<PAGE>   1
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549
                                    FORM 10-K
                  ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
                     OF THE SECURITIES EXCHANGE ACT OF 1934

For Fiscal Year ended April 30, 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             (I.R.S. Employer 
          of incorporation or organization)        Identification Number)      

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

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

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

           Securities registered pursuant to Section 12(g) of the Act:
                    Common Stock (par value $.001 per share)
                    ----------------------------------------
                                 Title of Class

         Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding twelve (12) months (or for such shorter period that
the registrant was required to file such reports) and (2) has been subject to
such filing requirements for the past ninety (90) days. Yes 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: can not 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
                                     PART I

ITEM 1.  BUSINESS

GENERAL

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

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

PLAN OF REORGANIZATION

         In 1994, the Company added a new line of products consisting primarily
of treadmills and ski machines. Initially, the Company was successful in
marketing these products. For the fiscal year ended April 30, 1995, sales of
these products represented approximately 53% of the Company's gross sales.
However, due to serious manufacturing defects and poor construction of the
Company's products delivered by the Company's manufacturers, primarily located
in the People's Republic of China, the Company was forced to allow substantial
charge backs by its customers. Although, pursuant to a written agreement, 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. The Company suffered severe losses from its venture into this line
of business and in August 1995 was forced to seek protection from its creditors
under Chapter 11 of the Bankruptcy Code.

         In May 1996, the Bankruptcy Court approved a plan of reorganization
pursuant to which creditors would receive partial satisfaction of their claims.
MG Holdings Corp., which had purchased a promissory note from the Company's
principal financial institution, received 14,880,000 shares of Common Stock,
representing approximately 93% of the issued and outstanding shares thereby
gaining absolute control over the Company's affairs. See "Principal
Stockholders" and "Certain Relationships and Related Transactions." In addition,
as part of the plan of reorganization, the Company, then known under the name
DCL, merged into DIL, a newly formed Nevada corporation, for the purpose of
changing its state of incorporation. See "Legal Proceedings" and "Management's
Discussion and Analysis of Financial Condition and Results of Operations."


                                      -2-
<PAGE>   3
PRODUCTS

         Exercise Equipment

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

         Luggage

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

         Design and Development

         The Company usually designs its own exercise equipment and, with the
assistance of outside consultants, 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.


         Most of the Company's products are manufactured in the United States,
Philippines, Korea and Taiwan, which in the most recent fiscal year accounted
for approximately 28%, 26%, 17% and 12% of the Company's products, respectively.
In addition, the Company's products are manufactured in the People's Republic of
China, Hong Kong 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.


                                      -3-
<PAGE>   4
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 store 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, K-Mart and Wal-Mart, respectively. No other customer accounted for
more than ten percent 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
sale of luggage.

         The Company sells its products primarily through independent sales
agents on a commission-only basis. The Company currently engages approximately
23 sales agents either on an individual basis or through independent sales
organizations. Although it has written agreements with a number of its agents,
all of such agreements are terminable at will. The Company has no long term
arrangements with any of its agents. The Company usually pays commissions
ranging from 1% to 5% of the net sale price of its products.

         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. Both of these companies
possess far greater financial and other resources, including sales forces, than
the Company's. However, the Company believes that as a result of its ability to
use the trademarked names SPALDING(TM) and KATHY IRELAND(TM) it will be able to
retain its share of the market. Nevertheless, there can be no assurance that the
Company will be able to effectively compete with these companies as well as with
other smaller entities.

         The Company's luggage products compete with products designed by a
number of the largest companies in the industry, including Samsonite, Sky Way
and American Tourister. The Company believes that because of its concentration
on the upscale lifestyle and the more specialized leisure market that are
associated with the trademark JEEP(TM) 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.

INTELLECTUAL PROPERTY

         The Company owns a number of trademarks, including POCKETSPLUS, PROTECH
TRAVEL SYSTEMS & DESIGN and EXER-SLIDE.


                                      -4-
<PAGE>   5
         License Agreements

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

                  JEEP -- Under an agreement dated January 8, 1993, as amended
         by letter amendment dated January 8, 1996, between the Company and the
         Chrysler Corporation (as so amended, the "Jeep Agreement"), the Company
         was granted the exclusive license to use the names JEEP, WRANGLER and
         RENEGADE in connection with the manufacture, sale and distribution of
         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 -- Under an agreement between the Company and
         Spalding & Evenflo Companies Inc. dated April 1, 1994, the Company was
         granted the exclusive right to use the name SPALDING in connection with
         the sale and distribution of a number of products, including weight
         bars and large exercise machines. The current expiration date of the
         agreement is September 30, 1997. However, the Company is currently
         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.

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 Importing
Co., Inc. ("Achim"), Achim performs certain administrative services on behalf of
the Company. Under the Warehousing Agreement, Achim assists, among other things,
in the maintenance of financial and accounting books and records, in the
preparation of monthly financial accounts receivable aging schedules and other
reports and in the performance of credit checks on the Company's customers.
Achim also provides warehousing services consisting of receiving, shipping and
storing of the Company's merchandise. The Warehousing Agreement has a term of
two years and is automatically renewable for one year periods unless written
notice of termination shall have been given at least six months prior to the
commencement of a renewal period.

         In consideration for the services performed under the Warehousing
Agreement, Achim receives an annual fee, payable monthly, calculated as a
percentage of the Company's invoiced 

                                      -5-
<PAGE>   6
sales ranging from 4% of invoiced sales under $30 million to 3% for sales of $60
million or more. 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% in connection with customers and
accounts located outside the United States, irrespective of manner of payment.
The Company also pays a monthly fee of 3% of the Company's invoiced sales in
connection with the warehousing services performed by Achim under the
Warehousing Agreement.

         Achim is controlled by Marton 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 makes its
lines of credit available to the Company which will enable it to finance the
purchases of its inventory from its overseas suppliers. Also, from time to time,
Achim will purchase the products directly from the manufacturer and resell them
to the Company without markup. Achim charges the Company interest 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.

EMPLOYEES

         As of November 30, 1996, the Company employed 11 persons, of whom five
were engaged in administrative and clerical activities, four were engaged in
sales and two were involved in warehousing and shipping.

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. The property is leased to
Achim which makes the property available to the Company. Other than the service
fees paid by the Company under the Warehousing Agreement, the Company pays no
rent for the property. 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"). 


                                      -6-
<PAGE>   7
On May 23, 1996, the Court entered an Order confirming the Company's plan of
reorganization. See "Management 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
                                     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 mark-ups, mark-downs or commissions and may not
represent actual transactions.

<TABLE>
<CAPTION>
                                           Common Stock

Fiscal
Quarter                                    High               Low
-------------------------------------------------------------------

<S>                                       <C>               <C>   
Ended
January 31, 1994                         $2.438            $0.875

Ended
April 30, 1994                           $3.250            $2.000

Ended
July 31, 1994                            $2.625            $1.500

Ended
October 31, 1994                         $2.750            $2.188

Ended
January 31, 1995                         $1.750            $0.875

Ended
April 30, 1995                           $2.000            $0.875

Ended
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.


                                      -8-
<PAGE>   9
ITEM 6.  SELECTED FINANCIAL DATA

         The following tables summarize 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
                                 

Income/(Loss) for year            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          23,965              116,124               127,877                   92,129
obligations
</TABLE>
---------------
         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.


                                      -9-
<PAGE>   10
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 August 1995, the Company was forced to seek protection from its
creditors 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 Holdings 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 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 holders, respectively. The value of the cash and
securities distributed under the plan of reorganization aggregated $531,561. An
amount of $16,692,193, representing the difference between the value of the
total distribution and the amount of allowable claims under the bankruptcy, was
recorded as an extraordinary gain.

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

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

                                      -10-
<PAGE>   11
RESULTS OF OPERATIONS FOR THE YEARS ENDED APRIL 30, 1996 AND 1995


         Sales for the years ended April 30, 1996 were $7,151,715, a decrease of
$25,381,382 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 alone 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 luggage products which lead to a
decline in sales of $5,334,731 and $1,333,574, respectively, to $5,615,577 and
$4,701,813, respectively. Sales of exercise equipment and luggage products
during this period were offset by credits of $3,210,876 issued to customers in
connection with the discontinued line of manual treadmills and ski machines. In
addition, the Company's operating expenses decreased by approximately $1,083,265
to $6,683,151.

         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 $16,692,193, the Company recorded net income of $6,945,299,
compared to a pre-tax loss of $11,309,425 during the previous fiscal year. For
the current fiscal year, the Company would have recorded a net loss of
$9,746,894 before the extraordinary gain, or a decrease of $1,562,531 from the
prior fiscal year. This decrease primarily reflected a reduction in the
Company's operating expenses of approximately $1,083,265 and a reduction in
interest expense of $1,001,345 primarily as a result of the bankruptcy
proceedings which for the most part exempted the Company from making interest
payments on outstanding debt.

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, totalling $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" license sport/bag/luggage increased
by approximately $219,000. Increases in these product lines were offset by
declines in all of the companies other product lines of approximately
$12,763,000.

         The Company's gross profits 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 totalling approximately $7,000,000. In addition, the Company
incurred expenses in the amount of $589,160 in connection with the disposals 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.

                                      -11-
<PAGE>   12
         For the fiscal year ended April 30, 1995, the Company had a pre-tax
operating loss of $11,309,425 as compared to a pre-tax 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 luggage/sports bag 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 effect 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.

         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. 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. In addition, pursuant to an unwritten understanding, Achim makes its
lines of credit available to the Company which will enable it to finance the
purchases of its inventory from its overseas suppliers. Also, from time to time,
Achim will purchase the products directly from the manufacturer and resell them
to the Company without markup. Achim charges the Company interest 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 "Business-Management Agreement
with Achim Importing Co., Inc."




                                      -12-
<PAGE>   13
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
                                    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 Grossman             66          Chairman and President

Isaac Grossman              34          Vice Chairman, Treasurer and Secretary

Marvin Cooper               63          Executive Vice President

William Dolan               43          Vice President--Finance
</TABLE>


         MARTON GROSSMAN has been the Chairman and Chief Executive Officer of
the Company since July 29, 1996. For the past 34 years, he has been President of
Achim Importing Co., a privately held company engaged in the import and export
of window coverings and accessories ("Achim"). In addition, he has been
President of MG Holding Co., Inc., a privately held financial holding 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. Mr.
Grossman is the son of Marton 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 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.


                                      -14-
<PAGE>   15
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 (other than
the individuals listed in the table, no employee of the Company received
compensation in excess of $100,000):
<TABLE>
<CAPTION>
                                         SUMMARY COMPENSATION TABLE(1)(2)
---------------------------------------------------------------------------------------------------------------------
                                                  
                                                           Annual Compensation

             (a)                       (b)             (c)               (d)               (e)
                                 -----------------------------------------------------------------------
                                 Year Ended
Name/Principal Position          April 30           Salary ($)         Bonus ($)        All Other
                                                                                        Compensation
========================================================================================================
<S>                              <C>                <C>                <C>              <C>   
Marvin Cooper,                   1996               182,876
President and Director (3)
                                                  
                                 1995               250,099
                                                  
                                 1994               250,099
--------------------------------------------------------------------------------------------------------
David Richman,                   1996                76,263
Vice President (4)
                                                  
                                 1995               112,079
                                                  
                                 1994               128,201
--------------------------------------------------------------------------------------------------------
William P. Dolan                 1996               100,000
Vice President-Finance
                                                  
                                 1995                97,691
                                                     
                                 1994                74,414
                               
--------------------------------------------------------------------------------------------------------
John Black,                      1996                 6,100
Vice President (5)
                                                  
                                 1995               215,063
                                            
                                 1994               160,192
--------------------------------------------------------------------------------------------------------
</TABLE>
                                      -15-
<PAGE>   16
-------------------------
(1)      The above compensation does not include the use of an automobile and
         other personal benefits, the total value of which do 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)      Mr. Cooper has resigned from his position as President and a Director 
         of the Company in July 1996, and is currently the Company's Executive 
         Vice President.

(4)      Mr. Richman resigned his position in July 1996. However, he is still 
         affiliated with the Company.

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

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

COMPLIANCE WITH SECTION 16(A) OF THE SECURITIES EXCHANGE ACT OF 1934

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

         Based solely on review of the copies of such forms furnished to the
Company, or written representations that no Forms 5 were required, the Company
believes that during the period from May 1, 1995 through March 31, 1996 all
Section 16(a) filing requirements applicable to its officers, directors and
greater than ten-percent beneficial owners were complied with.


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 five (5%) percent of the Company's
outstanding Common Stock, (ii) each of the Company's officers and directors and
(iii) all officers and directors of the Company as a group. Unless otherwise
indicated, each stockholder's address is c/o the Company, 58 Second Avenue,
Brooklyn, New York 11215.


                                      -16-
<PAGE>   17
<TABLE>
<CAPTION>
                                             Shares Owned Beneficially
                                                  and of Record (1)
                                             -------------------------

Name and Address                    No. of Shares                  % of Total
----------------                    -------------                  ----------

<S>                                    <C>                             <C> 
Marton Grossman (2)                    14,880,000                      93.0

Isaac Grossman (3)                      2,323,000                      14.5

Marvin Cooper                             110,970                         *

William P. Dolan                              616                         *

All Officers and Directors as a        14,991,586                      93.7
Group (4 persons)
</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 the Marton Grossman
                  Retained Annuity Trust (the "Grossman Trust") of which
                  relatives of Mr. Grossman are beneficiaries. Mr. Grossman
                  disclaims beneficial ownership of these shares.

         (3)      Consists of shares held by the Grossman Trust of which Mr. 
                  Isaac Grossman is the beneficiary. Does not include all other
                  shares held by the Grossman Trust.


ITEM 13.          CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

         In connection with the plan of reorganization, MG Holding Corp.,
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 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.
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 of reorganization, 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.

         Pursuant to 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 


                                      -17-
<PAGE>   18
books and records, the preparation of monthly financial accounts receivable
aging schedules and other reports and in the performance of credit checks on the
Company's customers. Achim also provides warehousing services consisting of
receiving, shipping and storing of the Company's merchandise. The Warehousing
Agreement has a term of two years and is automatically renewable for one year
periods unless written notice of termination shall have been given at least six
months prior to the commencement of a renewal period.

         In consideration for the services performed under the Warehousing
Agreement, Achim receives an annual fee, payable monthly, calculated as a
percentage of the Company's invoiced sales ranging from 4% of invoiced sales
under $30 million to 3% for sales of $60 million or more. 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% in connection with customers and accounts located outside the United
States, irrespective of manner of payment. The Company also pays a monthly fee
of 3% of the Company's invoiced sales in connection with the warehousing
services performed by Achim under the Warehousing Agreement.

         Achim is controlled by Marton 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 makes its
lines of credit available to the Company which will enable it to finance the
purchases of its inventory from its overseas suppliers. Also, from time to time,
Achim will purchase the products directly from the manufacturer and resell them
to the Company without markup. Achim charges the Company interest 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 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. Other than the service
fees paid by the Company under the Warehousing Agreement, the Company pays no
rent for the property. See "Certain Relationships and Related Transactions" and
"Management Agreement with Achim Importing Co., Inc."


                                      -18-
<PAGE>   19
                                     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.


                                      -19-
<PAGE>   20
                                   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 Grossman
                                         --------------------------------------
                                         Marton Grossman, Chairman and President

Dated:  February 3, 1997

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

                                         /s/ Marton Grossman
                                         --------------------------------------
                                         Marton Grossman, Chairman and President

                                         /s/ Isaac Grossman
                                         --------------------------------------
                                         Director

                                         /s/ William P. Dolan
                                         --------------------------------------
                                         Vice President-Finance
                                        (Chief Financial and Accounting Officer)

                                      -20-
<PAGE>   21

                                             EXHIBITS

         2.01     Agreement of Merger dated July 19, 1996 between the Company 
                  and Dynamic Classics, Ltd.(1)

         2.02     Second Amended and Modified Plan of Reorganization dated 
                  February 22, 1996 (the "Plan")(2)

         2.03     Errata Sheet and Correction Statement with respect to the Plan
                  dated May 7, 1996(2)

         2.04     Order Confirming the Plan dated May 23, 1996(2)

         3.01     Certificate of Incorporation(1)

         3.02     By-laws(1)

         10.01    License Agreement with Spalding Sports Worldwide dated 
                  April 1, 1994(3)

         10.02    License Agreement dated January 8, 1993 with Chrysler 
                  Corporation (3)

         10.03    Endorsement Agreement dated December 22, 1994 with Kathy 
                  Ireland (4)*

         10.04    Warehousing and Service Agreement dated as of September 1, 
                  1996 with Achim Importing Inc.(4)

         16.01    Letter from Hoberman Miller & Co. dated October 23, 1996 (5)
----------------------------

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

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

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

(4)      Filed herewith.

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

*    Subject to a request for confidential treatment by the Securities and 
Exchange Commission. Specific portions of the document for which confidential
treatment has been requested have been blacked out. Such portions have been
filed separately with the Commission pursuant to the application for
confidential treatment.


                                      -21-
<PAGE>   22
                                    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-20

Independent Auditors' Reports on Supplemental Schedule        F-21 to F-22

    Schedule II - Valuation and Qualifying Accounts           F-23
</TABLE>
<PAGE>   23
                          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>   24
                          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 financial position of Dynamic Classics,
Ltd. and Subsidiary as of April 30, 1995, and the results of their operations
and their cash flows for each of the years in the two-year period ended April
30, 1995 in conformity with generally accepted accounting principles.

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.

                                                    Hoberman, Miller & Co., P.C.

June 26, 1996

                                       F-2
<PAGE>   25
                      DYNAMIC CLASSICS, LTD. AND SUBSIDIARY

                           CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>

                                                                                     APRIL 30,

                                                                                     --------
                                                                            1996                1995
                                                                            ----                ----
                                     ASSETS

<S>                                                                    <C>                <C>
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>   26
                      DYNAMIC CLASSICS, LTD. AND SUBSIDIARY

                           CONSOLIDATED BALANCE SHEETS
                                   (Continued)

<TABLE>
<CAPTION>

                                                                                    APRIL 30,

                                                                                    --------
                                                                           1996                1995
                                                                           ----                ----

                      LIABILITIES AND STOCKHOLDERS' DEFICIT

<S>                                                                  <C>                  <C>
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                              3,139,141           4,967,856
     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>
The accompanying notes are an integral part of these consolidated financial
statements.


                                       F-4
<PAGE>   27
                      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                               383,553           1,384,898             852,954
                                                        ------------        ------------        ------------
                                                           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>   28
                     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>
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>   29
                      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                                           --             313,039              18,418
       Income on partial discharge of
         capital lease obligations                                (77,403)                 --                  --
       Reorganization item:
         Gain on discharge of debt                            (16,692,193)                 --                  --
       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)          1,951,001           1,167,239
          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>   30
                      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>   31
                      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:

                             Tools and dies                   5 years
                             Furniture and equipment          5 to 7 years
                             Leasehold improvements           Life of lease
                             Patents and trademarks           2 years

         f.       Earnings Per Share

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

                                       F-9
<PAGE>   32
                      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>   33
                      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>   34
                      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>   35
                      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>

                                                                           1995                  1994
                                                                       ------------          -----------

<S>                                                                     <C>                  <C>
         U.S. federal income taxes at statutory rate                    $(3,845,205)         $   141,565
         Losses for which no benefit was provided                           982,371                   -0-
         Change in valuation allowance                                    2,506,820                   -0-
         Reversal of previously established tax asset                       313,039                   -0-
         Tax effect of permanent differences                                 17,035                9,537
         Other                                                             ( 56,150)              20,959
                                                                       ------------          -----------
                                                                         $(  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>   36
                      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>
                      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>   37
                      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 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>   38
                      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 charges on
         such balances was $115,004 for fiscal 1996.

         At April 30, 1996, the balance owed to the Related Party was $2,129,893
         and is included in accounts payable and accrued expenses.

         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% of the Company's net sales. During
         the year ended April 30, 1995, sales to two major customers were
         approximately 26% and 14% of the Company's net sales. During the year
         ended April 30, 1994, sales to three major customers were 16%, 16% and
         10% of the Company's net sales. 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.

         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.

                                      F-16
<PAGE>   39
                      DYNAMIC CLASSICS, LTD. AND SUBSIDIARY

                          NOTES TO FINANCIAL STATEMENTS
                                   (CONTINUED)

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. SFAS No. 125 is not expected to have an impact
                  on the Company.

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 its trademarked 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.

                                      F-17
<PAGE>   40
                      DYNAMIC CLASSICS, LTD. AND SUBSIDIARY

                          NOTES TO FINANCIAL STATEMENTS

                                   (CONTINUED)

10.      SIGNIFICANT RISKS AND UNCERTAINTIES (cont'd)

                  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 trademarked 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.      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 manufactures 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.

         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.

                                      F-18
<PAGE>   41
                      DYNAMIC CLASSICS, LTD. AND SUBSIDIARY

                          NOTES TO FINANCIAL STATEMENTS

                                   (CONTINUED)

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

         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), 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.

         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.

                                      F-19
<PAGE>   42
                     DYNAMIC CLASSICS, LTD. AND SUBSIDIARY

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (CONTINUED)

11.    SUBSEQUENT EVENT/MANAGEMENT PLANS

       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 postpetitition 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.

       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>
       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-20
<PAGE>   43
              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,
presents 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-21
<PAGE>   44
                          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. 



                                                HOBERMAN, MILLER & CO., P.C.


New York, New York
June 26, 1996


                                      F-22
<PAGE>   45
                      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-23
<PAGE>   46


                                EXHIBIT INDEX
                                -------------


EXH NO.                         DESCRIPTION
-------                         -----------


10.03                           Endorsement Agreement dated December 22, 1994 
                                with Kathy Ireland.

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

27                              Financial Data Schedule