<PAGE>   1
                                   FORM 10-K/A


                       SECURITIES AND EXCHANGE COMMISSION
                              WASHINGTON, DC 20549


                    ANNUAL REPORT UNDER SECTION 13 or 15 (d)
                     OF THE SECURITIES EXCHANGE ACT OF 1934


For the Fiscal Year Ended April 30, 1996         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 no.)


  58 Second Ave., Brooklyn, New York                            11215
(Address of principal executive office)                      (Zip Code)


                                  718-369-4160
                          (Registrant's telephone no.)


          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 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 days.             Yes  /   /  No /  x  /


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  /   /  No /  x  /

The aggregate market value of voting stock held by non-affiliates of the
Registrant: Cannot be determined because of the absence of an active trading
market for Registrant's securities.

The number of shares outstanding of Registrant's Common Stock as of January 30,
1997: 15,993,991.
<PAGE>   2
Form 10-K/A FYE 4/30/96                              DYNAMIC INTERNATIONAL, LTD.


                                      INDEX
<TABLE>
<CAPTION>
                                                                                                 Page No.
                                                                                                 --------
<S>                                                                                              <C>
PART I

ITEM 1.     BUSINESS................................................................................3
                  General...........................................................................3
                  Plan of Reorganization............................................................3
                  Products..........................................................................3
                  Sales and Marketing...............................................................4
                  Competition.......................................................................5
                  Intellectual Property--License Agreements.........................................5
                  Management Agreement with Achim Importing Co.,Inc.................................6
                  Employees.........................................................................7
ITEM 2.     PROPERTIES..............................................................................7
ITEM 3.     LEGAL PROCEEDINGS.......................................................................7
ITEM 4.     SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.....................................7

PART II

ITEM 5.     MARKET PRICE OF REGISTRANT'S COMMON EQUITY AND RELATED
               STOCKHOLDER MATTERS..................................................................8
ITEM 6.     SELECTED FINANCIAL DATA.................................................................8
ITEM 7.     MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
               CONDITION AND RESULTS OF OPERATIONS..................................................9
                  General...........................................................................9
                  Plan of Reorganization............................................................9
                  Results of Operations for the Years Ended
                     April 30, 1996 and 1995.......................................................10
                  Results of Operations for the Years Ended
                     April 30, 1995 and 1994.......................................................12
                  Seasonality and Inflation........................................................12
                  Liquidity and Capital Resources..................................................12
ITEM 8.     FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA............................................13
ITEM 9.     CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
               ACCOUNTING AND FINANCIAL DISCLOSURE.................................................13

PART III

ITEM 10.    DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.....................................14
                  Officers and Directors...........................................................14
                  Board of Directors...............................................................14
ITEM 11.    EXECUTIVE COMPENSATION.................................................................14
                  Compliance with Section 16(a) of the Securities
                     Exchange Act of 1934..........................................................15
ITEM 12.    SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
               MANAGEMENT..........................................................................16
ITEM 13.    CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.........................................16

PART IV

ITEM 14.    EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS
               ON FORM 8-K.........................................................................18

PART V

ITEM 15.    SIGNATURES.............................................................................19
</TABLE>


                                       -2-
<PAGE>   3
Form 10-K/A FYE 4/30/96                              DYNAMIC INTERNATIONAL, LTD.


                                     PART I

ITEM 1.           BUSINESS

GENERAL

Dynamic International, Ltd. ("DIL"), a Nevada corporation, 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(R)
and KATHY IRELAND(R) as well as under its own trademarked name SHAPE SHOP(R). In
addition, it designs and markets sports bags and luggage which are marketed
primarily under the licensed name JEEP(R) and under its own names PROTECH and
SPORTS GEAR(R). 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. ("DCL"), 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
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 pursuant to
which creditors received partial satisfaction of their claims. MG Holding Corp.,
which had purchased a promissory note from the Company's principal lender,
received 14,880,000 shares of Common Stock in full satisfaction of the
promissory note. The number of shares issued to MG Holding represented 93% of
the issued and outstanding shares. As a result, MG Holding acquired absolute
control over the Company's affairs. MG Holding is wholly-owned by Marton B.
Grossman, the Company's Chairman and President. See "Principal Stockholders" and
"Certain Relationships and Related Transactions". In addition, as part of the
plan of reorganization, the Company, then known as DCL, merged into DIL, a
newly-formed Nevada corporation, for the purpose of changing its state of
incorporation. See "Legal Proceedings" and "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

                                       -3-
<PAGE>   4
Form 10-K/A FYE 4/30/96                              DYNAMIC INTERNATIONAL, LTD.


devices designed to monitor physical activity such as stopwatches, pedometers,
pulse meters and calorie counters.

Luggage/Sports Bags: The Company's line of luggage/sports bags 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 FREEZY BAG(TM) and FREEZYGEL(TM) under
which the products are sold. See "Intellectual Property--License Agreements".
The Company is currently testing the marketability of these products.

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". The Company employs a designer on a full-time basis for
the design of its luggage products. During the most recent fiscal year, the
Company spent approximately $102,000 on design activities, including fees to
designers and patent attorneys. The Company may from time to time utilize the
services of consultants for products and package design.

Most of the Company's products are manufactured in the United States, the
Philippines, Korea and Hong Kong, which in the most recent fiscal year accounted
for approximately 28%, 26%, 17% and 12%, respectively, of the Company's
products. In addition, the Company's products are manufactured in the People's
Republic of China and Indonesia. Exercise equipment is usually shipped by the
manufacturers to the Company within 45 days of the placement of an order. Orders
for luggage and sports bags, 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, 1996, approximately 19%, 18% and 14%
of the Company's revenues were derived from sales to Service Merchandise, Kmart
and Wal-Mart, respectively. No other customer accounted for more than 10% of the
Company's revenues. For the fiscal year ended April 30, 1996, sales of exercise
equipment accounted for approximately 34% of the Company's revenues while 66% of
the Company's revenues were derived from the sales of luggage/sports bags.

The Company sells its products primarily through independent sales agents on a
commission-only basis. The Company currently engages approximately 23 sales

                                       -4-
<PAGE>   5
Form 10-K/A FYE 4/30/96                              DYNAMIC INTERNATIONAL, LTD.


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 sale price of its products. Although the Company believes its
agents sell products exclusively on behalf of the Company, there are no
agreements that prohibit the agents from selling competing products.

In addition, the Company on a small scale markets existing products to retailers
for resale under their own private labels. The Company has begun deliveries to
Service Merchandise. 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. Therefore, it intends to
develop plans to use infomercials to market its products. To date, no
significant expenditures have been made in connection with this effort.

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. and Bollinger Industries, Inc. Both of these companies
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 the trademarked names of 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 luggage/sports bag 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
luggage/sports bag 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 POCKETSPLUS(TM), PROTECH
TRAVEL SYSTEMS & DESIGN and EXER-SLIDE(TM).

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 luggage products. The current expiration date of the
Jeep Agreement is December 31, 1998. The parties have informally agreed to start
negotiations regarding the terms of an extension of the current agreement.

SPALDING:     Pursuant to two separate agreements between the Company and
Spalding & Evenflo Companies Inc. dated November 1, 1992 and April 1, 1994, the
Company was granted the exclusive right to use the name SPALDING in connection
the sale and distribution of a number of products, including weight bars and
large exercise machines.  The agreements expire in September 1997.  However, the

                                       -5-
<PAGE>   6
Form 10-K/A FYE 4/30/96                              DYNAMIC INTERNATIONAL, LTD.


Company is currently negotiating a renewal of the agreement relating to the
handheld exercise equipment, and it is confident it will be able to negotiate
such renewal. Nevertheless, no assurance can be given that the Company will be
successful in negotiating a renewal of the agreement.

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 is currently scheduled to expire in June 1998 but is subject, at
the Company's option, to renewal 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.

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 ageing 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, 1996, the Company accrued approximately $164,000 in
fees under the Warehousing Agreement. To date, none of these fees have been
paid. Achim does not charge the Company interest on the unpaid portion of the
fees payable 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.

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

                                       -6-
<PAGE>   7
Form 10-K/A FYE 4/30/96                              DYNAMIC INTERNATIONAL, LTD.


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, 1996, the Company owed an amount of
$2,129,893 in principal and interest under this arrangement. As of December 31,
1996, this sum had increased to $2,524,594. See "Certain Relationships and
Related Transactions". The weighted average interest rate paid by the Company to
Achim at December 31, 1996 and April 30, 1996 was 9.37% and 11.5%, respectively.

EMPLOYEES

As of November 30, 1996, the Company employed thirteen persons, of whom five
were executive officers, three were engaged in administrative and clerical
activities, three 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 which is owned
by Isaac Grossman and one of his siblings. Mr. 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 "Certain
Relationships and Related Transactions" and "Management Agreement with Achim
Importing Co., Inc.".

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 "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.


                                       -7-
<PAGE>   8
Form 10-K/A FYE 4/30/96                              DYNAMIC INTERNATIONAL, LTD.


                                     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 is available after the fiscal
quarter ended July 31, 1995. The following table sets forth the high and low bid
quotations for the Company's Common Stock and Warrants through the quarter ended
July 31, 1995. These quotations have been reported by the National Association
of Securities Dealers, Inc. and represent quotations by dealers without
adjustments for retail markups, markdowns, or commissions and may no represent
actual transactions.
<TABLE>
<CAPTION>
          Fiscal Quarter                          Common Stock
          --------------                          ------------
              Ended                          High              Low
              -----                          ----              ---
<S>                                         <C>               <C>
         January 31, 1994                   $2.438            $0.875
         April 30, 1994                     $3.250            $2.000
         July 31, 1994                      $2.625            $1.500
         October 31, 1994                   $2.750            $2.188
         January 31, 1995                   $1.750            $0.875
         April 30, 1995                     $2.000            $0.875
         July 31, 1995                      $1.438            $0.375
</TABLE>

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 consist of those of DCL.
<TABLE>
<CAPTION>
                                                            Year Ended April 30
                                  ------------------------------------------------------------------------
                                      1996                1995               1994              1993
                                      ----                ----               ----              ----
<S>                               <C>                <C>                 <C>               <C>
Net sales                         $ 7,151,715        $ 32,533,097        $29,497,353       $ 25,735,479
Net income/(Loss) from
  continuing operations            (2,235,894)        (11,227,335)           244,308           (427,409)
Net income/(Loss)                   6,945,299         (11,227,335)           244,308           (427,409)
Net income/(Loss) per
  share                                  3.98               (6.44)               .14               (.25)
Selected Balance Sheet Data
Working capital
  (Deficit)                       $  (293,884)       $ (7,493,435)       $ 3,094,821       $  3,173,751
Total assets                        4,253,396           6,414,185         16,677,772         13,373,816
Long-term obligations,
  including capitalized
  lease obligations                    23,965             116,124            127,877             92,129
Total liabilities                   4,300,398          13,406,486         12,442,738          9,383,090
Retained earnings                         -0-                 -0-          3,644,799          3,400,491
Accumulated deficit                  (637,237)         (7,582,536)               -0-                -0-
Shareholders' equity
  (Deficit)                           (47,002)         (6,992,301)         4,235,034          3,990,726
</TABLE>

                                       -8-
<PAGE>   9
Form 10-K/A FYE 4/30/96                              DYNAMIC INTERNATIONAL, LTD.


                  (1) The Company has not paid a cash dividend to its public
         shareholders on its Common Stock. The Company does not contemplate
         paying any cash dividends on its Common Stock in the near future.

                  (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 of reorganization 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

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".

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
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 would receive 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 Holding Corp., which had purchased a promissory note from the
Company's principal financial institution, received 14,880,000 shares of Common
Stock in satisfaction of such promissory note, representing approximately 93%
of the issued and outstanding shares, thereby gaining absolute control over the 

                                       -9-
<PAGE>   10
Form 10-K/A FYE 4/30/96                              DYNAMIC INTERNATIONAL, LTD.


Company's affairs. See "Principal Stockholders" and "Certain Relationships and
Related Transactions". An additional 800,000 shares and 320,000 shares were
issued to the Company's unsecured creditors and the Company's existing security
holds, respectively. The value of the cash and securities distributed under the
Plan 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 accounting 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. In connection with the bankruptcy
proceedings, the Company restructured its operations and relocated its
administrative headquarters and warehouse facilities.

RESULTS OF OPERATIONS FOR THE YEARS ENDED APRIL 30, 1996 AND 1995

Sales for the year ended April 30, 1996 were $7,151,700, a decrease of
$25,381,400 or 78% from the previous fiscal year. The decrease was primarily due
to the discontinuation of a line of manual treadmills and ski machines. Sales of
this equipment accounted for approximately $15,580,000 during the fiscal year
ended April 30, 1995. During the fiscal year ended April 30, 1996, as a result
of the Company's bankruptcy proceedings, it was forced to reduce its sales of
other exercise equipment and of its sports bag/luggage products which led to a
decline in sales of $5,334,700 and $`1,333,600, respectively, to $5,615,600 and
$4,701,800, respectively. Sales of exercise equipment and sports bag/luggage
products during this period were offset by credits of $3,210,900 issued to
customers in connection with the 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.

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 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, 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 then ended. The following table
sets forth the financial statement effect of the Company's line of treadmills
and ski machines for the periods indicated:



                                      -10-
<PAGE>   11
Form 10-K/A FYE 4/30/96                              DYNAMIC INTERNATIONAL, LTD.

<TABLE>
<CAPTION>
                                 For Year          For Year
                              Ended 4/30/96      Ended 4/30/95
                              -------------      -------------
<S>                           <C>                <C>
      Sales                   $   597,000        $ 23,255,000
      Credits                  (3,210,900)         (7,487,000)
                              -----------        ------------
      Net sales                (2,613,900)         15,768,000
      Inventory reserve                --          (1,320,063)
      Cost of sales               156,000         (18,604,172)
                              -----------        ------------
      Gross loss              $(2,457,900)       $ (4,156,235)
                              ===========        ============
</TABLE>

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.

In addition, the Company's operating expenses decreased by approximately
$1,083,300 to $6,683,200. As a result of the Company's reorganization, the
Company had decreases in the following expenses:
<TABLE>
<S>                                                <C>
               Officers salaries                   $160,000
               Office salaries                     $180,000
               Salesmen salaries                   $316,000
               Payroll taxes                       $ 74,000
               Fringe benefits                     $145,000
               Travel & entertainment              $237,000
</TABLE>

Officers salaries decreased by $160,000 as a result of a reduction in the salary
of the Company's former President in September 1995, and the separation from the
Company of the Senior Executive Vice President in January 1995. These changes
accounted for decreases of $67,000 and $73,000, respectively. Office salaries
decreased by $180,000 due to the overall reduction in office personnel in
October 1995 as the operations of the Company were consolidated and Achim began
to supply administrative and warehouse services. Salesmen salaries decreased by
$316,000 because bonuses and overrides were discontinued after August 1995.
Payroll taxes and fringe benefits decreased by $74,000 and $145,000,
respectively, due to the overall reduction in office personnel in October 1995
as the operations of the Company were consolidated and Achim began to supply
administrative and warehouse services. Travel and entertainment decreased by
$237,000 due to the reduction in executive staff and the cost containment
measures instituted due to the reorganization.

For the fiscal year ended April 30, 1996, after giving effect to an
extraordinary gain as a result of the discharge of pre-petition liabilities in
the amount of $16,692,200, the Company recorded net income of $6,945,300,
compared to a net loss of $11,227,300 during the previous fiscal year. For the
fiscal year ended April 30, 1996, the Company would have recorded a net loss of
$9,746,900 before the extraordinary gain, or a decrease of $1,562,500 from the
prior fiscal year. This decrease primarily reflected a reduction in the
Company's operating expenses of approximately $1,083,300 and a reduction in
interest expense of $1,001,400. This decrease was due to the Company's exemption
from making interest payments of $558,312 during the reorganization proceedings.
In addition, interest expense decreased by $456,912 due to reduced borrowing for
the year ended April 30, 1996.

The extraordinary gain on debt discharge of pre-petition liabilities, which is
recorded on the Company's books in fiscal year ended April 30, 1996, was taxable
in the subsequent fiscal period, as the actual distribution to discharge the
debt occurred in July 1996. For tax purposes, without the gain on debt
discharge, the Company had an operating loss for the year ended April 30, 1996
which resulted in the Company's not having any current income tax liability
(effective tax rate of 0%). The current operating losses and the prior year loss
carry-forwards totaled approximately $19,500,000. Based on ownership changes
resulting from the reorganization (see Note 11 to the Financial Statements),
approximately $16,700,000 will be utilized to offset the extraordinary gain on
debt discharge

                                      -11-
<PAGE>   12
Form 10-K/A FYE 4/30/96                              DYNAMIC INTERNATIONAL, LTD.


in its final tax return for the period May 1, 1996 to August 8, 1996. The
balance of the net operating loss carry-forward is lost. The deferred tax effect
of $16,700,000, using a federal tax rate of 34% and state tax rate of 11%, is
approximately $7,511,000. For the fiscal year ended April 30, 1995, the
Company's pretax loss of $11,309,000 resulted in a federal tax benefit of
$3,845,000 utilizing the statutory rate. As a result of changes to the valuation
allowance, the reversal of previously established deferred tax assets and losses
for which no benefit was provided, the Company's effective tax rate resulted in
a benefit of $82,000.

RESULTS OF OPERATIONS FOR THE YEARS ENDED APRIL 30, 1995 AND 1994

Sales for the year ended April 30, 1995 increased from $29,497,353 to
$32,533,097, totaling $3,035,744, or 10% from the previous fiscal year. This
increase was primarily the result of the introduction of a new line of manual
treadmills and ski machines. Sales of these products amounted to approximately
$15,580,000. Sales of the Company's JEEP-licensed sports bag/luggage increased
by approximately $219,000. Increases in these product lines were offset by
declines in all of the Company's other product lines of approximately
$12,763,000.

The Company's gross profit declined from approximately $8,134,000 in fiscal
1994 to a gross loss of approximately $2,158,000 in fiscal 1995. This decrease
was due primarily to the disposal of approximately $1,247,000 of defective
manual treadmills and return credits issued to customers for defective manual
treadmills totaling approximately $7,000,000. In addition, the Company incurred
expenses in the amount of $589,160 in connection with the disposal of other
discontinued products. The inventory was further reduced by a lower cost or
market reserve of approximately $705,000.

Operating expenses increased by approximately $902,000. This increase was due
primarily to increases in the provision for bad debts of $473,999, an increase
in officers salaries of $39,820, an increase in office salaries of $129,000, an
increase in severance pay of $71,000, and an increase in legal fees of $107,612.

Interest expense increased by $531,944 due to higher interest rates.

For the fiscal year ended April 30, 1995, the Company had a pretax operating
loss of $11,309,425 as compared to a pretax operating income of $416,369 for the
prior fiscal year. The decrease can be attributed to the severe losses from its
venture into a new line of manual treadmills.

SEASONALITY AND INFLATION

The Company's business is highly seasonal with higher sales typically in the
second and third quarters of the fiscal year as a result of shipments of
exercise equipment and sports bag/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 Registrant.

LIQUIDITY AND CAPITAL RESOURCES

During the fiscal year ended April 30, 1996, cash used by operating activities
amounted to $1,145,616. This was primarily the result of temporary benefits
received by the Company under the bankruptcy and subsequent reorganization. Net
income of $6,945,299 and pre-petition liabilities of $8,614,728 were offset by
the gain on debt discharge under the Plan of $16,692,193. In addition, the
Company was not required to pay interest on most of its debt during the
bankruptcy period. Future cash flows will no longer receive those benefits.



                                      -12-
<PAGE>   13
Form 10-K/A FYE 4/30/96                              DYNAMIC INTERNATIONAL, LTD.


Cash of $47,933 was used primarily to purchase equipment for the manufacture of
two exercise products as well as computer hardware and software.

Financing activities generated cash in the amount of $877,493. Proceeds from
bank notes payable, bankers acceptances and a loan from MG Holding were
$3,393,628, $1,118,556 and $557,000, respectively. These proceeds were offset by
repayments of bankers acceptances and capital leases of $4,127,139 and $64,552,
respectively. The Company had a negative cash flow of $316,056 for the fiscal
year ended April 30, 1996.

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, 1996, the Company owed an amount of
$2,129,893 in principal and interest under this arrangement. As of December 31,
1996, this sum had increased to $2,524,594. See "Certain Relationships and
Related Transactions". The weighted average interest rate paid by the Company to
Achim at December 31, 1996 and April 30, 1996 was 9.37% and 11.5%, respectively.

The Company also has loans outstanding with MG Holding totaling $557,000 at
April 30, 1996. The loan is secured by all of the Company's assets. Interest at
Citibank prime rate plus 3% is payable monthly. The prime rate used in fiscal
1996 was 8.5%. Interest charged to operations for the year ended April 30, 1996
was $19,924.

The Company believes that cash generated by operations and the availability of
Achim's credit line to finance the Company's purchase of inventory will be
sufficient to finance its operations for the next twelve months.

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.



                                      -13-
<PAGE>   14
Form 10-K/A FYE 4/30/96                              DYNAMIC INTERNATIONAL, LTD.


                                    PART III

ITEM 10.          DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

OFFICERS AND DIRECTORS

The officers and directors of the Company are as follows:
<TABLE>
<CAPTION>
         Name                       Age       Position
         ----                       ---       --------
<S>                                 <C>       <C>
         Marton B. Grossman         66        Chairman and President
         Isaac Grossman             34        Vice Chairman, Treasurer and Secretary
         Marvin Cooper              63        Executive Vice President
         William P. Dolan           43        Vice President--Finance
         Jack Holodnicki            43        Vice President--Sales
</TABLE>

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

Isaac Grossman - Has been the Company's Vice Chairman, Treasurer and Secretary
since July 1996. He has been Vice President of Achim since 1989. Prior thereto,
Mr. Grossman worked in various positions at Achim, including sales, marketing
and warehousing. He spends approximately 20% of his time working for the
Company. He is the son of Marton B. Grossman, the Company's Chairman and
President.

Marvin Cooper - Has been the Company's Executive Vice President since July 1996.
Prior thereto, he had been the Company's President since 1964.

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.

Jack Holodnicki - Has been Vice President--Sales of the Company since 1994. From
1981 to 1994, he was 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.

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 two 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.

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, 1996 (i) to its Chief Executive
Officer and (ii) to the three highest-paid employees of the Company whose cash
compensation exceeded $100,000 per year in any such year:


                                      -14-
<PAGE>   15
Form 10-K/A FYE 4/30/96                              DYNAMIC INTERNATIONAL, LTD.

<TABLE>
<CAPTION>
                       SUMMARY COMPENSATION TABLE (1) (2)
                                                          Annual Compensation                
Name/Principal                       Year Ended         ------------------------             All Other
Position                              April 30          Salary             Bonus            Compensation
-----------------------------------------------------------------------------------------------------------------

<S>                                      <C>            <C>                                        <C>
Marton B. Grossman                       1996           $      0                                   $ 18,000
President & Director                     1995           $      0
                                         1994           $      0

Isaac Grossman                           1996           $      0                                   $ 13,043
                                         1995           $      0
                                         1994           $      0

Marvin Cooper                            1996           $182,876
Executive Vice President                 1995           $250,099
                                         1994           $250,099

William P. Dolan                         1996           $100,000
Vice President-Finance                   1995           $ 97,691
                                         1994           $ 74,414

John Holodnicki                          1996           $120,000
Vice President                           1995           $ 97,046
                                         1994           $      0

John Black                               1997           $      0
Vice President                           1996           $  6,100
                                         1995           $215,063
------------------------------------------------------------------------------
</TABLE>

         (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 B. Grossman's and
         Isaac Grossman's activities performed on behalf of the Company. Marton
         B. Grossman is the sole shareholder, and Isaac Grossman is an employee
         of Achim. See "Certain Relationships and Related Transactions".

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

         (5) Mr. Black resigned his position in January 1995.

         (6) Mr. Holodnicki joined the Company after April 1994.

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

         (8) Marton B. Grossman, the Company's Chairman and President, does not
         have an employment agreement and is not being paid a salary.

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 10% 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 10% shareholders are required by SEC regulation to furnish the
Company with copies of all Section 16(a) forms they file.

Based soley 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, 1995 through March 31, 1996, all Section 16(a)
filing requirements applicable to its officers, directors and greater than 10%
beneficial owners were complied with.

                                      -15-
<PAGE>   16
Form 10-K/A FYE 4/30/96                              DYNAMIC INTERNATIONAL, LTD.


ITEM 12.          SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The following table sets forth, as of January 30, 1997, 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 5% 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. Unless otherwise indicated, each
stockholder's address is c/o the Company, 58 Second Avenue, Brooklyn, New York
11215.
<TABLE>
<CAPTION>
                                                   Shares Owned Beneficially
                                                        and of Record(1)
                                                --------------------------------
         Name and Address                       No. of Shares         % of Total
         ----------------                       -------------         ----------
<S>                                             <C>                     <C>
         Marton B. Grossman (2)                  14,880,000              93.0
         Isaac Grossman (3)                      14,880,000              93.0
         Marvin Cooper                              110,970                 *
         William P. Dolan                               616                 *
         John Holodnicki                                 55                 *
         All Officers and Directors
         as a Group (5 Persons)                  14,991,641              93.7
</TABLE>


         *    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 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,
         no 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 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 Holding purchased from the
Company's principal lender a note in the principal amount of approximately
$6,822,530. MG Holding 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 14,880,000 shares of Common Stock to MG Holding Corp. MG Holding
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 other 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. At April 30, 1996, the Company owes MG
Holding $557,000. Interest charged to operations for the year ended April 30,
1996 was $19,924. The weighted average interest rate for the year ended April
30, 1996 was 11.5%

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
ageing

                                      -16-
<PAGE>   17
Form 10-K/A FYE 4/30/96                              DYNAMIC INTERNATIONAL, LTD.


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 invoices 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, 1996, the Company accrued approximately $164,000 in
fees under the Warehousing Agreement. To date, none of the fees have been paid.
Achim does not charge the Company interest on the unpaid portion of the fees
payable 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.

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, 1996, the Company owed an amount of
$2,129,893 in principal and interest under this arrangement. As of December 31,
1996, this sum had increased to $2,524,594. The weighted average interest rate
paid by the Company to Achim at December 31, 1996 and April 30, 1996 was 9.37%
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 which is owned
by Isaac Grossman and one of his siblings. Mr. Grossman is the Company's Vice
Chairman, Treasurer and Secretary. The property is leased to Achim which makes
the property available to the Company on an at-will basis. See "Management
Agreement with Achim Importing Co., Inc." and "Properties".


                                      -17-
<PAGE>   18
Form 10-K/A FYE 4/30/96                              DYNAMIC INTERNATIONAL, LTD.


                                     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, 1996.


                                      -18-
<PAGE>   19
Form 10-K/A FYE 4/30/96                              DYNAMIC INTERNATIONAL, LTD.


                                     PART V

ITEM 15.          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:  December 3, 1997



Pursuant to the requirements of the Securities Exchange Act of 1934, this Report
has been signed below as of December 3, 1997 by the following persons on
behalf of Registrant and in the capacities indicated.





By: /s/ Marton B. Grossman              By: /s/ Sheila Grossman
   -----------------------------            ------------------------------------
Marton B. Grossman                          Sheila Grossman
Chairman and President                      Director





By: /s/ Isaac Grossman                    By:
   -----------------------------            ------------------------------------
Isaac Grossman                              Bernard Goldman
Director                                    Director



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

                                      -19-
<PAGE>   20
                             DYNAMIC CLASSICS, LTD.
                                 AND SUBSIDIARY

                              FINANCIAL STATEMENTS

                                 APRIL 30, 1996
<PAGE>   21
                      DYNAMIC CLASSICS, LTD. AND SUBSIDIARY



                                    CONTENTS

<TABLE>
<CAPTION>
                                                                                                 Page
                                                                                                 ----
<S>                                                                                            <C>
         Independent Auditors' Reports                                                           F-1 to F-2

         Consolidated Financial Statements:

             Balance Sheets as of April 30, 1996 and 1995                                        F-3 to F-4

             Statements of Operations for the years ended
                April 30, 1996, 1995, and 1994                                                       F-5

             Statements of Stockholders' Equity for the years ended
                April 30, 1996, 1995, and 1994                                                       F-6

             Statements of Cash Flows for the years ended
                April 30, 1996, 1995, and 1994                                                   F-7 to F-8

             Notes to Financial Statements                                                       F-9 to F-22

         Independent Auditors' Reports on Supplemental Schedule                                  F-23 to F-24

             Schedule II - Valuation and Qualifying Accounts                                         F-25
</TABLE>
<PAGE>   22
                          INDEPENDENT AUDITOR'S REPORT


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


We have audited the accompanying consolidated balance sheet of Dynamic Classics,
Ltd. (which, subsequent to year end, merged into Dynamic International, Ltd.,
see Note 11) and its subsidiary as of April 30, 1996, and the related
consolidated statements of operations, stockholders' equity, and cash flows for
the year then ended. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audit.

We conducted our audit in accordance with 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 audit provides a
reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of Dynamic
Classics, Ltd. and its subsidiary as of April 30, 1996, and the results of their
operations and their cash flows for the year then ended in conformity with
generally accepted accounting principles.

As discussed more fully in Note 11 to the consolidated financial statements, on
August 23, 1995, the Company filed a voluntary petition requesting relief under
Chapter 11 of the United States Bankruptcy Code. On May 23, 1996, the United
States Bankruptcy Court for the Southern District of New York confirmed the
Company's Amended and Modified Plan of Reorganization dated February 22, 1996.


                                                Moore Stephens, P.C.
                                                Certified Public Accountants

New York, New York 
August 30, 1996, except as 
to Note 11, for which the 
date is October 24, 1996

                                       F-1
<PAGE>   23
                          INDEPENDENT AUDITOR'S REPORT


Board of Directors
Dynamic Classics, Ltd.


We have audited the accompanying consolidated balance sheet of Dynamic Classics,
Ltd. and Subsidiary as of April 30, 1995, and the related consolidated
statements of operations, shareholders' equity (deficit) and cash flows for each
of the years in the two-year period ended April 30, 1995. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these 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 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
Classics, Ltd. and Subsidiary as of April 30, 1995, and the results of their
operations and their cash flows for the years in the two-year period ended
April 30, 1995 in conformity with generally accepted accounting principle. 

As more fully discussed in Note 11 the Company, on August 23, 1995, filed a
voluntary petition for relief under Chapter 11 of the United States Bankruptcy
Act.


                                       /s/ HOBERMAN, MILLER & CO., P.C.
                                       --------------------------------
                                           Hoberman, Miller & Co., P.C.



New York, New York
June 26, 1996

                                       F-2
<PAGE>   24
                     DYNAMIC CLASSICS, LTD. AND SUBSIDIARY

                          CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
                                                                                APRIL 30,
                                                                           --------------------
                                                                           1996            1995
                                                                           ----            ----
<S>                                                                    <C>              <C>
                                     ASSETS

CURRENT ASSETS
  Cash and cash equivalents                                            $    26,515      $   342,571
  Accounts receivable - trade (net of allowance for                                    
    doubtful accounts of $167,000 in 1996 and $-0- in 1995)              1,036,927        1,424,809
  Due from suppliers                                                        26,760           10,704
  Inventory                                                              2,384,469        3,450,290
  Prepaid expenses                                                          81,693          250,549
  Miscellaneous receivables                                                135,039           26,858
  Prepaid and refundable income taxes                                      291,146          291,146
                                                                       -----------      -----------
      Total Current Assets                                               3,982,549        5,796,927
                                                                       -----------      -----------
                                                                                       
PROPERTY AND EQUIPMENT                                                                 
  Tools and dies                                                           707,939        1,447,257
  Furniture and equipment                                                  102,205          900,437
  Leasehold improvements                                                   -                111,646
  Capitalized equipment leases                                             576,071          637,589
  Patents and trademarks                                                   -                149,982
                                                                       -----------      -----------
                                                                         1,386,215        3,246,911
  Accumulated depreciation                                              (1,156,160)      (2,773,359)
                                                                       -----------      -----------
      Total Property and Equipment, net                                    230,055          473,552
                                                                       -----------      -----------
                                                                                       
OTHER ASSETS                                                                           
  Due from suppliers                                                        36,142           52,198
  Security deposits                                                          4,650           91,508
                                                                       -----------      -----------
      Total Other Assets                                                    40,792          143,706
                                                                       -----------      -----------
TOTAL ASSETS                                                           $ 4,253,396      $ 6,414,185
                                                                       ===========      ===========
</TABLE>

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

                                      F-3
<PAGE>   25
                     DYNAMIC CLASSICS, LTD. AND SUBSIDIARY

                          CONSOLIDATED BALANCE SHEETS
                                  (CONTINUED)

<TABLE>
<CAPTION>
                                                                             APRIL 30,
                                                                      --------------------------
                                                                      1996                  1995
                                                                      ----                  ----
<S>                                                                <C>                 <C>

                     LIABILITIES AND STOCKHOLDERS' DEFICIT

CURRENT LIABILITIES
  Notes payable bank, trade and bankers acceptances payable        $        --         $  8,191,782
  Note payable, officer, current portion                                    --               17,904
  Accounts payable and accrued expenses - non related                1,009,248            4,967,856
  Accounts payable and accrued expenses - related party              2,129,893                   --
  Capital lease obligations - current                                   48,731              112,820
  Loans payable - related party                                        557,000                   --
  Other liabilities                                                    531,561                   --
                                                                   -----------         ------------
      Total Current Liabilities                                      4,276,433           13,290,362
                                                                   -----------         ------------

OTHER LIABILITIES
  Capital lease obligations                                             23,965              101,832
  Note payable, officer                                                     --               14,292
                                                                   -----------         ------------
      Total Other Liabilities                                           23,965              116,124
                                                                   -----------         ------------

COMMITMENTS AND CONTINGENCIES

STOCKHOLDERS' DEFICIT
  Common stock, par value $.01 per share; authorized
    5,000,000 shares; issued 1,744,396 shares                           17,444               17,444
  Additional paid in capital                                           590,291              590,291
  Accumulated deficit                                                 (637,237)          (7,582,536)
                                                                   -----------         ------------
                                                                       (29,502)          (6,974,801)
  Less: Treasury stock, at cost, 15,000 shares                         (17,500)             (17,500)
                                                                   -----------         ------------
      Total Stockholders' Deficit                                      (47,002)          (6,992,301)
                                                                   -----------         ------------
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT                        $ 4,253,396         $  6,414,185
                                                                   ===========         ============
</TABLE>

All of the liabilities, as stated above at April 30, 1996, the period during
which the Company was operating under reorganization proceedings, are
post-petition liabilities. The discharge of prepetition liabilities, including
liabilities subject to compromise, has been recorded, and the gain on the debt
discharge, is reflected in the consolidated statement of operations for the year
ended April 30, 1996.



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

                                      F-4
<PAGE>   26
                     DYNAMIC CLASSICS, LTD. AND SUBSIDIARY

                     CONSOLIDATED STATEMENTS OF OPERATIONS


<TABLE>
<CAPTION>
                                                                              FOR THE YEARS ENDED APRIL 30,
                                                                       ------------------------------------------
                                                                       1996               1995               1994
                                                                       ----               ----               ----
<S>                                                                <C>                <C>                 <C>
REVENUES
  Sales                                                            $ 7,151,715        $ 32,533,097        $29,497,353
  Other income                                                          98,272              70,638             35,255
                                                                   -----------        ------------        -----------
                                                                     7,249,987          32,603,735         29,532,608
COST OF SALES                                                        9,480,484          34,761,846         21,398,895
                                                                   -----------        ------------        -----------
GROSS PROFIT (LOSS)                                                 (2,230,497)         (2,158,111)         8,133,713
                                                                   -----------        ------------        -----------
OPERATING EXPENSES                                                                                        
  Research and development                                             101,992              44,962             35,136
  Shipping expenses                                                    738,681           1,198,563          1,005,593
  Selling expenses                                                   1,254,006           2,455,493          2,380,774
  Advertising and promotion                                            389,672             346,400            528,927
  General and administrative                                         4,198,800           3,720,998          2,913,960
  Interest and bank charges - non related                                                                 
    (contractual interest of $806,937 for the                                                             
     year ended April 30, 1996)                                        248,625           1,384,898            852,954
  Interest and bank charges - related party                            134,928            -                  -
                                                                   -----------        ------------        -----------
                                                                     7,066,704           9,151,314          7,717,344
                                                                   -----------        ------------        -----------
REORGANIZATION ITEMS:                                                                                     
  Bankruptcy administration costs                                      449,693            -                  -
                                                                   -----------        ------------        -----------
                                                                       449,693            -                  -
                                                                   -----------        ------------        -----------
INCOME (LOSS) BEFORE                                                                                      
  PROVISION FOR INCOME TAXES                                        (9,746,894)        (11,309,425)           416,369
                                                                                                          
INCOME TAX PROVISION (BENEFIT)                                                                            
  Current                                                              -                  (396,143)           244,797
  Deferred                                                          (7,511,000)            314,053            (72,736)
                                                                   -----------        ------------        -----------
                                                                    (7,511,000)            (82,090)           172,061
                                                                   -----------        ------------        -----------
INCOME (LOSS) BEFORE                                                                                      
  EXTRAORDINARY ITEM                                                (2,235,894)        (11,227,335)           244,308
                                                                   -----------        ------------        -----------
                                                                                                          
EXTRAORDINARY ITEM:                                                                                       
  Gain of discharge of prepetition liabilities                      16,692,193            -                  -
  Income tax provision                                               7,511,000            -                  -
                                                                   -----------        ------------        -----------
    Extraordinary gain, net of income tax                            9,181,193            -                  -
                                                                   -----------        ------------        -----------
NET INCOME (LOSS)                                                  $ 6,945,299        $(11,227,335)       $   244,308
                                                                   ===========        ============        ===========
INCOME (LOSS) PER SHARE OF                                                                                
  COMMON STOCK:                                                                                           
  Income (loss) before extraordinary gain                          $     (1.28)       $      (6.44)       $      0.14
  Extraordinary gain                                               $      5.26        $   -               $  -
                                                                   -----------        ------------        -----------
    Earnings per common share                                      $      3.98        $      (6.44)       $      0.14
                                                                   ===========        ============        ===========
Weighted average number of common shares                             1,744,396           1,744,396          1,744,396
                                                                   ===========        ============        ===========
</TABLE>

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

                                      F-5
<PAGE>   27
                      DYNAMIC CLASSICS, LTD. AND SUBSIDIARY

            CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)

               FOR THE YEARS ENDED APRIL 30, 1996, 1995, AND 1994


<TABLE>
<CAPTION>
                                    Common
                                    Stock             Additional           Retained           Treasury       Stockholders'
                                   $.01 par             Paid in            Earnings             Stock            Equity
                                    Value               Capital            (Deficit)           at Cost          (Deficit)
                                    -----               -------            ---------           -------          ---------
<S>                            <C>                  <C>                  <C>                 <C>              <C>
Balance - May 1, 1993           $     17,444         $    590,291         $ 3,400,491         $(17,500)        $ 3,990,726

Net Income                                                                    244,308                              244,308
                                ------------         ------------         -----------         --------         -----------

Balance - April 30, 1994              17,444              590,291           3,644,799          (17,500)          4,235,034

Net Loss                                                                  (11,227,335)                         (11,227,335)
                                ------------         ------------         -----------         --------         -----------

Balance - April 30, 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)
                                ============         ============         ===========         ========         ===========
</TABLE>

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

                                       F-6
<PAGE>   28
                      DYNAMIC CLASSICS, LTD. AND SUBSIDIARY

                      CONSOLIDATED STATEMENTS OF CASH FLOWS



<TABLE>
<CAPTION>
                                                                         FOR THE YEARS ENDED APRIL 30,
                                                                 ---------------------------------------------
                                                                 1996                1995                 1994
                                                                 ----                ----                 ----
<S>                                                           <C>                 <C>                  <C>
CASH FLOWS FROM OPERATING ACTIVITIES
   Net Income (loss)                                          $ 6,945,299         $(11,227,335)        $   244,308
   Adjustments to reconcile net income (loss) to
     net cash provided (used) by operating activities:
       Depreciation                                               220,400              268,148             260,677
       Amortization of deferred interest under
         capital leases                                                --               17,979              18,509
       Reserve for bad debts                                      167,000                   --                  --
       Loss on disposal of property
          and equipment                                            71,030                   --                  --
       Deferred income taxes                                   (7,511,000)             314,053              72,736
       Income on partial discharge of
         capital lease obligations                                (77,403)                  --                  --
       Reorganization item:
         Gain on discharge of debt                             (9,181,193)                  --                  --
       Changes in operating assets and  liabilities:
         (Increase) Decrease in operating assets:
          Accounts receivable and due
            from suppliers                                        220,882            6,843,636          (3,351,168)
          Inventory                                             1,065,821            3,260,017            (379,281)
          Prepaid expenses                                        168,856             (183,186)            400,241
          Miscellaneous receivables                              (108,179)              51,352             (71,749)
          Prepaid income taxes                                         --             (291,146)            346,140
          Security deposits                                        86,858               (3,537)                (13)
       Increase (Decrease) in operating liabilities:
          Prepetition liabilities                               8,614,728
          Accounts payable and accrued expenses                (1,828,715)           1,949,987           1,112,921
          Income taxes payable                                         --             (200,770)            200,770
                                                              -----------         ------------         -----------
       Net Cash Provided (Used) by
         Operating Activities                                  (1,145,616)             799,198          (1,145,909)
                                                              -----------         ------------         -----------

CASH FLOWS FROM INVESTING ACTIVITIES
   Purchase of property and equipment                             (47,933)            (143,995)            (93,993)
                                                              -----------         ------------         -----------

       Net Cash Used by Investing Activities                  $   (47,933)        $   (143,995)        $   (93,993)
                                                              -----------         ------------         -----------
</TABLE>

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

                                       F-7
<PAGE>   29
                      DYNAMIC CLASSICS, LTD. AND SUBSIDIARY

                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                   (Continued)


<TABLE>
<CAPTION>
                                                               FOR THE YEARS ENDED APRIL 30,
                                                       ----------------------------------------------
                                                       1996                 1995                 1994
                                                       ----                 ----                 ----
<S>                                                 <C>                 <C>                  <C>
CASH FLOWS FROM FINANCING ACTIVITIES
   Proceeds from notes payable                      $ 3,393,628         $ 24,250,741         $ 10,136,006
   Repayment of notes payable                                --          (26,460,130)          (6,311,012)
   Proceeds from loans payable                          557,000                   --
   Proceeds from bankers acceptances                  1,118,556            9,321,558            8,853,407
   Repayment of bankers acceptances                  (4,127,139)          (7,876,394)         (11,068,227)
   Repayment of officer's loans payable                      --               (2,373)              (8,600)
   Repayment of capital lease obligations               (64,552)            (109,308)             (87,830)
                                                    -----------         ------------         ------------

       Net Cash Provided (Used) by
         Financing Activities                           877,493             (875,906)           1,513,744
                                                    -----------         ------------         ------------

Net Increase (Decrease) in Cash and
   Cash Equivalents                                    (316,056)            (220,703)             273,842

Cash and Cash Equivalents, beginning of year            342,571              563,274              289,432
                                                    -----------         ------------         ------------

Cash and Cash Equivalents, end of year              $    26,515        $    342,571         $    563,274
                                                    ===========         ============         ============



SUPPLEMENTAL CASH FLOW INFORMATION:

Cash paid during the periods for:
     Interest                                       $   203,964         $  1,196,322         $    807,131
     Income tax                                     $        --         $    116,319         $      7,120
</TABLE>

SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND FINANCING ACTIVITIES:

During the years ended April 30, 1995 and 1994 the Company incurred capital
lease obligations of $143,855 and $177,696, respectively, in connection with
lease agreements to acquire equipment.


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

                                       F-8
<PAGE>   30
                      DYNAMIC CLASSICS, LTD. AND SUBSIDIARY

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


1.       SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

         a.       The Company

                  Dynamic Classics, Ltd. (the "Company") is engaged in the sale
                  and distribution of a diverse line of hand exercise and light
                  exercise equipment, sports bags/luggage and gift products
                  which are distributed nationwide.

         b.       Principles of Consolidation

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

         c.       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.

         d.       Inventories

                  Inventories consist principally of finished goods and are
                  stated at the lower of cost (last-in, first-out method) or
                  market.

         e.       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:

<TABLE>
<CAPTION>
<S>                                 <C>                                        <C>    
                                    Tools and dies                              5 years
                                    Furniture and equipment                     5 to 7 years
                                    Leasehold improvements                      Life of lease
                                    Patents and trademarks                      2 years
</TABLE>

         f.       Earnings Per Share

                  Earnings (loss) per share are based on the weighted average
                  number of shares outstanding.

                                       F-9
<PAGE>   31
                      DYNAMIC CLASSICS, LTD. AND SUBSIDIARY

                          NOTES TO FINANCIAL STATEMENTS
                                   (CONTINUED)

1.       SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont'd)

         g.       Reclassification

                  Certain 1994 account balances have been reclassified to
                  conform to the 1995 presentation.

         h.       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.

2.       INVENTORIES

         If the first-in, first-out (FIFO) method of accounting had been used by
         the Company, reported net income would have been increased by $263,000
         in fiscal 1996. The net loss would have been increased by $246,000 in
         fiscal 1995 and the net income would have been decreased by $40,000 in
         fiscal 1994. On a FIFO basis, reported year end inventories would have
         increased by $318,180 in 1996, $55,000 in 1995 and $428,000 in 1994.

3.       CREDIT FACILITIES

         Notes payable, bank, trade and bankers acceptances payable consist of
         the following:

<TABLE>
<CAPTION>
                                                                          April 30,
                                                                            1995
                                                                            ----
<S>                                                                     <C>
                  Notes payable, bank (a)                               $   766,684
                  Notes payable, bank (b)                                 1,107,197
                  Bankers' acceptances payable (a)                        6,317,901
                                                                        -----------
                                                                        $ 8,191,782
                                                                        ===========
</TABLE>

         a.       On April 29, 1994, the Company restructured its then existing
                  credit facility with a bank, providing for maximum borrowings
                  of $7,500,000 in the form of notes payable, letters of credit
                  and bankers' acceptances, expiring on September 30, 1994.

                                      F-10
<PAGE>   32
                      DYNAMIC CLASSICS, LTD. AND SUBSIDIARY

                          NOTES TO FINANCIAL STATEMENTS
                                   (CONTINUED)

3.       CREDIT FACILITIES (cont'd)

                  The agreement with the bank was extended on a month to month
                  basis until such time as a new agreement was signed. Advances
                  were made on a revolving basis based on a percentage of
                  eligible accounts receivable and inventory, as defined.
                  Interest was charged at the bank's "base" rate plus 1.25% on
                  notes payable, the bank's prevailing discount rate plus 2.5%
                  on time letters of credit and the bank's prevailing discount
                  rate plus 2% on bankers' acceptances. The base rate and
                  discount rate were 9.00% and 6.85%, respectively, at April 30,
                  1995. The agreement also provided for a security interest in
                  all of the assets of the Company, the personal guarantee of
                  the Company's president and major shareholder in the amount of
                  $250,000, the assignment of an existing life insurance policy
                  to the bank in the name of the president and major shareholder
                  in the amount of $2,000,000, the maintenance of certificates
                  of deposit in an amount not less than $350,000 and the
                  maintenance of compensating balances equal to 6% of the
                  average monthly outstanding balance of notes payable and
                  bankers' acceptances. The terms of the agreement also provided
                  for certain restrictive covenants with respect to borrowing
                  limitations, maintenance of tangible net worth and working
                  capital, debt to tangible net worth and inventory ratios.

                  At April 30, 1995, the Company was not in compliance with
                  certain of the financial covenants which enabled the bank to
                  declare the outstanding balances of all amounts due the bank
                  to be immediately due and payable.

                  The Company was contingently liable under outstanding letters
                  of credit in the amount of approximately $242,000 at April 30,
                  1995.

                  The Company was also party to various credit arrangements with
                  certain of the suppliers in the form of letter of credit and
                  draft acceptance agreements for the purchase of inventory. The
                  agreements are generally for periods of 90 to 120 days, are
                  unsecured, and bear interest at rates ranging from 5% to
                  13.5%.

         In July, 1995 the lender bank effectively terminated its relationship
         with the Company as it experienced difficulty in complying with the
         terms of the loans. As a result, certain collateral was liquidated by
         the lender bank. On August 22, 1995, the lender bank sold and assigned
         the loan balance of $6.8 million. The assigned loan was secured by a
         security interest in substantially all of the Company's assets .

         Pursuant to the reorganization as discussed in Note 11, the assignor
         was issued 14,880,000 shares of new common stock in consideration of
         forgiving the $6.8 million outstanding loan.

                                      F-11
<PAGE>   33
                      DYNAMIC CLASSICS, LTD. AND SUBSIDIARY

                          NOTES TO FINANCIAL STATEMENTS
                                   (CONTINUED)

4.       INCOME TAXES

         The provision (benefit) for income taxes for the years ended April 30
         are as follows:

<TABLE>
<CAPTION>
                                                     1996               1995                1994
                                                     ----               ----                ----
<S>                                              <C>                <C>                <C>
         CURRENT:
             Federal                             $          -       $(   401,529)      $     215,513
             State and local                                -              5,386              29,284
                                                 ------------       ------------       -------------
                                                            -        (   396,143)            244,797
                                                 ------------       ------------       -------------
         DEFERRED:
             Federal                              ( 5,675,000)           313,039        (     68,549)
             State and local                      ( 1,836,000)             1,014        (      4,187)
                                                 ------------       ------------       -------------
                                                  ( 7,511,000)           314,053        (     72,736)
                                                 ------------       ------------       -------------
                                                 $( 7,511,000)      $(    82,090)      $     172,061
                                                 ============       ============       =============
</TABLE>

         The deferred income tax assets and liabilities at April 30 consist of
         the following:

<TABLE>
<CAPTION>
                                                                          1996                 1995
                                                                          ----                 ----
<S>                                                                   <C>                 <C>
         DEFERRED TAX ASSETS:
             Bad debt reserves                                        $    75,000         $        -0-
             Difference in book and tax treatment
                 for advertising costs                                     16,000               59,000
             Net operating loss carryforwards                           8,783,000            2,448,000
             Other deferred tax assets                                     50,000                   -0-
                                                                      -----------          -----------
                TOTAL DEFERRED TAX ASSETS                               8,924,000            2,507,000
                                                                      -----------          -----------
         DEFERRED TAX LIABILITY (ALLOCATED TO
             EXTRAORDINARY GAIN):
             Gain on discharge of prepetition
                   liabilities                                          7,511,000                   -0-
                                                                      -----------          -----------
                                                                        7,511,000                   -0-
                                                                      -----------          -----------
             Valuation allowance for deferred
               tax assets                                              (1,413,000)          (2,507,000)
                                                                      -----------          -----------
                                                                      $       -0-          $        -0-
                                                                      ===========          ===========
</TABLE>

                                      F-12
<PAGE>   34
                      DYNAMIC CLASSICS, LTD. AND SUBSIDIARY

                          NOTES TO FINANCIAL STATEMENTS
                                   (CONTINUED)

4.       INCOME TAXES (cont'd)

         The reconciliation of the federal statutory income tax to the Company's
         effective income tax for the years ended April 30 is as follows:

<TABLE>
<CAPTION>
                                                                        1996              1995             1994
                                                                        ----              ----             ----
<S>                                                                 <C>               <C>               <C>
         U.S. federal income taxes at statutory rate                $ 2,361,000       $(3,845,205)      $141,565
         Losses for which no benefit was provided                       -0-               982,371          -0-
         Change in valuation allowance                               (1,094,000)        2,506,820          -0-
         Reversal of previously established tax asset                   -0-               313,039          -0-
         Tax effect of permanent differences                              8,000            17,035          9,537
         State income taxes, net of federal benefit                     764,000             -0-            -0-
         Benefit of unused net operating loss                        (1,412,000)            -0-            -0-
         Differences due to change in rates                         (   627,000)            -0-            -0-
         Other                                                          -0-           (    56,150)        20,959
                                                                    -----------      ------------       --------
                                                                    $   -0-          $(    82,090)      $172,061
                                                                    ===========      ============       ========
</TABLE>

         The Company had 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 results in refundable income
         taxes of approximately $287,000.

         At April 30, 1996, the net operating loss carryforward totaled
         approximately $19,500,000 of which approximately $16,700,000 will be
         utilized by the Company in its final tax return for the period May 1,
         1996 to August 8, 1996 (see Note 11 re: merger into Dynamic
         International, Ltd.). Based on ownership changes resulting from the
         reorganization (see Note 11), the balance of the net operating loss
         carryforward is expected to be limited by the current provisions of
         Section 382 of the Internal Revenue Code.

5.       COMMITMENTS AND CONTINGENCIES

         a.       Capital Leases

                  The Company is the lessee of equipment under capital leases
                  expiring 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.

                                      F-13
<PAGE>   35
                      DYNAMIC CLASSICS, LTD. AND SUBSIDIARY

                          NOTES TO FINANCIAL STATEMENTS
                                   (CONTINUED)

5.       COMMITMENTS AND CONTINGENCIES (cont'd)

                  Minimum future lease payments due under the revised capital
                  leases in the aggregate are as follows:

<TABLE>
<CAPTION>
                                    Year Ending April 30,
                                    ---------------------
<S>                                 <C>                                     <C>
                                            1997                               $ 54,943
                                            1998                                 28,654
                                                                               --------
                                                                               $ 83,597
                                            Less: interest portion              (10,901)
                                                                               --------
                                                                               $ 72,696
                                                                               ========
</TABLE>

         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 6).

                  Rent expense for the years ended April 30, 1996, 1995, and
                  1994 was $341,427, $583,596, and $435,209, respectively.

         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 years ended April 30, 1996, 1995, and
                  1994 was approximately $275,000, $779,000, and $524,000,
                  respectively.

         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.

                                      F-14
<PAGE>   36
                      DYNAMIC CLASSICS, LTD. AND SUBSIDIARY

                          NOTES TO FINANCIAL STATEMENTS
                                   (CONTINUED)

5.       COMMITMENTS AND CONTINGENCIES (cont'd)

         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 will be made by the Company for the 1996
                  calendar year.

                  The 401(K) expense amounted to $2,600, $9,460 and $6,260 for
                  the years ended April 30, 1996, 1995 and 1994, respectively.

         f.       Union Pension Plan

                  Certain union employees participate in a multiemployer
                  retirement plan sponsored by their union. The Company is
                  required to pay seven cents ($.07) per hour per employee to
                  the plan. Pension expense for the union employees for the
                  years ended April 30, 1996, 1995, and 1994 was $3,745, $1,680,
                  and $3,957, respectively. The data available from
                  administrators of the multiemployer plan is not sufficient to
                  determine the accumulated benefit obligation, nor the net
                  assets attributable to the multiemployer plan in which Company
                  employees participate. As of October 1995, the Company no
                  longer has any union employees.

         g.       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.

6.       RELATED PARTY TRANSACTIONS

         The Company has an agreement with an entity ("Related Party") owned by
         a major shareholder whereby the entity agreed to provide warehousing
         and general administrative services to the Company. The agreement is
         for a period of two years with automatic year to year renewals.

                                      F-15
<PAGE>   37
                      DYNAMIC CLASSICS, LTD. AND SUBSIDIARY

                          NOTES TO FINANCIAL STATEMENTS
                                   (CONTINUED)

6.       RELATED PARTY TRANSACTIONS (cont'd)

         The monthly fee for the warehousing services is 3% of monthly sales.
         The fee for general administrative services is payable monthly and is
         based on annual sales in percentages ranging from 3% to 4% of invoiced
         sales. Total warehousing and administrative expenses charged to
         operations for the year ended April 30, 1996 were approximately
         $164,000.

         The Related Party also purchases inventory for the Company and charges
         the Company for the invoiced amount of the inventory.

         Interest is chargeable at an annual rate of prime plus 3% of the
         balance owing on inventory purchases, warehousing fees, and general
         administrative fees and is payable monthly. Total interest charged on
         such balances was $115,004 for fiscal 1996. the weighted average
         interest on such balances was 11.5% for the year ended April 30, 1996.

         At April 30, 1996, the balance owed to the Related Party was
         $2,129,893.

         The Company also has loans outstanding with the Related Party totaling
         $557,000 at April 30, 1996. The loan is secured by all of the Company's
         assets. Interest at Citibank prime rate plus three percent is payable
         monthly. The prime rate used in fiscal 1996 was 8.5 percent. Interest
         charged to operations for the year ended April 30, 1996 was $19,924.

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. During
         the year ended April 30, 1995, sales to two major customers were
         approximately 26% and 14% ($8,459,000 and $4,555,000, respectively) of
         the Company's net sales. At April 30, 1995, there were no accounts
         receivable from these customers. During the year ended April 30, 1994,
         sales to three major customers were 16%, 16% and 10% ($4,720,000,
         $4,720,000 and $2,950,000, respectively) of the Company's net sales. At
         April 30, 1994, accounts receivable for these customers totaled
         $4,471,805. The Company sells a limited amount to foreign customers.
         There were no material receivables subject to foreign currency
         fluctuations.

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, 1996 and 1995, such excess balances
         totaled approximately $207,000 and $398,000, respectively.

                                      F-16
<PAGE>   38
                      DYNAMIC CLASSICS, LTD. AND SUBSIDIARY

                          NOTES TO FINANCIAL STATEMENTS
                                   (CONTINUED)

8.       CREDIT RISK/FINANCIAL INSTRUMENTS (cont'd)

         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.

         The carrying amounts of short-term debt reported in the balance sheets
         approximate fair value. The fair value of the Company's long-term debt
         (including the current portion) also approximates its carrying amount
         in the balance sheets based on the rates currently available to the
         Company for similar debt with similar terms.

9.       AUTHORITATIVE PRONOUNCEMENTS

         a.       The Financial Accounting Standard Board ("FASB") issued
                  Statement of Financial Accounting Standards ("SFAS") No. 121,
                  "Accounting for the Impairment of Long-Lived Assets and for
                  Long-Lived Assets to be Disposed Of", in March of 1995. SFAS
                  No. 121 establishes accounting standards for the impairment of
                  long-lived assets, certain identifiable intangibles, and
                  goodwill related to those assets to be held and used, and for
                  long-lived assets and certain identifiable intangibles to be
                  disposed of. SFAS No. 121 is effective for financial
                  statements issued for fiscal years beginning after December
                  15, 1995. In light of the reorganization as discussed in Note
                  11, the Company expects to recover the carrying amount of its
                  long-lived assets and adoption of SFAS No. 121 is not expected
                  to have a material impact on the Company's financial
                  statements.

         b.       The FASB issued SFAS No. 123, "Accounting for Stock-Based
                  Compensation" in October of 1995. The Statement establishes
                  financial options accounting (except for non-employees) and
                  mandatory proforma reporting standards for stock-based
                  employee compensation plans and is effective for financial
                  statements issued for fiscal years beginning after December
                  15, 1995. The Company does not currently have any stock-based
                  employee compensation plans, and does not expect to adopt the
                  optional accounting standards of SFAS No. 123.

         c.       The FASB issued SFAS No. 125, "Accounting for Transfers and
                  Servicing of Financial Assets and Extinguishment of
                  Liabilities" in June of 1996. SFAS No. 125 provides accounting
                  and reporting standards for transfers and servicing of
                  financial assets and extinguishment of liabilities. SFAS No.
                  125 is effective for financial statements issued for fiscal
                  years occurring after December 31, 1996 and is to be applied
                  prospectively. The Company does not have transactions which
                  come under the general heading of "Transfers of Servicing of
                  Financial Assets," and the added refinements for
                  "Extinguishment of Debt" are not expected to be significant.
                  Therefore, SFAS No. 125 is not expected to have an impact on
                  the Company.

                                      F-17
<PAGE>   39
                      DYNAMIC CLASSICS, LTD. AND SUBSIDIARY

                          NOTES TO FINANCIAL STATEMENTS
                                   (CONTINUED)

10.      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
                  Phillippines, Korea, and Taiwan. 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.

11.      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>   40
                      DYNAMIC CLASSICS, LTD. AND SUBSIDIARY

                          NOTES TO FINANCIAL STATEMENTS
                                   (CONTINUED)


11.      DISCONTINUED PRODUCTS (cont'd)

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

<TABLE>
<CAPTION>
                                                                           For the Years Ended
                                                                  April 30, 1996             April 30, 1995
                                                                  --------------             --------------
<S>                                                               <C>                        <C>
         Sales                                                    $     597,000              $  23,255,000
         Credits                                                    ( 3,210,900)              (  7,487,000)
                                                                  -------------              -------------
         Net Sales                                                  ( 2,613,900)                15,768,000
         Inventory Reserve                                                    -               (  1,320,063)
         Cost of Sales                                                  156,000                (18,604,172)
                                                                  -------------              -------------
         Gross Loss                                               $ ( 2,457,900)             $(  4,156,235)
                                                                  =============              ============= 
</TABLE>

         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.

12.      SUBSEQUENT EVENT/MANAGEMENT PLANS

         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. However, due to defective products
         delivered by the Company's manufacturers, primarily located in the
         People's Republic of China, the Company was forced to allow substantial
         returns 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. For the year ended April 30, 1996, the
         Company suffered significant losses in the amount of approximately
         $3,700,000 from its venture into this line of business.

         At April 30, 1995, the Company was not in compliance with certain of
         the financial covenants which enabled the bank to declare the
         outstanding balances of all amounts due the bank to be immediately due
         and payable. In July 1995, the lender bank effectively terminated its
         relationship with the Company as it experienced difficulty in complying
         with the terms of the loans. As a result, certain collateral was
         liquidated by the lender bank. On August 22, 1995, the lender bank sold
         and assigned the loan balance of $6.8 million. The assigned loan was
         secured by a security interest in substantially all of the Company's
         assets. As discussed below, the assignor was issued 14,880,000 shares
         of new common stock in consideration of forgiving the $6.8 million
         outstanding loan.

                                      F-19
<PAGE>   41
                      DYNAMIC CLASSICS, LTD. AND SUBSIDIARY

                          NOTES TO FINANCIAL STATEMENTS
                                   (CONTINUED)

12.      SUBSEQUENT EVENT/MANAGEMENT PLANS (cont'd)

         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.

         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" as referred to below is 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 15,993,991 shares of
         new common stock were issued on July 25, 1996 out of which 14,880,000
         shares were issued to one secured creditor (see Note 3), which also
         satisfied $15,923 of loans made by the chief executive officer of the
         Company to Company, 800,000 shares were issued to unsecured creditors,
         and 313,991 shares were issued to the reconfirmation common stock
         equity interest holders.

         The discharge of claims has been 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 11.5%. 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 about circumstances and events that have not yet taken
         place. Such estimates and assumptions are inherently subject to
         significant economic and competitive uncertainties and contingencies
         beyond the control of the Company, including, but not limited to those
         with respect to the future courses of the Company's business activity.
         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.

                                      F-20
<PAGE>   42
                      DYNAMIC CLASSICS, LTD. AND SUBSIDIARY

                          NOTES TO FINANCIAL STATEMENTS
                                   (CONTINUED)

12.      SUBSEQUENT EVENT/MANAGEMENT PLANS (cont'd)

         As part of the reorganization, the Company will continue to sell hand
         exercise, light exercise equipment and luggage and sports bags, all of
         which have a proven market acceptance. Management believes it can
         increase revenues by increasing its focus on direct response marketing.
         Therefore, it intends to develop plans to use 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, can be effectively implemented within the next
         twelve months.

         The Company expects to adopt "fresh-start reporting" in accordance with
         Statement of Position ("SOP") 90-7 issued by the American Institute of
         Certified Public Accountants in preparing its financial statements for
         the year ended April 30, 1997. 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 are satisfied by the Company.

                                      F-21
<PAGE>   43
                      DYNAMIC CLASSICS, LTD. AND SUBSIDIARY

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (CONTINUED)

12.    SUBSEQUENT EVENT/MANAGEMENT PLANS (cont'd)

       The following is a proforma balance sheet of the reorganized Company
       based on the projected discounted cash flows as discussed above:


<TABLE>
<CAPTION>
                                                    Pre-              Debt            April 30,        Fresh         Reorganized
                                                Confirmation        Discharge           1996           Start          Company
                                                ------------        ---------           ----           -----          -------
<S>                                             <C>               <C>               <C>             <C>             <C>
       Current Assets:
         Cash                                   $     26,515                         $   26,515                      $   26,515
         Accounts receivable                       1,036,927                          1,036,927                       1,036,927
         Inventory                                 2,384,469                          2,384,469                       2,384,469
         Other current assets                        534,638                            534,638                         534,638
                                                -------------                        -----------                     -----------
            Total Current Assets                   3,982,549                          3,982,549                       3,982,549
       Property and equipment                        230,055                            230,055                         230,055
       Other Assets                                   40,792                             40,792                          40,792
       Reorganization value                                                                                          
         over recorded amounts                             0                                  0         47,331           47,331
                                                -------------                        -----------     ----------      -----------
            Total Assets                        $  4,253,396                         $4,253,396      $  47,331       $4,300,727
                                                =============                        ===========     ==========      ===========
                                                                                                                     
       Current liabilities:                                                                                          
         Accounts payable and                                                                                        
          accrued expenses                         3,139,141                          3,139,141                       3,139,141
         Prepetition liabilities subject                                                                              
          to compromise                           17,223,754        (17,223,754)              0                               0
         Other current liabilities                   605,735            531,561       1,137,296        (15,923)       1,121,373
                                                 ------------       ------------      ----------      ---------       ----------
            Total Current Liabilities             20,968,630        (16,692,193)      4,276,437        (15,923)       4,260,514
                                                -------------      -------------     -----------     ----------      -----------
       Other liabilities                              23,965                             23,965                          23,965
                                                -------------                        -----------                     -----------
       Common stock, par value                        17,444                             17,444         (1,450)          15,994
       Additional paid in capital                    590,291                            590,291       (590,034)             257
       Accumulated deficit                       (17,329,434)        16,692,193        (637,241)       637,241                0
                                                -------------      -------------     -----------     ----------      -----------
                                                 (16,721,699)        16,692,193         (29,506)        45,757           16,251
       Less: Treasury stock                          (17,500)                           (17,500)        17,497               (3)
                                                -------------      -------------     -----------     ----------      -----------
            Total Equity                         (16,739,199)        16,692,193         (47,006)        63,254           16,248
                                                -------------      -------------     -----------     ----------      -----------
       Total Liabilities and Equity             $  4,253,396       $          0      $4,253,396      $  47,331       $4,300,727
                                                =============      =============     ===========     ==========      ===========
</TABLE>

                                      F-22
<PAGE>   44
              INDEPENDENT AUDITOR'S REPORT ON SUPPLEMENTAL SCHEDULE




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

Our report on the consolidated financial statements of Dynamic Classics, Ltd.
and its subsidiary as of April 30, 1996 and for the year then ended is included
on page F-1 of this form 10-K. 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,
1996.

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




                                     Moore Stephens, P.C.
                                     Certified Public Accountants


New York, New York
August 30, 1996

                                      F-23
<PAGE>   45
                         INDEPENDENT AUDITOR'S REPORT
                       ON FINANCIAL STATEMENT SCHEDULES




Board of Directors
Dynamic Classics, Ltd.


We have audited the consolidated financial statements of Dynamic Classics, Ltd.
and Subsidiary as of April 30, 1995 and for each of the years in the two-year
period then ended referred to in our report dated June 26, 1996, which is
included elsewhere in this annual report on Form 10-K. In connection with our
audits of these financial statements, we audited the financial statement
schedule, listed under Item 14 for each of the years in the two-year period
ended April 30, 1995. In our opinion, this financial statement schedule
presents fairly, in all material respects, the information stated therein, when
considered in relation to the consolidated financial statements taken as a
whole.



                                       /s/ HOBERMAN, MILLER & CO., P.C.
                                       --------------------------------
                                           Hoberman, Miller & Co., P.C.



New York, New York
June 26, 1996

                                      F-24
<PAGE>   46
                      DYNAMIC CLASSICS, LTD. AND SUBSIDIARY

                 SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS




<TABLE>
<CAPTION>
                                                                      For the Years Ended April 30,
                                                                    1996            1995            1994
                                                                    ----            ----            ----
<S>                                                               <C>           <C>              <C>
Allowance for doubtful accounts balance - beginning               $     -0-      $ 578,119        $417,760
Additions charged to income                                        167,000              -0-        156,665
Recovery of uncollectible accounts - net                                -0-             -0-          3,694
Writeoffs of uncollectible amounts                                      -0-       (578,119)             -0-
                                                                  ---------      ----------       ---------
Allowance for doubtful accounts balance - ending                  $167,000       $      -0-       $578,119
                                                                  =========      ==========       =========
</TABLE>

                                      F-25