions were paid in August 1996.
A total of 3,198,798 shares of new common stock were issued on July 25, 1996 out
of which  2,976,000  shares  were  issued to one  secured  creditor,  which also
satisfied $15,923 of loans made by the chief executive officer of the Company to
the Company (see Note 4); 160,000 shares were issued to unsecured creditors, and
62,798  shares were issued to the  reconfirmation  common stock equity  interest
holders.

The  discharge  of  claims  was  reflected  in  the  April  30,  1996  financial
statements. The stock distribution value is based on the reorganization value of
the Company  determined by projecting  cash flows over an eleven year period and
discounting  such cash flows at a cost of capital rate of 15% and the  statutory
federal,  state and local tax rates currently in effect. The discounted residual
value at the end of the forecast period is based on the  capitalized  cash flows
for the last year of that period.  Cash  distributions  and the estimated  stock
distribution  value totaling  $531,561 has been recorded as other liabilities as
of April 30, 1996. The gain of  approximately  $16.7 million  resulting from the
excess of the  allowed  claims  over the total  value of the cash and the common
stock distributed to the secured and unsecured creditors has been recorded as an
extraordinary gain for the year ended April 30, 1996.

The eleven year cash flow projection was based on estimates and assumptions.  
Accordingly, there will usually be differences between projections and actual 
results because events and circumstances frequently do not occur as expected, 
and those differences may be material.

As part of the reorganization,  the Company will continue to sell hand exercise,
light exercise equipment and luggage and sports bags. Management believes it can
increase  revenues  by  increasing  its focus on direct  response  marketing  by
developing  infomercials  to market these  products.  Management  believes these
increased  marketing  efforts,  adequate  financing  through its related entity,
Achim Importing,  discontinuance of the unprofitable  products,  and sustainable
gross profit percentages,  could be effectively  implemented within the a twelve
month period.  The Company  adopted  "fresh-start  reporting" in accordance with
Statement of Position ["SOP"] 90-7 issued by the American Institute of Certified
Public  Accountants  on July  31,  1996.  SOP 90-7  calls  for the  adoption  of
"fresh-start  reporting"  if the  reorganization  value of the  emerging  entity
immediately  before  the date of  confirmation  is less  than  the  total of all
postpetition  and  allowed  claims,  and if holders of  existing  voting  shares
immediately  before  confirmation  receive  less than 50  percent  of the voting
shares of the emerging  entity,  both  conditions of which were satisfied by the
Company.  Although the confirmation date was May 23, 1996, fresh-start reporting
was  adopted  on July 31,  1996.  There  were no  material  fresh-start  related
adjustments during the period May 23, 1996 to July 31, 1996.



                                      F-12

<PAGE>
DYNAMIC INTERNATIONAL, LTD. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Sheet #4
------------------------------------------------------------------------------
[2] Reorganization and Management Plan [Continued]

Under fresh start accounting, all assets and liabilities are restated to reflect
their   reorganization   value,   which  approximates  book  value  at  date  of
reorganization.  Therefore,  no  reorganization  value has been allocated to the
assets and liabilities.  In addition, the accumulated deficit of the predecessor
company at July 31, 1996  totaling  $713,601  was  eliminated,  and at August 1,
1996, the  reorganized  company's  financial  statements  reflected no beginning
retained  earnings or  deficit.  The  reorganization  value in excess of amounts
allocable to  identifiable  assets is being amortized over an eleven year period
on the  straight  line  method.  Amortization  expense for the nine months ended
April 30,  1997,  and the year ended  April 30,  1998 was  $9,108  and  $12,144,
respectively.

[3] Inventories/Change in Method of Accounting for Inventory

The inventories  consist of finished goods.  During the three month period ended
January 31,  1998,  the Company  changed its method of  determining  the cost of
inventories from the LIFO method to the FIFO method.  Under the current economic
environment  of low  inflation,  the Company  believes that the FIFO method will
result in a better  measurement  of  operating  results.  This  change  has been
applied by  retroactively  restating  the  accompanying  consolidated  financial
statements.  This change  increased  net income for the six months ended January
31,1 997 by $8,655 or .002 cents per share. The balance of retained  earnings as
of August 1, 1997 [see note 2 reorganization  and management plan] and April 30,
1997 have been adjusted for the effect [net of taxes] of applying  retroactively
the new method of valuing  inventories.  The effect of the accounting  change on
income for the year ended April 30, 1998 was an increase of $214,000.

If the first-in,  first-out  ["FIFO"]  method of accounting had been used by the
Company,  reported  net income  would have been  decreased by $294,000 in fiscal
1997.  Net income would have been  increased by $263,000 in fiscal 1996, and the
net loss would have been  increased by $246,000 in fiscal 1995. On a FIFO basis,
reported year end inventories would have increased by $24,000 in 1997,  $318,000
in 1996 and $55,000 in 1995.

[4] Related Party Transactions

Pursuant to a Warehouse and Service Agreement dated as of September 1, 1996 [the
"Warehousing  Agreement"]  between the Company and an entity  ["Related  Party"]
wholly owned by a major stockholder,  the entity performs certain administrative
services on behalf of the Company. Under the Warehousing  Agreement,  the entity
assists,  among other things,  in the  maintenance  of financial and  accounting
books and records,  in the preparation of monthly financial accounts  receivable
aging schedules and other reports and in the performance of credit checks on the
Company's  customers.  In  consideration  for these services,  Achim receives an
annual  fee,  payable  monthly,  calculated  at a  percentage  of the  Company's
invoiced  sales  originating  at the  warehouse  ranging from 4% of the invoiced
sales  under $30  million to 3% of sales of $60  million or more.  For sales not
originating at the warehouse, Achim receives a service fee in the amount of 1.5%
of the Company's  invoiced sales to customers and accounts located in the United
States if  payment  is made by letter of  credit  and 1% is such  customers  and
accounts  are  located  outside  the United  States,  irrespective  of manner of
payment.  In addition,  under the  Warehousing  Agreement,  the entity  provides
warehousing  services  consisting  of  receiving,  shipping,  and storing of the
Company's  merchandise.  The  Company  pays  Achim  a  monthly  fee of 3% of its
invoiced sales originating at the warehouse in connection with these warehousing
services performed by Achim under the Warehousing Agreement.

                                      F-13

<PAGE>
DYNAMIC INTERNATIONAL, LTD. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Sheet #5
-------------------------------------------------------------------------------
[4] Related Party Transactions [Continued]

The Warehousing Agreement has a term of two years and is automatically renewable
for additional one year periods unless written notice of termination is given at
least six  months  prior to the  commencement  of a renewal  period.  During the
fiscal years ended April 30, 1998 and 1997,  the Company  accrued  approximately
$183,095 and $458,488 in fees under the Warehousing Agreement. Total warehousing
and  administrative  expenses charged to operations for the year ended April 30,
1998 were $183,095 of which  $19,186 was the balance due at April 30, 1998,  for
the nine months ended April 30, 1997 were approximately  $364,000, for the three
months  ended July 31,  1996 were  approximately  $95,000 and for the year ended
April 30, 1996 were approximately $164,000.

The related  party has  purchased  inventory for the Company and has charged the
Company for the invoiced  amount of the inventory.  In addition,  pursuant to an
unwritten  understanding,  the related  party  arranges  for the issuance by its
financial lender of letters of credit in favor of the Company's oversea supplier
thereby enabling the Company to finance the purchases of its inventory.

Loan payable to the related party totaled $-0- and  $1,059,785 at April 30, 1998
and 1997, respectively. Such note was secured by all of the Company's assets. In
August 30, 1996, loans and other payables,  including  accrued interest totaling
$1,205,109,  were converted  into the note payable.  Interest was charged at the
Citibank prime rate plus 1%. This note was payable in 24 equal  installments  of
principal and interest  through  August 5, 1998. On July 10, 1997,  the note was
amended  to allow  the  arrears  and note  payments  to be  deferred  until  the
consummation of the Company's  contemplated public offering [see Note 11] or the
scheduled maturity of the note,  whichever is earlier. The note was paid in full
in December 1997 following the Company's public offering.

Interest  expense  charged to  operations  for the year ended April 30, 1998 was
$65,568,  for the nine months  ended April 30, 1997 was  $67,898,  for the three
months  ended July 31, 1996 was $16,746 and $19,924 for the year ended April 30,
1996.

Other  amounts  payable to the related  party  totaled  $19,186 and  $2,627,580,
respectively,  at April  30,  1998  and  1997.  Such  amounts  represent  unpaid
inventory  purchases  and  various  fees due to the related  party.  The amounts
payable for the purchase of inventory  bears interest at the Citibank prime rate
plus 1% from September  1996 to April,  1997 and the Citibank prime rate plus 3%
prior to September 1996. The prime rate used was 8.25% for the period  September
1996 to April 1998 and 8.5% for the period  prior to  September  1996 . Interest
expense  charged to  operations  was $59,913 for the year ended April 30,  1998,
$111,411 for the nine months ended April 30, 1997,  $34,380 for the three months
ended July 31, 1996 and $115,004 for the year ended April 30, 1996. The weighted
average interest rate at April 30, 1998 and 1997 was 9.25%.

[5] Income Taxes

The Company utilizes an asset and liability  approach to determine the extent of
any deferred  income taxes,  as described in Statement No. 109,  "Accounting for
Income Taxes" of the Financial  Accounting  Standards  Board.  This method gives
consideration to the future tax consequences associated with differences between
financial statement and tax bases of assets and liabilities.

                                      F-14

<PAGE>
DYNAMIC INTERNATIONAL, LTD. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Sheet #6
------------------------------------------------------------------------------
[5] Income Taxes [Continued]

Income tax  liabilities  at April 30,  1998 and 1997  included  in income  taxes
payable consist of the following:

<TABLE>
<CAPTION>

                                                          1 9 9 8          1 9 9 7
                                                          -------          -------

<S>                                                  <C>               <C>
Current taxes                                        $       79,422    $      103,700

Deferred taxes:
   Federal                                                       --                --
   Other income and franchise taxes                              --                --
                                                     --------------    --------------

   Total Income Tax Liability                        $       79,422    $      103,700
                                                     ==============    ==============
</TABLE>

At April 30, 1998 and 1997, there are no temporary differences that would result
in a  deferred  tax asset or  liability.  The  deferred  income  tax  assets and
liabilities at April 30, 1996 consist of the following:

<TABLE>
<S>                                                                 <C>
Deferred Tax Assets:
   Bad debt reserves                                                $       75,000
   Difference in book and tax treatment
     for advertising costs                                                  16,000
   Net operating loss carryforwards                                      8,783,000
   Other deferred tax assets                                                50,000
                                                                   ---------------

   Total Deferred Tax Assets                                             8,924,000

Deferred Tax Liability [allocated to extraordinary gain]:
   Gain on discharge of prepetition liabilities                         (7,511,000)

   Valuation allowance for deferred tax assets                          (1,413,000)
                                                                   ---------------

   Net                                                             $            --
   ---                                                             ===============
</TABLE>

A summary of the provision [credit] for income taxes is as follows:

<TABLE>
<CAPTION>

                                                                Reorganized Company            Predecessor Company
                                                                              Nine months
                                                           Year ended            ended             Year ended
                                                            April 30,          April 30,            April 30,
                                                             1 9 9 8            1 9 9 7              1 9 9 6
                                                             -------            -------              -------
<S>                                                     <C>                <C>                   <C>
Current:
   Federal                                              $        51,490    $       59,000        $           --
   State and Local                                               27,932            44,700                    --
                                                        ---------------    --------------        --------------

                                                                 79,422           103,700                    --
                                                        ---------------    --------------        --------------
Deferred:
   Federal                                                           --                --            (5,675,000)
   State and Local                                                   --                --            (1,836,000)
                                                        ---------------    --------------        --------------

                                                                     --                --            (7,511,000)
                                                        ---------------    --------------        --------------

                                                        $        79,422    $      103,700        $   (7,511,000)
                                                        ===============    ==============        ==============

</TABLE>
                                      F-15


<PAGE>
DYNAMIC INTERNATIONAL, LTD. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Sheet #7
-------------------------------------------------------------------------------
[5] Income Taxes [Continued]

The  reconciliation  of the federal statutory income tax expense [credit] to the
Company's actual income tax [credit] is as follows:

<TABLE>
<CAPTION>
                                                                Reorganized Company            Predecessor Company
                                                                              Nine months
                                                           Year ended            ended             Years ended
                                                            April 30,          April 30,            April 30,
                                                             1 9 9 8            1 9 9 7              1 9 9 6
                                                             -------            -------              -------
<S>                                                     <C>                <C>                   <C>
U.S. Federal Income Taxes at Statutory Rate             $        91,189    $      75,900         $    2,361,000
Losses for which no Benefit was Provided                             --                --                    --
Change in Valuation Allowance                                        --                --            (1,094,000)
Benefit of Surtax Exemption                                      (6,363)               --                    --
Tax Effect of Permanent Differences                               1,020             5,400                 8,000
State Income Taxes, Net of Federal Benefit                       33,767            25,000               764,000
Benefit of Unused Net Operating Losses                               --                --            (1,412,000)
Differences Due to Change in  Rate                                   --                --              (627,000)
Underaccrual of Prior Year's Federal Income Tax                  23,825                --                    --
Other                                                            (4,187)           (2,600)                   --
                                                        ---------------    --------------        --------------

                                                        $       139,251    $      103,700        $           --
                                                        ===============    ==============        ==============
</TABLE>

The  Company  had a net loss  for the  three  months  ended  July  31,  1996 and
accordingly,  the  Company  had no income tax  provision  or  liability  for the
period.

The  Company  has a net  operating  loss for the year  ended  April 30,  1995 of
approximately  $8,400,000 of which  $1,200,000  was carried back to prior years.
The Company has filed prior year amended returns to claim the net operating loss
carryback which resulted in refundable  income taxes of approximately  $287,000.
As of April 30, 1998, the Company received all of the refundable income taxes.

At April 30, 1996, the net operating  loss  carryforward  totaled  approximately
$19,500,000 of which  approximately  $16,700,000  was utilized by the Company in
its final tax  return  for the  period May 1, 1996 to August 8, 1996 [see Note 2
re:  merger  into  Dynamic  International,  Ltd.].  Based on  ownership  changes
resulting from the reorganization [see Note 2], the balance of the net operating
loss  carryforward was eliminated by the current provision of Section 382 of the
Internal Revenue Code.

[6] Commitments And Contingencies

[A]  Capital  Leases - The  Company was the lessee of  equipment  under  capital
leases which expired in various years through 1998.

In September 1995, the lessor of the Company's  capital leases agreed to forgive
the balance of the unpaid lease  payments  through  September 1995 and to accept
60% of the remaining  balance of the lease  payments.  As a result,  the Company
recognized $77,403 of income on the adjustment of the lease term.
Such income is included in other income.

[B] Operating Leases - Prior to August,  1995 the Company occupied space for its
sales,  executive  offices,  assembly  and  storage  facilities  under long term
operating  leases  expiring  August 1998.  The leases  provided  for  additional
payments for insurance, taxes and other charges related to the premises. As part
of the bankruptcy  proceeding,  the Company was discharged of the obligations of
the  leases.  In October  1995 the Company  relocated  its  premises,  where the
Company  is  charged  warehousing  fees and  administration  fees based on sales
volume [see Note 4].

Rent expense for the year ended April 30, 1996 was $341,427.

                                      F-16

<PAGE>
DYNAMIC INTERNATIONAL, LTD. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Sheet #8
-------------------------------------------------------------------------------
[6] Commitments And Contingencies [Continued]

[C]  Royalty  Obligations  - The  Company  has  entered  into  various  royalty,
licensing,  and commission  agreements  for products sold by the Company.  These
agreements  provide for minimum  payments and a percentage  of specific  product
sales,  over a period of one to eight years.  Royalty expense for the year ended
April 30, 1998 was approximately  $426,000,  for the nine months ended April 30,
1997 was  approximately  $353,000,  for the three months ended July 31, 1996 was
$94,000 and for the year ended April 30, 1996 was approximately $275,000.

[D] Defined  Benefit  Pension Plan - On September 26, 1996, the Defined  Benefit
Employees  Retirement Plan was terminated under a distress  termination approved
by the United States  Bankruptcy  Court. The defined benefit pension  obligation
prior to the termination was $860,945. As part of the bankruptcy proceeding, the
obligation  was  settled for $38,743  resulting  in a gain of $822,202  which is
reflected in the extraordinary gain on discharge of prepetition  liabilities for
the year ended April 30, 1996.

[E] 401(k) Plan - On January 1, 1990,  the Company  adopted a 401[k]  plan.  The
plan covers all eligible employees. Eligible employees may contribute from 1% to
15% of their  salaries  subject to the statutory  maximum of $9,240 for the 1995
and 1994 calendar years.  The plan also provided  matching  contributions by the
Company of 25% of the employees'  contributions to a maximum  contribution of 1%
of the employees' salaries. On May 31, 1996, the plan's summary plan description
was  modified  to  make  matching  contributions   discretionary.   No  matching
contributions  were made by the Company for the 1996  calendar year nor will any
be made by the 1997 calendar  year.  The plan was  officially  terminated by the
Board of Directors as of December 31, 1997.

The 401[k]  expense  amounted to $-0- for the year ended April 30, 1998, and for
the period May 1, 1996 to April 30, 1997 and $2,600 for the year ended April 30,
1996.

[F]  Litigation - In the normal course of its  operations,  the Company has been
named as a defendant in several product  liability  lawsuits that in the opinion
of management are not material to the financial  statements taken as a whole and
are substantially covered by the Company's product liability insurance.

[G]  Consulting  Agreement - The Company has an unwritten  agreement  for $5,000
month  to  month  for  consulting   services  in  connection  with  new  product
development.

[H] Infomercial Production Agreement - On February 12, 1998, the Company entered
into an infomercial  production  agreement to produce an infomercial for a total
commitment  of  $284,000.  As of April 30,  1998,  $142,000  was paid under this
agreement and is classified as a prepaid expense.

[7] Major Customers

During  the year ended  April 30,  1996,  sales to three  major  customers  were
approximately  19%,  18%,  and  14%  [$1,359,000,   $1,287,000  and  $1,001,000,
respectively] of the Company's net sales. At April 30, 1996, accounts receivable
from  these  customers  totaled  $465,506.  There were no  material  receivables
subject to foreign currency fluctuations.

During  the nine  months  ended  April 30,  1997 sales to major  customers  were
approximately  $3,080,180.  At April 30,  1997  accounts  receivable  from these
customers totaled  $379,902.  During the three months ended July 31, 1996, sales
to major  customers  were  approximately  $837,450.  At July 31, 1996,  accounts
receivable from these customers totaled $548,726.

During the year ended April 30, 1998 sales to major customers were approximately
$2,007,985.  At April 30, 1998 accounts  receivable from these customers totaled
$262,246.


                                      F-17

<PAGE>
DYNAMIC INTERNATIONAL, LTD. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Sheet #9
-------------------------------------------------------------------------------
[8] Credit Risk/financial Instruments

Due to the  nature  of its  business  and the  volume  of  sales  activity,  the
Company's  cash balance  occasionally  exceeds the $100,000  protection  of FDIC
insurance.  At April 30, 1997,  there was no such excess  balance.  At April 30,
1998 such excess balances totaled approximately $1,518,673.  The Company has not
experienced any losses and believes it is not exposed to any significant  credit
risk from cash and cash equivalents.

The Company  routinely  assesses the financial  strength of its  customers  and,
based upon factors surrounding the credit risk of its customers,  establishes an
allowance for  uncollectible  accounts and, as a  consequence,  believes that it
does not have an accounts  receivable  credit risk exposure beyond the allowance
provided.  The Company does not require  collateral or other security to support
financial instruments subject to credit risk.

[9] Significant Risks And Uncertainties

[A] The Company's exercise products compete with products marketed and sold by a
number of companies.  The Company's  main  competitors  in this area possess far
greater financial and other resources, including sales forces, than the Company.
However,  the Company  believes that as a result of its ability to use trademark
names for which it pays  royalties,  it will be able to retain  its share of the
market. Nevertheless, there can be no assurance that the Company will be able to
effectively compete with these companies as well as with other smaller entities.

The Company's luggage products compete with products designed by a number of the
largest  companies in the  industry.  The Company  believes  that because of its
concentration on the upscale lifestyle and more specialized  leisure market that
are  associated  with its use of  trademark  names,  the Company will be able to
continue to grow its luggage business.  Nevertheless,  there can be no assurance
that the Company will be able to  effectively  compete  with these  companies as
well as with other smaller entities.

[B] Most of the Company's exercise products are purchased from the Phillippines,
Hong Kong, and Indonesia.  The Company  believes that, if necessary,  it will be
able to obtain its products from firms located in other countries at little,  if
any,  additional  expense.  As a  consequence,  the  Company  believes  that  an
interruption  in deliveries by a  manufacturer  located in a particular  country
will  not  have a  material  adverse  impact  on the  business  of the  Company.
Nevertheless,  because  of  political  instability  in a  number  of the  supply
countries,   occasional  import  quotas  and  other  restrictions  on  trade  or
otherwise,  there can be no  assurance  that the Company  will at all times have
access to a sufficient supply of merchandise.

[10] Discontinued Products

In 1994,  the  Company  added a new line of  products  consisting  primarily  of
treadmills  and ski machines.  Sales of the treadmills and ski machines began in
June 1994.  The Company sold  approximately  $24,000,000  of these products from
June 1, 1994 to  August  23,  1995.  Approximately  $17,600,000  or 73% of these
products  were  shipped  directly  to  consumers.  Due to serious  manufacturing
defects  and  poor  construction  of the  Company's  products  delivered  by the
Company's  manufacturers,  primarily  located in the People's Republic of China,
the  Company  was  forced to allow  substantial  chargebacks  by its  customers.
Although,  pursuant to a written agreement,  the manufacturers  acknowledged the
defects  and agreed to pay for returns  and to provide  replacement  goods at no
cost, they breached this agreement soon  thereafter.  As a result,  during April
1995, the Company issued  credits to customers for  approximately  $5,000,000 of
the  $7,487,000 of credits for the fiscal year ended April 30, 1995. The Company
issued another $3,211,000 in credits for defective merchandise during the fiscal
year ended April 30, 1996.

                                      F-18

<PAGE>
DYNAMIC INTERNATIONAL, LTD. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Sheet #10
------------------------------------------------------------------------------
[10] Discontinued Products [Continued]

The following table sets forth the financial  statement  effect of the Company's
line of treadmills and ski machines for the period indicated:

                                             Predecessor Company
                                            For the Year Ended
                                                 April 30,
                                                  1 9 9 6
                                                  -------

Sales                                        $         597,000
Credits                                             (3,210,900)
                                             -----------------

Net Sales                                           (2,613,900)
Inventory Reserve                                           --
Cost of Sales                                          156,000
                                             -----------------

   Gross Loss                                $      (2,457,900)
                                             =================

The sale of these  products was  discontinued  in August 1995, and all inventory
was disposed of by October  1995.  Currently,  the Company does not believe that
there will be additional  returns of these products or that any claims  relating
thereto remain to be settled.

[11] Capital Stock

[A] Public Offering - On December 22, 1997, the Company  completed a public sale
of 1,200,000  units,  each consisting of one share of common stock,  one Class A
Warrant  and one Class B Warrant.  Each Class A warrant  entitles  the holder to
purchase  one share of common  stock at $6 until  June 12,  1999.  Each  Class B
warrant  entitles  the holder to purchase one share of common stock at $10 until
December 12, 2000. In addition,  the Company entered into a unit purchase option
from the underwriter to purchase an aggregate of 120,000 units at a subscription
price of $8.25 per unit commencing  December 12, 1998 and expiring  December 11,
2002.  Each unit  purchase  option to the  underwriter  consists of one share of
common stock, one Class A warrant to purchase one share of common stock at $9.90
per  share  and one Class B warrant  to  purchase  one share of common  stock at
$16.50 per share. The net proceeds of  approximately  $4,800,000 were being used
for the  repayment  of  related  party  debt,  purchase  of  inventory,  general
corporate services, and working capital.

The Company entered into a two year consulting agreement with the underwriter to
provide financial consulting services for a fee of $20,000.

As part of the consideration of its services in connection with the registration
statement,  the  Company  agreed  to  issue  to  the  underwriter,  for  nominal
consideration,  warrants to purchase up to 120,000 units at an exercise price of
$8.25 per unit for a period of five  years.  The  Class A  Warrants  and Class B
Warrants  underlying  the units included in the  underwriter's  warrants will be
exercisable at a price of $9.90 and $16.50 per share,  respectively,  or 165% of
the then  exercise  price of the warrants  offered to the public for a period of
five years  commencing  with the  closing  of the  registration  statement.  The
non-cash cost of such warrants,  representing a cost of raising capital, will be
recorded as a charge and credit to additional  paid-in capital when the warrants
are issued. As capital in nature, they are not compensatory.

The  Company  issued  20,000  shares  for legal  services  valued at  $74,655 in
connection with the Company's public offering.



                                      F-19

<PAGE>
DYNAMIC INTERNATIONAL, LTD. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Sheet #11
-------------------------------------------------------------------------------
[11] Capital Stock (Continued)

[B] Earn Out  Agreement - In March 1997,  the Company  entered into an agreement
with Marton  Grossman,  the Company's  chairman and president which provides for
the issuance to Mr.  Grossman an aggregate  2,000,000  shares of common stock if
the Company reaches certain earnings criteria as follows:

                                Earnings Before          Shares to
   Year Ending                    Income Tax             Be Issued
   -----------                    ----------             ---------
April 30, 1998                   $       500,000            400,000
April 30, 1999                   $     1,000,000            600,000
April 30, 2000                   $     1,500,000          1,000,000

If the  earning  criteria  is not  met in any  one of the  above  years,  but is
cumulatively  met in the subsequent year, then the number of shares to be issued
will be the cumulative number of shares at that year end. Issuance of the shares
will result in compensation expense to the Company. Compensation expense will be
measured  based on the  fair  value of the  shares  at the time the  performance
conditions are achieved. Determination will be based on the best estimate of the
outcome of the  performance  condition.  Compensation  will be recognized in the
periods in which the performance conditions are achieved.

[12] New Authoritative Pronouncements

The FASB has issued SFAS No. 130, "Reporting Comprehensive Income."  SFAS No. 
130 is effective for fiscal years beginning after December 15, 1997.  Earlier 
application is permitted.  Reclassification of financial statements for earlier 
periods provided for comparative purposes is required.  SFAS No. 130 is not 
expected to have a material impact on the Company.

The FASB has issued SFAS No. 131, "Disclosures About Segments of an Enterprise 
and Related Information."  SFAS No. 131 changes how operating segments are 
reported in annual financial statements and requires the reporting of selected 
information about operating segments in interim financial reports issued to 
shareholders.  SFAS No. 131 is effective for periods beginning after December 
15, 1997, and comparative information for earlier years is to be restated. SFAS
No. 131 need not be applied to interim financial statements in the initial year
of its application.  SFAS No. 131 does not have a material impact on the 
Company.

[13] Debt

On April 30, 1998,  the Company  entered into a credit  agreement with The Chase
Manhattan  Bank for maximum  borrowings  of $1,500,000 in the form of letters of
credit and bankers  acceptances.  The  agreement  also  provides  for a security
interest in the inventory and notes and accounts receivable of the Company.  The
agreement  also  provides for the personal  guarantee of the President and major
shareholder of the Company in the amount of $250,000.

                                      F-20

<PAGE>
              INDEPENDENT AUDITOR'S REPORT ON SUPPLEMENTAL SCHEDULE


To the Board of Directors and Stockholders
   Dynamic International, Ltd.



                  Our report on the consolidated financial statements of Dynamic
International,  Ltd and its  subsidiary  as of April 30, 1998 and 1997,  for the
year ended April 30,  1998,  the nine months  ended  April 30,  1997,  the three
months  ended July 31,  1996,  and the year ended  April 30, 1996 is included on
page F-1 of this  Form  S-1.  In  connection  with our  audit of such  financial
statements,  we have also audited the related  accompanying  financial statement
Schedule II - Valuation  and  Qualifying  Accounts  for the year ended April 30,
1998,  the nine months  ended April 30,  1997,  the three  months ended July 31,
1996, and the year ended April 30, 1996.

                  In our opinion,  the financial statements schedule referred to
above, when considered in relation to the basic financial  statements taken as a
whole, presents fairly, in all material respects, the information required to be
included therein.


                                   /s/ MOORE STEPHENS, P. C.

                                   MOORE STEPHENS, P. C.
                                   Certified Public Accountants.

New York, New York
July 15, 1998



                                      F-21

<PAGE>
DYNAMIC INTERNATIONAL, LTD. AND SUBSIDIARY
------------------------------------------------------------------------------
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
------------------------------------------------------------------------------

<TABLE>
<CAPTION>
                                                         Reorganized       Reorganized       Predecessor
                                                           Company           Company           Company         Predecessor
                                                           For the        For the Nine      For the Three        Company
                                                         Year Ended       Months Ended      Months Ended       Year Ended
                                                          April 30,         April 30,         July 31,          April 30,
                                                           1 9 9 8           1 9 9 7           1 9 9 6           1 9 9 6
                                                           -------           -------           -------           -------
                                                                           [Restated]
<S>                                                   <C>               <C>              <C>               <C>
Allowance for Doubtful Accounts
   Balance - Beginning                                $        167,000  $       167,000  $        167,000  $            --
Additions Charged to Income                                                          --                --          167,000
Recovery of Uncollectible Accounts - Net                                             --                --               --
Writeoffs of Uncollectible Amounts                             (44,315)              --                --               --
                                                      ----------------  ---------------  ----------------  ---------------

Allowance for Doubtful Accounts
   Balance - Ending                                   $        122,685  $       167,000  $        167,000  $       167,000
                                                      ================  ===============  ================  ===============

</TABLE>

                                      F-22


<PAGE>

                                   SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, Registrant has duly caused this report to be signed on its behalf
by the undersigned thereunto duly authorized.

                           DYNAMIC INTERNATIONAL, LTD.

                               
                               By: /s/ Marton B. Grossman
                               Marton B. Grossman
                               Chairman and President

Dated: 29th day of July, 1998

Pursuant to the requirements of the Securities Exchange Act of 1934, this Report
has been signed below as of the 29th of July, 1998 by the following persons on 
behalf of Registrant and in the capacities indicated.

/s/ Marton B. Grossman                          /s/ Sheila Grossman
Marton B. Grossman                              Sheila Grossman
Chairman and President                          Director

/s/ Isaac Grossman                              --------------------------
Isaac Grossman                                  Bernard Goldman
Vice Chairman, Treasurer & Secretary            Director

/s/ William P. Dolan                            --------------------------
William P. Dolan                                Harry P. Braunstein
Vice President--Finance                         Director
(Chief Financial & Accounting Officer)

                                           -23-
<PAGE>
                                 EXHIBITS

1        Form of Underwriting Agreement (1)

2.01     Agreement of Merger dated July 19, 1996 between the Company and 
         Dynamic Classics, Ltd. (2)

2.02     Second Amended and Modified Plan of Reorganization dated February 22, 
         1996 (the "Plan") (3)

2.03     Errata Sheet and Correction Statement with respect to the Plan dated 
         May 7, 1996 (3)

2.04     Order Confirming the Plan dated May 23, 1996 (3)

3.01     Certificate of Incorporation (2)

3.02     Bylaws (2)

4.01     Revised Form of Warrant Agreement to be entered into between the 
         Company and American Stock Transfer & Trust Company (1)

4.02     Form of Common Stock Certificate (2)

4.03(a)  Form of A Warrant Certificate (1)

4.03(b)  Form of B Warrant Certificate (1)

4.04     Form of Unit Certificate (1)

10.02    License Agreement dated January 8, 1993 with Chrysler Corporation (4)

10.03    Endorsement Agreement dated December 22, 1994 with Kathy Ireland (5)

10.04    Warehousing and Service Agreement dated as of September 1, 1996 with 
         Achim Importing Co., Inc.(5)

10.05    License Agreement dated November 1, 1996 by and between New Century 
         Marketing & Distributors, Inc. and Dynamic
         Insulated Products, Inc. (1)

10.06    Bonus Agreement with Marton Grossman (1)

10.07    License Agreement with Spalding and Evenflo Companies Inc. dated 
         October 1, 1997.

10.08    License Agreement with Connally Synergy Systems LLC dated December 17, 
         1997.

10.09    Media Campaign Management Agreement with Script to Screen, Inc. dated 
         April 13, 1998.

10.10    Infomercial Production Agreement with Script to Screen, Inc. dated 
         February 12, 1998.

16.01    Letter from Hoberman Miller & Co. dated October 23, 1996 (5)
------------------------------------------------------------------------------
         (1)  Incorporated by reference from the Company's Registration 
              Statement on Form S-1 (Registration No. 333-25425).

         (2)  Incorporated  by reference to the Company's Form 8-B filed October
              3, 1996.

         (3)  Incorporated by reference to the Company's Report on Form 8-K 
              filed October 3, 1996.

         (4)  Incorporated by reference to the Annual Report on Form 10-K for 
              1994 for Dynamic Classics, Ltd. (File No. 0-8376).

         (5)  Incorporated  by reference  to the Annual  Report on Form 10-K 
              for 1996.

         (6)  Incorporated by reference to the Current Report on Form 8-K/A 
              dated October 23, 1996

                                             -24-