DYNAMIC INTERNATIONAL LTD, 10-K, 2000-07-20

DYNAMIC INTERNATIONAL LTD
10-K, 2000-07-20
MISC DURABLE GOODS

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<PAGE>

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, 2000 Commission File Number 0-21475

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

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

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

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

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

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

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding twelve (12) months (or for such shorter period that the registrant
was required to file such reports) and (2) has been subject to such filing
requirements for the past ninety (90) days.

Yes [ X ] No [ ]

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

ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS
DURING THE PAST FIVE YEARS

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

The aggregate market value of voting stock held by non-affiliates of the
Registrant :was $393,786 on July 13, 2000.

The number of shares outstanding of Registrant's Common Stock as of July 13,
2000: 4,418,258
<PAGE>

PART I

ITEM 1. BUSINESS

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

GENERAL

Dynamic International Ltd. A Nevada corporation ("DIL") is engaged in the design
and marketing of sports bags and luggage, which are marketed primarily under the
licensed name JEEP(TM) and under its own names Santa Fe(TM), Polaris
Expedition(TM) and SPORTS GEAR(TM). In addition, it has been 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 marketed these products under the licensed trademarks
SPALDING(TM) and KATHY IRELAND(TM) as well as under its own trademarked name
SHAPE SHOP(TM). Under an agreement dated in June 2000, the Company agreed to
sell its inventory of exercise products, excluding the Spalding(TM)
Rotaflex(TM), and entered into an agreement not to sell any product that would
compete with the items sold for a period of five years. SEE Item 3 LEGAL
PROCEEDINGS. 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.

In addition to a credit line from The Chase Manhattan Bank ("Chase"), the
Company has received substantial financial support from Achim Importing
Co.("Achim"). Achim is wholly owned by Marton B. Grossman, the Chairman and
President of the Company.

In June of 2000, the Company discontinued the Chase credit line and Mr.
Grossman, the sole shareholder, director and officer of Achim, informed the
Company of his willingness to commit additional resources for fiscal year 2001,
in an amount not to exceed $2,000,000, in order to provide possible continued
financial support to the Company on an as needed basis.

PRODUCTS

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

EXERCISE EQUIPMENT - Under an agreement dated in June 2000, the Company agreed
to sell its inventory of exercise products, excluding the Spalding(TM)
Rotaflex(TM), and entered into an agreement not to sell any product that would
compete with the items sold for a period of five years. SEE Item 3 LEGAL
PROCEEDINGS.

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

Page 2
<PAGE>

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

DESIGN AND DEVELOPMENT

The Company has been granted a number of design patents with respect to certain
of its products. See "Intellectual Property--License Agreements". The Company
employs a designer on a full-time basis for the design of its sports
bags/luggage products. During the most recent fiscal year the Company spent
approximately $196,000 on design activities, including fees to designers and
patent attorneys. The Company may, from time to time, utilize the services of
consultants for product and package design.

Most of the Company's products are manufactured in Indonesia, Thailand, Sri
Lanka and China which in the most recent fiscal year accounted for approximately
45%, 14% ,14% and 10%, respectively of the Company's products. In addition the
Company's products are manufactured in the Taiwan, USA, Hong Kong and the
Philippines. Orders for sports bags/luggage, which for the most part are
produced in Indonesia, Sri Lanka and Thailand usually require a period of 90 to
120 days before they are shipped. The Company ordinarily has its products
manufactured based on purchase orders and it has no long term relationships with
any of its manufacturers. The Company believes that, if necessary, it will be
able to obtain its products from firms located in other countries at little if
any additional expense. As a consequence, the Company believes that an
interruption in deliveries by a manufacturer located in a particular country
will not have a material adverse impact on the business of the Company.
Nevertheless, because of political instability in a number of the supply
countries, occasional import quotas and other restrictions on trade or
otherwise, there can be no assurance that the Company will at all times have
access to a sufficient supply of merchandise.

SALES AND MARKETING

The Company sells its products on a wholesale basis only. Most of its products
are sold to discount stores, mass merchants and sporting goods stores. For the
fiscal year ended April 30, 2000, Kohl's, Sears and K-Mart accounted for 26%,
20% and 12%, respectively, of the Company's revenue. No other customer accounted
for more than 10% of the Company's revenues. For the fiscal year ended April 30,
2000, sales of the Company's sports bags/luggage products accounted for
approximately 76% of the Company's revenues while approximately 24% of the
Company's revenues were derived from the sales of related exercise equipment.

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

Page 3
<PAGE>

In addition, on a small scale, the Company markets existing products to
retailers for resale under their own private labels. The Company delivers to
Kohl's Department stores and Sears Roebuck. Although the scope of this marketing
effort is currently limited, the Company intends to expand the number of private
label transactions. No assurance can be given that its efforts in this area will
be successful. The Company has made substantial progress with large customers
for sales of the sports bags/luggage line. During the fiscal year ended April
30, 2000, sales of sports bags/luggage products to Kohl's Department Stores and
Meijer Inc. increased by approximately $1,374,000 and $474,000, respectively. In
addition, the Company has been successful in selling a new JEEP "Extreme
Collection" to more exclusive fine luggage specialty stores.

The Company has entered into an agreement dated June 15,1999 with Power Point
International Ltd. to advertise and market the Spalding licensed exercise
products on Latin American television, The main focus will be on Spalding(TM)
Rotaflex(TM) hand held portable home gym. The Company has also hired a
consultant to help it to efficiently enter the Latin American market.

COMPETITION

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

Under an agreement dated in June 2000, the Company agreed to sell its inventory
of exercise products, excluding the Spalding(TM) Rotaflex(TM), and entered into
an agreement not to sell any product that would compete with the items sold for
a period of five years. SEE Item 3 LEGAL PROCEEDINGS.

INTELLECTUAL PROPERTY--LICENSE AGREEMENTS

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

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

JEEP - Under an agreement dated January 8, 1993, as amended by letter
amendment dated January 9, 1996, between the Company and the Daimler
Chrysler Corporation (as so amended, the "Jeep Agreement"), the Company was
granted the exclusive license to use the names JEEP, WRANGLER and RENEGADE
in connection with the manufacture, sale and distribution of sports
bags/luggage products. The current expiration date of the Jeep Agreement is
December 31, 2002.

SPALDING --Under an agreement dated October 1, 1997, between the Company
and Spalding & Evenflo Companies Inc., the Company was granted the
exclusive right to use the name Spalding in connection with the sale and
distribution of hand held exercise products. The agreement as renewed will
expire September 30, 2001.

Under an agreement dated in June 2000, the Company agreed to sell its
inventory of exercise products, excluding the Spalding Rotaflex, and
entered into an agreement not to sell any product that would compete with
the items sold for a period of five years. SEE Item 3 LEGAL PROCEEDINGS.

KATHY IRELAND -- Under an agreement with Kathy Ireland, Inc., dated
December 22, 1994, Ms. Ireland approves and endorses certain exercise
equipment designed and manufactured by the Company. Under the agreement,
the Company has the right to use her name in connection with the equipment
and Ms. Ireland will make appearances to promote such equipment. In
addition, the Company has the right to use her photograph and likeness in
connection with the sale of the equipment. The agreement, which expired in
June 1998, has been renewed until June 2000. Under an agreement dated in
June 2000, the Company agreed to sell its inventory of exercise products,
excluding the Spalding Rotaflex,and entered into an agreement not to sell
any product that would compete with the items sold for a period of five
years. SEE Item 3 LEGAL PROCEEDINGS.

Page 4
<PAGE>

FREEZY-BAG/FREEZYGEL -- Under an agreement dated November 1, 1996, between
New Century Marketing & Distributors, Inc. and a wholly-owned subsidiary of
the Company, the Company obtained the exclusive rights to a patented
technology as well as to the trademarked names FREEZY-BAG and FREEZYGEL.
The technology has the ability to cool foods and other products and is used
in the wrapping of such products. The agreement, as renewed, expired on
December 31,1999. The Company is in the process of negotiating an extension
of the agreement.

ROTAFLEX -- Under an agreement dated December 17, 1997 with Connelly
Synergy Systems LLC, the Company has obtained the exclusive right to
manufacture, distribute and sell a hand held portable total home gym
product to be sold under the trademark Spalding(TM) Rotaflex(TM). The
agreement is scheduled to expire on December 31, 2007, and is renewable for
an additional five years.

MANAGEMENT AGREEMENT WITH ACHIM IMPORTING CO., INC.

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

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

In addition, under the Warehousing Agreement, Achim provides warehousing
services consisting of receiving, shipping and storing of the Company's
merchandise. The Company pays Achim a monthly fee of 3% of its invoiced sales
originating at the warehouse in connection with these warehousing services
performed by Achim under the Warehousing Agreement. As part of this agreement
the Company applies on offset for certain shared expenses.

The Warehousing Agreement has a term of two years and is automatically renewable
for additional one-year periods unless written notice of termination is given at
least six months prior to the commencement of a renewal period. During the
fiscal year ended April 30, 2000, the Company charged operations approximately
$410,000 in fees.

Achim is wholly owned by Marton B. Grossman, the Company's Chairman and
President. The Company has received substantial support from Achim. In June of
2000, the Company discontinued the Chase credit line and Mr. Grossman, the sole
shareholder, director and officer of Achim, informed the Company of his
willingness to commit additional resources for fiscal year 2001, in an amount
not to exceed $2,000,000, in order to provide possible continued financial
support to the Company on an as needed basis. 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.

Page 5
<PAGE>

EMPLOYEES

As of June 30, 2000, the Company employed 9 persons, of whom four were executive
officers, one was engaged in administrative and clerical activities, two were
engaged in sales and two were involved in warehousing and shipping. None of the
Company's employees is represented by a union and no work stoppages have
occurred.

ITEM 2. PROPERTIES

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

ITEM 3. LEGAL PROCEEDINGS

On July 29,1999,Bollinger Industries filed a complaint in the US District Court
for the Northern District of Texas. The complaint alleged infringement of three
patents by the Company with respect to one of its exercise steps. Under a
settlement agreement dated June 2,2000,in exchange for Bollinger's agreement to
dismiss the complaint, the Company agreed to sell its inventory of exercise
products, excluding the Spalding Rotaflex, and entered into an agreement not to
sell any product that would compete with the items sold for a period of five
years. The sale of the inventory occurred on June 12,2000 and the Bollinger
complaint against the Company was dismissed on June 12, 2000.

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

None.

PART II

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

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

Page 6
<PAGE>

The following quotes have been reported by the Nasdaq Stock Market Inc., OTC
Bulletin Board. Such quotations reflect interdealer prices, without retail
markup, markdown or commission and may not necessarily represent actual
transactions.
<TABLE>
<CAPTION>
Fiscal High Low
Security/Symbol Quarter Bid Bid
--------------- ------- --- ---
<S> <C> <C> <C>
Units/DYNIU July 31, 1998 5.625 4.625
October 31, 1998 5.062 0.625
January 31,1999 1.250 0.438
April 30,1999 0.438 0.250
July 31,1999 0.250 0.1563
October 31,1999 0.156 0.050
January 31,2000 0.050 0.030
April 30,2000 0.375 0.040

Common Stock/DYNI(1) July 31, 1998 2.000 2.000
October 31, 1998 1.000 0.051
January 31,1999 0.578 0.290
April 30,1999 0.330 0.125
July 31,1999 0.125 0.125
October 31,1999 0.125 0.040
January 31,2000 0.040 0.031
April 30,2000 1.0612 0.040

A Warrants/DYNIW (2) October 31, 1998 0.038 0.013
January 31,1999 0.013 0.013
April 30,1999 0.031 0.031
July 31,1999 0.031 0.031
October 31,1999 0.031 0.010
January 31,2000 0.010 0.005
April 30,2000 0.005 0.005
</TABLE>
<TABLE>
<S> <C>
B Warrants/ DYNIZ (3)

(1) No quotes were posted to the OTC Bulletin Board for
this security until July 1998.

(2) No quotes were posted to the OTC Bulletin Board for
this security until August 1998.These securities expired
on June 12,2000.

(3) No quotes are available on the OTC Bulletin Board for
this security.
</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.

Page 7
<PAGE>

ITEM 6. SELECTED FINANCIAL DATA

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

REORGANIZED REORGANIZED REORGANIZED REORGANIZED PREDECESSOR
COMPANY *1 COMPANY *1 COMPANY *1 COMPANY *1 COMPANY
------------- ------------ ------------ ----------- ------------
12 MONTHS ENDED 12 MONTHS ENDED 12 MONTHS ENDED 9 MONTHS ENDED 3 MONTHS ENDED 12 MONTHS ENDED
04/30/00 04/30/99 04/30/98 04/30/97 07/31/96 04/30/96
------------- ------------ ------------ ----------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C>
NET SALES $ 8,686,451 $ 6,632,837 $ 8,001,138 $ 7,492,729 $1,983,164 $7,151,715
------------ ------------ ------------ ----------- ------------ -----------
NET INCOME
(LOSS)
FOR YEAR ($1,371,203) ($3,333,725) $ 128,951 $ 10,082 ($76,364) $6,945,299
------------ ------------ ------------ ----------- ------------ -----------
NET INCOME
(LOSS)
PER SHARE (0.31) (0.75) 0.03 0.003
------------ ------------ ------------ ----------- ------------ -----------
SELECTED
BALANCE SHEET
DATA WORKING
CAPITAL (DEFICIT) 396,914 1,764,280 4,919,226 (9,901) (293,884)
------------ ------------ ------------ ----------- ------------ -----------
TOTAL
ASSETS 5,328,303 4,023,975 5,715,417 4,831,122 4,253,396
------------ ------------ ------------ ----------- ------------ -----------
LONG TERM
OBLIGATIONS
INCLUDING CAPITALIZED
LEASE
OBLIGATIONS 0 0 0 215,254 23,965
------------ ------------ ------------ ----------- ------------ -----------

</TABLE>

(1) Due to the reorganization of the Company in August of 1996,
operating results and earnings per share of the reorganized company may not be
comparable to those of the predecessor company.

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

Page 8
<PAGE>

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.

RESULTS OF OPERATIONS FOR THE FISCAL YEAR ENDED APRIL 30, 2000 COMPARED TO THE
FISCAL YEAR ENDED APRIL 30, 1999.

Sales for the fiscal year ended April 30, 2000,increased by $2,053,000 or 31% to
$8,686,000 from $6,633,000 for the fiscal year ended April 30, 1999. During the
fiscal year ended April 30, 2000, sales to Kohl's Department Stores, Meijer Inc.
and Ross Stores increased by approximately $1,373,000, $454,000 and $308,000,
respectively.

The Company's gross profit of $1,748,000 for the fiscal year ended April 30,
2000 was $687,000 higher than the gross profit of $1,061,000 for the fiscal year
ended April 30,1999.This increase was primarily the result of the increased
revenues and reduced levels of promotional and other allowances granted to major
customers. During the quarter ended April 30, 2000, the sales allowance (offset
to sales) increased by $274,000 due to an increase in sales and promotional
allowances for customers which occurred in the quarter ended April 30, 2000.
Inventory write down adjustments increased by $215,000 due primarily to the
write down of the inventory sold to Bollinger Industries under an agreement
negotiated in the quarter ended April 30, 2000.

Operating expenses, exclusive of interest expense, of $3,149,000 for the fiscal
year ended April 30, 2000 were $1,181,000 less than operating expenses of
$4,330,000 for the fiscal year ended April 30, 1999. This decrease is
represented approximately by changes in the following expenses:
<TABLE>
<CAPTION>
Increase
(Decrease)
----------
<S> <C>
Research and Development ($280,000)
Shipping Fees $121,000
Promotional and Selling Materials ($823,000)
Show Expenses ($126,000)
Trade Advertising ($ 27,000)
Telephone ($ 10,000)
Office Salaries ($ 26,000)
Insurance ($ 27,000)
Legal Fees $150,000
Accounting Fees $ 17,000
Impairment ($112,000)
Bad Debt Expense ($ 41,000)
</TABLE>

Research and development costs decreased by $280,000 due to a decrease in
expenditures for new product development. Shipping fees increased by $121,000
because of the increased revenues. Promotional and selling expenses decreased by
$823,000 due primarily to a reduction in the cost of producing and testing of
infomercials. Show expenses decreased by $126,000 because the Company did not
attend The "Super Show" in February of 2000.Trade advertising expense decreased
because the Company had been obligated to make a retroactive payment of one
percent of gross JEEP Luggage of $42,000 as advertising to Daimler Chrysler
Corp., under a licensing agreement, in the fiscal year ended April 30,1999. In
addition the Company reduced its expenditures for advertising in specialty
magazines. Telephone expenses decreased by $10,000. Office salaries decreased by
$26,000 due to the elimination of a position. Insurance costs decreased by
$27,000 due to decreased premiums. Legal fees increased by $150,000 due to the
Company's defense against a complaint of patent infringement, (see Item 3. LEGAL
PROCEEDINGS). Accounting fees increased by $17,000 due to the increased cost of
annual audit fees. Amortization of Reorganization value in excess of amounts
allocable to identifiable assets decreased by $112,000 because this asset was
determined to be impaired and was written off as of April 30,1999. Bad debt
expense decreased by approximately $41,000. During the quarter ended April 30,
2000, royalty expense increased by $300,000 due to the accrual of the balance of
minimum royalties due on the Kathy Ireland and Spalding hand held exercise
agreements. The Company had accrued the earned portions of these royalties until

Page 9

<PAGE>

the sale of the hand held exercise line to Bollinger Industries was negotiated
in the quarter ended April 30, 2000. After the sale to Bollinger Industries
there would be no future sales of these items.

Interest expense for the fiscal year ended April 30, 2000 increased by $45,000
from the fiscal year ended April 30, 1999. This increase was primarily the
result of an increase in the discount rate paid on bankers acceptances.

The Company's pretax loss of $1,511,000 for the fiscal year ended April 30, 2000
represents a $1,823,000 change from a pretax loss of $3,334,000 for the fiscal
year ended April 30, 1999.

With the sale of the exercise equipment line, management has focused its
marketing efforts toward the sale and distribution of the sports bags/luggage
products. During the prior year, the product line has demonstrated continuing
sales growth. Management has projected a business plan which it believes is
realistic, and which, could generate sales growth combined with necessary cost
containment measures. Management believes that this business plan could enable
the Company to restore its operations to a profitable level. No assurances can
be given that any of these anticipated improved results will actually be
achieved.

The following table sets forth the result of operations for the periods
discussed above.
<TABLE>
<CAPTION>
FISCAL YEAR FISCAL YEAR
ENDED ENDED
APRIL 30, 2000 APRIL 30, 1999
<S> <C> <C>
Net Sales $ 8,686,000 $ 6,633,000
Other Income 0 35,000
----------- -----------
$ 8,686,000 $ 6,668,000
Cost of Goods
Sold 6,938,000 5,607,000
----------- -----------

Gross Margin 1,748,000 1,061,000
20.00% 16.00%
Operating Expenses 3,149,000 4,330,000
Interest 110,000 65,000
----------- -----------
3,259,000 4,395,000
Pretax Loss (1,511,000) (3,334,000)

</TABLE>

RESULTS OF OPERATIONS FOR THE FISCAL YEAR ENDED APRIL 30, 1999 COMPARED TO THE
FISCAL YEAR ENDED APRIL 30, 1998.

Sales for the fiscal year ended April 30, 1999, decreased by $1,368,000 or 16%
to $6,633,000 from $8,001,000 for the fiscal year ended April 30, 1999. During
the fiscal year ended April 30, 1999, sales to certain major customers such as
Service Merchandise Co., Price Costco and Caldor Corp. decreased by
approximately $569,000, $830,000 and $390,000, respectively. Service Merchandise
sales decreased due to that company's reorganization under Chapter 11 bankruptcy
while an annual large promotion sale was not given to the Company by Price
Costco as in the prior two fiscal years. Sales to Caldor Corp. decreased due to
that company's dissolution.

Page 10
<PAGE>

The Company has made substantial progress with large customers. During the
fiscal year ended April 30, 1999, sales to Sears Roebuck and Kohl's Department
Stores increased by approximately $753,000 and $709,000, respectively. In
addition, the Company has been successful in selling a new JEEP "Extreme
Collection" to more exclusive fine luggage specialty stores.

The Company has entered into an agreement dated June 15,1999 with Power Point
International, Ltd. to advertise and market the Spalding licensed exercise
products on Latin American television. The main focus will be focus be on
Spalding Rotaflex hand held portable home gym and Spalding Mini Trampoline.

The Company's gross profit of $1,061,000 for the fiscal year ended April 30,
1999 was $2,116,000 less than the gross profit of $3,177,000 for the fiscal year
ended April 30,1998. This was primarily the result of net changes in the
following Items:
<TABLE>
<CAPTION>
INCREASE
(DECREASE)
----------
<S> <C>
Lower gross profit due to
decreased sales volume $ 491,000
Lower gross profit due to
changes in the price mix of products sold $ 701,000
Sales allowances and discounts $ 270,000
Inventory write down adjustments $ 451,000
Package Design $ 21,000
New product samples $ 24,000
Overseas agent $ 60,000
Luggage Stuffing Labor & Material $ 58,000
Air Freight $ 46,000
Other Income ($ 6,000)
-----------
$ 2,116,000
</TABLE>

The lower sales volume reduced the gross profit by $491,000. The price mix of
the products sold, which compares the gross margins of products sold to the
prior fiscal year, accounted for approximately $701,000 of the reduction in the
gross profit. Sales allowances and discounts increased by $270,000 due to
increased demands by major customers. Inventory write down adjustments increased
due to obsolete and slow moving items of approximately $451,000. Package design
expenses increased by $21,000 due to changes in packaging for the exercise
products and an increase in the number of items in the luggage line. New product
samples increased by $24,000 due primarily to an increase in samples for newly
designed items. During the fiscal year ended April 30, 1999, the Company hired
an overseas agent to supervise the production of our sports bags/luggage
products at a cost of $60,000. Luggage stuffing labor and materials increased by
$58,000 because a larger portion of the sales of these products were required to
be prepared for display prior to shipment to the customer. Air freight increased
by $46,000 as it was necessary to speed delivery of some products to customers.
Other income decreased due to lower interest income.

Operating expenses, exclusive of interest expense, of $4,331,000 for the fiscal
year ended April 30, 1999 were $1,556,000 more than operating expenses of
$2,775,000 for the fiscal year ended April 30, 1999. This increase is
represented approximately by changes in the following expenses:
<TABLE>
<CAPTION>
INCREASE
(DECREASE)
----------
<S> <C>
Royalty Expense $362,000
Research and Development $250,000
Shipping Fees $106,000
Promotional and Selling Materials $593,000
Show Expenses $ 83,000
Trade Advertising $114,000
Telephone $ 13,000
Postage $ 14,000
</TABLE>
Page 11
<PAGE>

Royalties increased by $362,000 due to an increase in royalties paid for our
Kathy Ireland exercise products and the Spalding Rotaflex exerciser. Research
and development costs increased by $250,000 due primarily to the introduction of
new products. Shipping expenses increased by $106,000 because of a reduction in
direct shipments to customers from overseas vendors. Promotional and selling
expenses increased by $593,000 due primarily to the cost of producing and
testing of an infomercial for the Company's Spalding Rotaflex product. Show
expenses increased by $114,000 because the Company is obligated to pay one
percent of gross JEEP Luggage as advertising to Chrysler Corp. Under a licensing
agreement. In addition the Company has started to utilize specialty magazines
to advertise its products. Telephone and postage expenses increased by $13,000
and $14,000 respectively.

Interest expense for the fiscal year ended April 30, 1999 decreased by $69,000
from the fiscal year ended April 30, 1998. This reduction was the result of the
partial use of the proceeds of a stock offering, which was completed on December
27, 1997, to payoff current debt.

The Company's pretax loss of $3,334,000 for the fiscal year ended April 30, 1999
represents a $3,602,0000 change from a pretax profit of $268,000 for the fiscal
year ended April 30, 1998.

The following table sets forth the result of operations for the periods
discussed above.
<TABLE>
<CAPTION>

FISCAL YEAR FISCAL YEAR
ENDED ENDED
APRIL 30, 1999 APRIL 30, 1998
-------------- --------------
<S> <C> <C>
Net Sales $ 6,633,000 $ 8,001,000
Other Income 35,000 42,000
----------- -----------
$ 6,668,000 $ 8,043,000
Cost of Goods
Sold 5,607,000 4,866,000
----------- -----------
Gross Margin 1,061,000 3,177,000
16.0% 39.5%
Operating Expenses 4,331,000 2,775,000
Interest 64,000 134,000
----------- -----------
4,395,000 2,909,000
Pretax Income (Loss) (3,334,000) 268,000

</TABLE>

LIQUIDITY AND CAPITAL RESOURCES

FISCAL YEAR ENDED APRIL 30, 2000

During the fiscal year ended April 30, 2000, cash used by operating activities
amounted to $2,431,000. This was the result of a net loss of $1,371,000 and the
use of working capital to fund increases in accounts receivable and inventory of
$345,000 and $894,000, respectively, due to the increased sales level during the
fiscal year ended April 30, 2000. These uses of cash were offset by increases in
accounts payable and accrued expenses and reserve for bad debts of $274,000 and
$134,000, respectively. With the sale of the exercise equipment line, management
has focused its marketing efforts toward the sale and distribution of the sports
bags/luggage products. During the prior year, the product line has demonstrated
continuing sales growth. Management has projected a business plan which it
believes is realistic, and which, could generate sales growth combined with
necessary cost containment measures. Management believes that this business plan
could enable the Company to restore its operations to a profitable level. No
assurances can be given that any of these anticipated improved results will
actually be achieved.

Page 12
<PAGE>

Financing activities provided cash of $2,402,000 from an increase in borrowings
from a related entity of $2,651,000 which was offset by a decrease in banker's
acceptances of $250,000.

On April 30,1998 the Company entered into an agreement with the Chase Manhattan
Bank ("Chase") for maximum borrowings of $1,500,000 in the form letters of
credit and bankers acceptances. This agreement provided for a security interest
in the inventory and notes and accounts receivable of the Company. In addition,
the agreement provided for the personal guarantee of the President and major
shareholder of the Company for the entire balance. As of June 30,2000 the
Company's aggregate balance of $532,286 consisted of $350,000 in banker's
acceptances and $182,286 in outstanding letters of credit. The agreement has
been discontinued and there will be no further activity after all banker's
acceptances and letters of credit have been paid by the Company.

In addition to a credit line from The Chase Manhattan Bank ("Chase"), the
Company has received substantial financial support from Achim Importing Co.
("Achim"). Achim is wholly owned by Marton B. Grossman, the Chairman and
President of the Company.

LIQUIDITY AND CAPITAL RESOURCES

FISCAL YEAR ENDED APRIL 30, 1999

During the fiscal year ended April 30, 1999, cash used by operating activities
amounted to $2,849,000, which primarily results from the Company's net loss
sustained during fiscal 1999.

Financing activities provided cash of $850,000 from banker's acceptances and
$572,000 in amounts due from affiliated company.

Investing activities used cash of $39,000 for molds used in the manufacture of
products.

LIQUIDITY AND CAPITAL RESOURCES

FISCAL YEAR ENDED APRIL 30, 1998

During the fiscal year April 30, 1998, cash used by operating
activities amounted to $2,090,000. This was the result of increases in
prepaid expenses, and decreases in accrued expenses of $592,000 and
$2,806,000 respectively, which were offset by net income, decreases in
accounts receivable and due from suppliers, inventory and prepaid and
refundable income taxes of $129,000, $186,000, $967,000 and $12,000
respectively.

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

Page 13
<PAGE>

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

SEASONALITY AND INFLATION

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

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

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

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

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

None.

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

OFFICERS AND DIRECTORS

The officers and directors of the Company are as follows:
<TABLE>
<CAPTION>

NAME AGE POSITION
---- --- --------
<S> <C> <C>

Marton B. Grossman 69 Chairman and President
Isaac Grossman 38 Vice Chairman, Treasurer and Secretary
Sheila Grossman 60 Director
William P. Dolan 47 Vice President--Finance
John Holodnicki 47 Vice President--Sales
Jack Pers 53 Vice President--Sales
Bernard Goldman 79 Director*
</TABLE>
*Member of the Company's Audit Committee.

Page 14
<PAGE>

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

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

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

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

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

JACK PERS has been a Executive Vice President--Sales at the company
since October 1998. He began working for the Company on a consulting basis in
August 1997 as Director of Product Development. His experience includes a Senior
Buyer position at Herman's Sporting Goods from 1973 to 1988, and National Sales
Manager at Marcy Fitness from 1989 - 1995. Mr. Pers left the Company in June
2000.

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

BOARD OF DIRECTORS

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

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

Page 15

<PAGE>

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, 2000 (I) to its Chief Executive
Officer, (ii) its other two Executive Officers and (iii) two additional
non-Executive Officers whose cash compensation exceeded $100,000 per year in any
such year:
<TABLE>
<CAPTION>

SUMMARY COMPENSATION TABLE (1)(2)

ANNUAL COMPENSATION
NAME/PRINCIPAL YEAR ENDED ----------------------------- ALL OTHER
POSITION APRIL 30 SALARY BONUS COMPENSATION (3)
-------- -------- ------ ----- ----------------
<S> <C> <C> <C> <C>
Marton B. Grossman 2000 $ 0 $ 31,200
President & Chairman 1999 $ 0 $ 31,200
1998 $ 0 $ 31,200
---- -------- --------
Isaac Grossman 2000 $ 0 $ 32,240
Director, Treasurer 1999 $ 0 $ 32,240
1998 $ 0 $ 32,240
William P. Dolan 2000 $111,666 $ 0
Vice President-Finance 1999 $112,249 $ 0
---- -------- --------
1998 $112,976 $
John Holodnicki 2000 $170,423 $ 0
Vice President 1999 $123,769 $ 0
1998 $124,538 $ 0
---- -------- --------
</TABLE>

(1) The above compensation does not include the use of an automobile and other
personal benefits, the total value of which does not exceed as to any named
officer or director or group of executive officers the lesser of $50,000 or 10%
of such person's or persons' cash compensation.

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

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

NONE OF THE INDIVIDUALS LISTED IN THE TABLE ABOVE RECEIVE 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, 1999 through April 30, 2000, other than Forms 3
that were filed late with respect to Messrs. Marton and Isaac Grossman and
William Dolan and the Marton Grossman Annuity Trust, all Section 16(a) filing
requirements applicable to its officers, directors and greater-than-10%
beneficial owners were complied with.

Page 16
<PAGE>

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The following table sets forth, as of June 15, 2000, information regarding the
beneficial ownership of the Company's Common Stock based upon the most recent
information available to the Company for (I) each person known by the Company to
own beneficially more than five (5%) percent of the Company's outstanding Common
Stock, (ii) each of the Company's officers and directors, and (iii) all officers
and directors of the Company as a group. Each stockholder's address is c/o the
Company, 58 Second Avenue, Brooklyn, New York 11215, unless otherwise indicated.
<TABLE>
<CAPTION>

SHARES OWNED BENEFICIALLY
AND OF RECORD (1)_____
----------------------------
NAME AND ADDRESS NO. OF SHARES % OF TOTAL
---------------- ------------- ----------
<S> <C> <C>

Marton B. Grossman (2) 2,842,977 64.4
Isaac Grossman 2,842,977 *
Sheila Grossman (2) 2,842,977 64.4

Bernard Goldman 0 *
2100 Boca West Drive
Laurel Oaks, FL

William P. Dolan 123 *
John Holodnicki 11 *
Jack Pers 0 *
All Officers and Directors
as a Group (7 persons) 2,843,111 64.4
--------- ----
</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 2,516,614 shares registered in the name of Marton Grossman and
326,363 shares held by a charitable family foundation (the "Foundation"). Mr.
Grossman and his wife are the directors of the Foundation. Marton and Sheila
Grossman disclaim beneficial ownership in the shares held by the Foundation

Page 17
<PAGE>

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

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

In consideration of these services, Achim receives an annual fee, payable
monthly, calculated as a percentage of the Company's invoiced sales originating
at the warehouse ranging from 4% of invoiced sales under $30,000,000 to 3% for
sales of $60,000,000 or more. For sales not originating at the warehouse, Achim
receives a service fee in the amount of 1.5% of the Company's invoiced sales to
customers and account located in the United States if payment is made by letter
of credit and 1% if such customers and accounts are located outside the United
States, irrespective of manner of payment.

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

On April 30, 1998 the Company entered into a credit agreement with The Chase
Manhattan bank for maximum borrowings of $1,500,000 in the form of letters of
credit and banker acceptances. The agreement also provided for a security
interest in the inventory and notes and accounts receivable of the Company. The
agreement also provided for the personal guarantee of the President and major
shareholders of the Company for the entire balance. The agreement has been
discontinued and there will be no further activity after all bankers acceptances
and letters of credit have been paid by the company.

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

Page 18
<PAGE>

PART IV

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

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

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

3. Exhibits

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

(b) Reports on Form 8-K

No Reports on Form 8-K were filed during the last quarter of the fiscal
year ended April 30, 2000.

Page 19
<PAGE>

SIGNATURES

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

DYNAMIC INTERNATIONAL, LTD.

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

Dated: 17th day of July 2000

Pursuant to the requirements of the Securities Exchange Act of 1934, this Report
has been signed below as of the 17th of July, 2000 by the following persons on
behalf of Registrant and in the capacities indicated.
<TABLE>
<CAPTION>

<S> <C>
/s/ Marton B. Grossman /s/ Shelia Grossman
----------------------------- ----------------------------
Marton B. Grossman Sheila Grossman
Chairman and President Director

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

/s/ William P. Dolan
-----------------------------
William P. Dolan
Vice President--Finance
(Chief Financial & Accounting
Officer)
</TABLE>

<PAGE>

EXHIBITS

1 Form of Underwriting Agreement (1)

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

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

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

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

3.01 Certificate of Incorporation (2)

3.02 Bylaws (2)

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

4.02 Form of Common Stock Certificate (2)

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

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

4.04 Form of Unit Certificate (1)

10.01 License Agreement with Spalding Sports Worldwide dated April 1, 1994
(4)

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

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

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

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

10.06 Bonus Agreement with Marton Grossman (1)

10.07 License Agreement with Spalding and Evenflo Companies Inc. dated
October 1, 1997. (7)

10.08 License Agreement with Connally Synergy Systems LLC dated December 17,
1997. (7)

10.09 Media Campaign Management Agreement with Script to Screen, Inc. dated
April 13, 1998. (7)
<PAGE>

10.10 Infomercial Production Agreement with Script to Screen, Inc. dated
February 12, 1998. (7)

10.11 Exclusive Hand Held - Products Sponsorship Agreement with Power Point
Fitness International Ltd. dated July 15, 1999 (8)

10.12 Consulting Agreement with Andrew Freirich dated July 1, 1999. (8)

10.13 Licensing Agreement with Chrysler Corporation dated July 9,1999. (8)

10.14 Distribution Agreement with Guthy-Renker dated January 13, 1999.(8)

10.15 Settlement Agreement with Bollinger Industries. (9)

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

------------------------------------------------------------------------------

(1) Incorporated by reference from the Company's Registration Statement on
Form S-1. (Registration No. 333-25425).

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

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

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

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

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

(7) Incorporated by reference to the Annual Report on form 10K for 1998.

(8) Incorporated by reference to the Annual Report on Form 10K for 1999.

(9) Incorporated by reference to the current report on from 8K filed
June 30, 2000.

<PAGE>

DYNAMIC INTERNATIONAL, LTD. AND SUBSIDIARY
--------------------------------------------------------------------------------
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PAGE TO PAGE
------------
<S> <C> <C>

ITEM 8: FINANCIAL STATEMENTS

Report of Independent Auditors.......................................... F-1.

Consolidated Balance Sheets as of April 30, 2000 and 1999............... F-2.-F-3

Consolidated Statements of Operations for the years ended April 30,
2000, 1999 and 1998..................................................... F-4.

Consolidated Statements of Stockholders' Equity for the years ended
April 30, 2000, 1999 and 1998........................................... F-5.

Consolidated Statements of Cash Flows for the years ended April 30,
2000, 1999 and 1998..................................................... F-6.

Notes to Consolidated Financial Statements.............................. F-7.- F-13

</TABLE>

<PAGE>

INDEPENDENT AUDITOR'S REPORT

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

We have audited the accompanying consolidated balance sheets
of Dynamic International, Ltd. [formerly Dynamic Classics, Ltd., see Note 1] and
its subsidiary as of April 30, 2000 and 1999, and the related consolidated
statements of operations, stockholders' equity, and cash flows for each of the
three years in the period ended April 30, 2000. These consolidated financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.

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

In our opinion, the consolidated financial statements referred
to above present fairly, in all material respects, the consolidated financial
position of Dynamic International, Ltd. and its subsidiary as of April 30, 2000
and 1999, and the results of their operations and their cash flows for each of
the three years in the period ended April 30, 2000, in conformity with generally
accepted accounting principles.

The accompanying consolidated financial statements have been
prepared assuming that the Company will continue as a going concern. As
discussed in Note 10 to the consolidated financial statements, the Company has
suffered a net loss of approximately $1,371,000 and has utilized approximately
$2,431,000 in cash for operating activities for the year ended April 30, 2000.
These conditions raise substantial doubt about the Company's ability to continue
as a going concern. Management's plans in regard to these matters are also
described in Note 10. The consolidated financial statements do not include any
adjustments that might result from the outcome of these uncertainties.

MOORE STEPHENS, P. C.
Certified Public Accountants

Cranford, New Jersey
June 2, 2000

F-1
<PAGE>

ITEM 8:

DYNAMIC INTERNATIONAL, LTD. AND SUBSIDIARY
--------------------------------------------------------------------------------
CONSOLIDATED BALANCE SHEETS
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
APRIL 30,
-----------------------------------
2 0 0 0 1 9 9 9
--------------- ---------------
<S> <C> <C>
ASSETS:
CURRENT ASSETS:
Cash and Cash Equivalents $ 38,833 $ 109,514
Accounts Receivable [Less Allowance for Doubtful Accounts
of $505,511 in 2000 and $371,685 in 1999] 1,480,510 1,268,913
Inventory 3,338,360 2,444,460
Prepaid Marketing Costs 342,521 --
Other Current Assets 71,471 140,643
--------------- ---------------
TOTAL CURRENT ASSETS 5,271,695 3,963,530
--------------- ---------------
PROPERTY AND EQUIPMENT:
Tools and Dies 746,774 746,774
Furniture and Equipment 694,949 678,276
--------------- ---------------
Totals - At Cost 1,441,723 1,425,050
Less: Accumulated Depreciation (1,386,115) (1,378,217)
--------------- ---------------
PROPERTY AND EQUIPMENT - NET 55,608 46,833
--------------- ---------------
OTHER ASSETS 1,000 13,612
--------------- ---------------
TOTAL ASSETS $ 5,328,303 $ 4,023,975
=============== ===============
</TABLE>
See Notes to the Consolidated Financial Statements.

F-2
<PAGE>

LIABILITIES AND STOCKHOLDERS' EQUITY:
CURRENT LIABILITIES:
Banker's Acceptances $ 600,000 $ 850,000
Accounts Payable and Accrued Expenses 1,031,746 757,821
Amounts Due Affiliated Company 3,243,035 591,429
--------------- ---------------
TOTAL CURRENT LIABILITIES 4,874,781 2,199,250
--------------- ---------------
COMMITMENT AND CONTINGENCIES [6] -- --
--------------- ---------------
STOCKHOLDERS' EQUITY:
Preferred Stock - $.001 Par Value, 10,000,000 Shares
Authorized; None Outstanding -- --
Common Stock - Par Value $.001 Per Share;
Authorized 50,000,000 Shares; Issued 4,418,258 Shares 4,419 4,419
Additional Paid-in Capital 4,869,796 4,869,796
Accumulated Deficit (4,420,690) (3,049,487)
--------------- ---------------
Totals 453,525 1,824,728
Less: Treasury Stock, At Cost - 540 Shares (3) (3)
--------------- ---------------
TOTAL STOCKHOLDERS' EQUITY 453,522 1,824,725
--------------- ---------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 5,328,303 $ 4,023,975
=============== ===============
</TABLE>
See Notes to the Consolidated Financial Statements.

F-3

<PAGE>

DYNAMIC INTERNATIONAL, LTD. AND SUBSIDIARY
--------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF OPERATIONS
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Y E A R S E N D E D
-----------------------------------------
A P R I L 3 0,
-----------------------------------------
2 0 0 0 1 9 9 9 1 9 9 8
------------ ----------- -----------
<S> <C> <C> <C>
REVENUES:
Sales $ 8,686,451 $ 6,632,837 $8,001,138
Other Income 407 35,381 41,938
------------ ----------- ----------
TOTAL REVENUES 8,686,858 6,668,218 8,043,076
COST OF SALES 6,938,441 5,607,005 4,865,643
------------ ----------- ----------
GROSS PROFIT 1,748,417 1,061,213 3,177,433
------------ ----------- ----------
OPERATING EXPENSES:
Royalty Expense 694,746 787,729 426,125
Research and Development 30,185 310,287 60,493
Shipping Expense 510,903 389,154 273,459
Selling Expense 970,670 838,898 865,223
Advertising and Promotion 224,946 1,200,517 413,271
General and Administrative 684,827 642,721 656,249
Depreciation and Amortization 32,254 161,276 80,489
Interest and Bank Charges 110,436 64,356 8,441
Interest and Bank Charges - Related Party -- -- 125,481
------------ ----------- ----------
TOTAL OPERATING EXPENSES 3,258,967 4,394,938 2,909,231
------------ ----------- ----------
[LOSS] INCOME BEFORE INCOME TAXES (1,510,550) (3,333,725) 268,202
INCOME TAX [BENEFIT] EXPENSE (139,347) -- 139,251
------------ ----------- ----------
NET [LOSS] INCOME $ (1,371,203) $(3,333,725) $ 128,951
============ =========== ==========
BASIC AND DILUTED [LOSS] EARNINGS PER SHARE $ (.31) $ (.75) $ .03
============ =========== ==========
WEIGHTED AVERAGE NUMBER OF SHARES 4,418,258 4,418,258 3,655,758
============ =========== ==========

</TABLE>

See Notes to the Consolidated Financial Statements.

F-4
<PAGE>

DYNAMIC INTERNATIONAL, LTD. AND SUBSIDIARY
--------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ACCUMULATED
ADDITIONAL [DEFICIT] TREASURY TOTAL
COMMON PAID-IN RETAINED STOCK - STOCKHOLDERS'
STOCK CAPITAL EARNINGS AT COST EQUITY
----- ------- -------- ------- ------
<S> <C> <C> <C> <C> <C>

BALANCE - APRIL 30, 1997 $3,199 $ 22,940 $ 155,287 $ (3) $ 181,423
Issuance of 20,000 Shares for
Legal Expenses in Connection
with the Public Offering 20 74,635 -- -- 74,655
Net Proceeds from Issuance of
1,200,000 Shares of Common
Stock [Offering Costs of
$1,251,924] in December 1997 1,200 4,772,221 -- -- 4,773,421
Net Income for the year ended
April 30, 1998 -- -- 128,951 -- 128,951
------ ---------- ----------- ------- -----------
BALANCE - APRIL 30, 1998 4,419 4,869,796 284,238 (3) 5,158,450
Net [Loss] for the year ended
April 30, 1999 -- -- (3,333,725) -- (3,333,725)
------ ---------- ----------- ------- -----------
BALANCE - APRIL 30, 1999 4,419 4,869,796 (3,049,487) (3) 1,824,725
Net [Loss] for the year ended
April 30, 2000 -- -- (1,371,203) -- (1,371,203)
------ ---------- ----------- ------- -----------
BALANCE - APRIL 30, 2000 $4,419 $4,869,796 $(4,420,690) $ (3) $ 453,522
====== ========== =========== ======= ===========
</TABLE>

See Notes to the Consolidated Financial Statements.

F-5
<PAGE>

DYNAMIC INTERNATIONAL, LTD. AND SUBSIDIARY
--------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Y E A R S E N D E D
-----------------------------------------
A P R I L 3 0,
-----------------------------------------
2 0 0 0 1 9 9 9 1 9 9 8
------------ ----------- -----------
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net [Loss] Income $(1,371,203) $(3,333,725) $ 128,951
----------- ----------- -----------
Adjustments to Reconcile Net [Loss] Income to
Net Cash Used in Operating Activities:
Depreciation and Amortization 32,254 161,276 80,489
Provision for Doubtful Accounts 133,826 249,000 (44,315)
Loss on Disposal of Property and Equipment -- 67,900 --
Changes in Operating Assets and Liabilities:
[Increase] Decrease in Assets:
Accounts Receivable (345,423) (671,324) 186,230
Inventory (893,900) (85,438) 966,773
Prepaid Expenses and Other Current Assets (273,349) 554,691 (592,490)
Security Deposits and Other 12,612 (11,562) 2,600
Increase [Decrease] in Liabilities:
Accounts Payable and Accrued Expenses 273,925 299,462 (2,805,591)
Income Taxes Payable -- (79,422) (12,450)
----------- ----------- -----------
Total Adjustments (1,060,055) 484,583 (2,218,754)
----------- ----------- -----------
NET CASH - OPERATING ACTIVITIES (2,431,258) (2,849,142) (2,089,803)
----------- ----------- -----------
INVESTING ACTIVITIES:
Purchase of Property and Equipment (41,029) (38,835) (67,900)
----------- ----------- -----------
FINANCING ACTIVITIES:
Net Borrowings from Banker's Acceptances (250,000) 850,000 --
Amounts Due Affiliated Company 2,651,606 572,243 --
Repayment of Loan Payable - Related Party -- -- (1,059,785)
Repayment of Capital Lease Obligations -- -- (24,228)
Net Proceeds from Issuance of
1,200,000 Share Common Stock -- -- 4,773,421
----------- ----------- -----------
NET CASH - FINANCING ACTIVITIES 2,401,606 1,422,243 3,689,408
----------- ----------- -----------
NET [DECREASE] INCREASE IN CASH AND
CASH EQUIVALENTS (70,681) (1,465,734) 1,531,705
CASH AND CASH EQUIVALENTS - BEGINNING OF YEARS 109,514 1,575,248 43,543
----------- ----------- -----------
CASH AND CASH EQUIVALENTS - END OF YEARS $ 38,833 $ 109,514 $ 1,575,248
=========== =========== ===========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the years for:
Interest $ 91,590 $ 40,323 $ 25,451
Income Taxes $ -- $ 53,923 $ --
</TABLE>

SUPPLEMENTAL DISCLOSURES OF NON-CASH FINANCING ACTIVITIES:

During fiscal year 1997, the Company issued 20,000 shares for legal
services valued at $74,655 in connection with the Company's public offering [See
Note 11].

See Notes to the Consolidated Financial Statements.

F-6
<PAGE>

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

[1] NATURE OF OPERATIONS

Dynamic International, Ltd., a Nevada corporation [the "Company"] designs and
markets related sports bags and luggage, which are marketed primarily under the
licensed name JEEP(TM) and under its own names Santa Fe(TM), Polaris
Expedition(TM) and SPORTS GEAR(TM). In addition, it has been engaged in the
design, marketing and sale of hand exercise and light exercise equipment,
including hand grips, running weights, jump ropes and aerobic steps and slides.
It has marketed these products under the licensed trademarks SPALDING(TM) and
KATHY IRELAND(TM) as well as under its own trademarked name SHAPE SHOP(TM) [See
Note 13A]. The Company's objective is to become a designer and marketer of
goods, domestically and internationally, that are associated with a
free-spirited lifestyle and leisure time.

The Company is the successor to Dynamic Classics, Ltd.["DCL"], a Delaware
corporation, incorporated in 1986, which was the successor to a New York company
incorporated in 1964. In August 1996, DCL merged with and into the Company,
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.

[2] SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

PRINCIPLES OF CONSOLIDATION - The consolidated financial statements include the
accounts of the Company and the wholly owned inactive subsidiary. All
significant intercompany accounts and transactions have been eliminated in
consolidation.

CASH AND CASH EQUIVALENTS - The Company considers all highly liquid investments
with a maturity of three months or less when purchased to be cash equivalents.

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

PROPERTY, EQUIPMENT AND DEPRECIATION - Property and equipment are stated at
cost. Depreciation is computed using accelerated methods over the estimated
useful lives of the respective assets. Expenditures for maintenance and repairs,
which do not improve or extend the life of the respective assets are expensed
currently while major repairs are capitalized. Estimated useful lives used in
calculating depreciation are as follows:

Tools and Dies 5 Years
Furniture and Equipment 5 Years to 7 Years

ADVERTISING AND PROMOTION - Advertising and promotion expense, except for costs
associated with direct-response advertising, are charged to operations when the
advertising first takes place.

PREPAID MARKETING COSTS - The Company capitalized certain direct response
advertising and promotion costs of approximately $342,500 related to the
introduction of an exercise product slated to be sold in the Latin American
markets during the fiscal year ended April 30, 2001. The capitalized costs
principally include the costs of the infomercial and its airing [subject to
minimum advertising spots] on a major sports network cable program during fiscal
year 2000. The capitalized costs will be amortized over the future benefit
years.

REVENUE - Revenue is recognized when the goods are shipped and accepted by the
customer. The Company's return policy is for defective merchandise only.

PROMOTIONAL ALLOWANCES - Based on a discretionary policy, management grants to
certain major retail customers promotional allowances to successfully market the
Company's products. Promotional allowances are primarily targeted to the cost of
displays, advertising and other promotional incentives. The cost of promotional
allowances are accrued based upon the Company's estimate of the reserve
allowance using certain assumptions and based on the Company's experience.
Promotional allowances are included as a reduction of net sales.

F-7
<PAGE>

DYNAMIC INTERNATIONAL, LTD. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, SHEET #2
--------------------------------------------------------------------------------

[2] SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES [CONTINUED]

RESEARCH AND DEVELOPMENT COSTS - Research and development costs are expensed as
part of operating expenses as incurred.

LOSS PER SHARE - The Financial Accounting Standards Board has issued Statement
of Financial Accounting Standards ["SFAS"] No. 128, "Earnings per Share"; which
is effective for financial statements issued for periods ending after December
15, 1997. Accordingly, earnings per share data in the financial statements have
been calculated in accordance with SFAS No. 128.

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

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

Securities that could potentially dilute earnings per share in the future are
disclosed in Note 11.

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.

IMPAIRMENT - Certain long-term assets of the Company are reviewed when changes
in circumstances require as to whether their carrying value has become impaired,
pursuant to guidance established in 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." Management considers assets to be impaired
if the carrying value exceeds the future projected cash flows from related
operations [undiscounted and without interest charges]. If impairment is deemed
to exist, the assets will be written down to fair value. Management also
reevaluates the periods of amortization to determine whether subsequent events
and circumstances warrant revised estimates of useful lives. As of April 30,
2000, management expects these assets to be fully recoverable.

INCOME TAXES - Deferred tax assets and liabilities are recognized for the future
tax consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases. Deferred tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. The effect on deferred tax
assets and liabilities of a change in tax rates is recognized in income in the
period that includes the enactment date.

F-8
<PAGE>

DYNAMIC INTERNATIONAL, LTD. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, SHEET #3
--------------------------------------------------------------------------------

[2] SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES [CONTINUED]

FAIR VALUE OF FINANCIAL INSTRUMENTS - SFAS No. 107, "Disclosure About Fair Value
of Financial Instruments," requires certain disclosures regarding the fair value
of financial instruments. In assessing the fair value of these financial
instruments, the Company has used a variety of methods and assumptions, which
were based on estimates of market conditions and risks existing at that time.
All instruments, including cash and cash equivalents, accounts receivable,
accounts payable and accrued expenses, debt and amounts due affiliated company
are reflected at fair value in the consolidated financial statements because of
the short-term maturity of these instruments.

RECLASSIFICATIONS - Certain prior period amounts have been reclassified to
conform to the current year presentation.

[3] RELATED PARTY TRANSACTIONS

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

The Warehousing Agreement had a term of two years and was renewed on September
1, 1998 for another one year period. This agreement will automatically renew
from year to year unless written notice of termination is given at least six
months prior to the commencement of a renewal period. Total warehousing and
administrative expenses charged to operations for the year ended April 30, 2000
were $410,382 with a balance due of $718,983 at April 30, 2000, for the year
ended April 30, 1999 were $289,415, with a balance due of $308,601 at April 30,
1999 and for the year ended April 30, 1998 were $183,095 of which $19,186 was
the balance due at April 30, 1998.

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

Other amounts payable to the related party totaled $2,524,052 and $282,828,
respectively, at April 30, 2000 and 1999. Such amounts represent unpaid
inventory purchases, working capital advances, and various fees due to the
related party.

F-9
<PAGE>

DYNAMIC INTERNATIONAL, LTD. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, SHEET #4
--------------------------------------------------------------------------------

[4] DEBT

On April 30, 1998, the Company entered into a credit agreement with The Chase
Manhattan Bank for maximum borrowings of $1,500,000 in the form of letters of
credit and bankers acceptances [See Note 13B]. The agreement also provides for a
security interest in the inventory and accounts receivable of the Company. The
agreement also provides for the personal guarantee of the President and major
shareholder of the Company on the entire credit line balance. Banker's
acceptances totaling $600,000 and $850,000 are outstanding at April 30, 2000 and
1999, respectively. The weighted average interest rate at April 30, 2000 was 7%
and at April 30, 1999 was 6%.

[5] INCOME TAXES

During the year ended April 30, 2000, the Company recognized a federal tax
benefit of approximately $139,000. The tax benefit results from the receipt of a
tax refund from the carryback of certain fiscal 1998 net operating loss
deductions to prior years. As a result of this transaction, the Company adjusted
its tax valuation allowance account accordingly.

At April 30, 2000, the Company had temporary tax differences that would result
in a short-term deferred tax asset of approximately $400,000 arising primarily
from reserve allowances relating to account receivables and inventory. The
Company also has cumulative carryforward operating losses of approximately
$3,400,000 resulting in a long-term deferred tax asset of approximately
$1,600,000.

At April 30, 1999, the Company had temporary differences that would result in a
short-term deferred tax asset of approximately $225,000 arising primarily from
reserve allowances relating to accounts receivables and inventory. The Company
also has net operating losses of approximately $2,700,000 and deferred
amortization of approximately $100,000 resulting in a long-term deferred tax
asset of approximately $1,280,000.

At April 30, 2000 and 1999, these assets, both short-term and long-term, have
been reduced to zero by a valuation allowance due to the uncertainty that the
Company will be able to generate sufficient taxable income in the future
necessary to utilized these assets.

The Company's available net operating losses of approximately $3,400,000 will
expire for tax purposes in fiscal years 2019 and 2020.

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

<TABLE>
<CAPTION>
Y E A R S E N D E D
-----------------------------------------
A P R I L 3 0,
-----------------------------------------
2 0 0 0 1 9 9 9 1 9 9 8
------------ ----------- -----------
<S> <C> <C> <C>
U.S. Federal Income Taxes at Statutory Rate $ (513,600) $(1,134,000) $ 91,189
Change in Valuation Allowance 523,253 1,506,300 --
Benefit of Surtax Exemption -- -- (6,363)
Tax Effect of Permanent Differences -- 1,800 1,020
State Income Taxes, Net of Federal Benefit (149,000) (374,100) 33,767
Underaccrual of Prior Year's Federal Income Tax -- -- 23,825
Other -- -- (4,187)
---------- ----------- --------

INCOME TAX [BENEFIT] EXPENSE $ (139,347) $ -- $139,251
---------------------------- ========== =========== ========
</TABLE>
F-10
<PAGE>

DYNAMIC INTERNATIONAL, LTD. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, SHEET #5
--------------------------------------------------------------------------------

[6] COMMITMENTS AND CONTINGENCIES

[A] 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, as defined. Royalty expense charged to operations for the years ended
April 30, 2000, 1999 and 1998 was approximately $695,000, $788,000 and$426,000.

[B] LITIGATION - In the normal course of its operations, the Company has been
named as a defendant in a patent infringement lawsuit [See Note 13A].

[7] MAJOR CUSTOMERS/SEASONALITY

During the year ended April 30, 2000, sales to three major customers were
approximately 26%, 20%, and 12% [$2,241,000, $1,755,000 and $1,034,000,
respectively] of the Company's net sales. At April 30, 2000, accounts receivable
from these customers totaled $1,113,000.

During the year ended April 30, 1999, sales to three major customers were
approximately 25%, 20%, and 14% [$1,647,000, $1,341,000 and $928,000,
respectively] of the Company's net sales. At April 30, 1999, accounts receivable
from these customers totaled $861,000.

During the year ended April 30, 1998, sales to two major customers were
approximately 13% and 13% [$1,004,000 and $1,003,000]. At April 30, 1998,
accounts receivable from these customers totaled $278,000.

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

[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, 2000 and 1999, such excess balances totaled
approximately $-0- and $122,000, respectively. The Company has not experienced
any losses and believes it is not exposed to any significant credit risk from
cash and cash equivalents.

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

[9] SIGNIFICANT RISKS AND UNCERTAINTIES

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

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

F-11
<PAGE>

DYNAMIC INTERNATIONAL, LTD. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, SHEET #6
--------------------------------------------------------------------------------

[9] SIGNIFICANT RISKS AND UNCERTAINTIES [CONTINUED]

[B] Most of the Company's products are purchased from Indonesia, Sri Lanka,
Thailand and China. 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. The Company believes that an interruption in deliveries by a
manufacturer located in a particular country will not have a material adverse
impact on the business of the Company. Nevertheless, because of political
instability in a number of the supply countries, occasional import quotas and
other restrictions on trade or otherwise, there can be no assurance that the
Company will at all times have access to a sufficient supply of merchandise.

[10] GOING CONCERN

The Company's financial statements are prepared in conformity with generally
accepted accounting principles, which contemplates the realization of assets and
settlements of liabilities in the normal course of business and continuation of
the Company as a going concern. The Company has incurred a net loss of
approximately $1,371,000 for the year ended April 30, 2000, and utilized
approximately $2,431,000 in cash for operating activities for the year ended
April 30, 2000. These factors create uncertainty whether the Company can
continue as a going concern. The Company's plans to mitigate the effects of the
uncertainties are to attain its projected positive cash flows from operations as
a result of an improved profitability which is projected as a result of
anticipated revenue growth with large customers along with implementing its plan
on cutting operational expenses. In addition, as a result of the terminated
credit arrangement with Chase Manhattan Bank in June of 2000 [See Note 13B], the
Company may need to continue its economic dependency in borrowings from an
affiliated company until alternative funding is arranged.

Management believes that these plans can be effectively implemented in the next
twelve months. The Company believes it will achieve profitability and positive
cash flow in the next twelve months. The Company's ability to continue as a
going concern is dependent on the implementation and success of these plans.
There can be no assurance that management's plans to reduce operating losses
will be successful. The financial statements do not include any adjustments
relating to the recoverability and classification of recorded assets, or the
amounts and classification of liabilities that might be necessary in the event
the Company cannot continue in existence.

[11] CAPITAL STOCK

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

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

In addition, the Company entered into a two year consulting agreement, expiring
December 1999, with the underwriter to provide financial consulting services for
a fee of $20,000.

F-12
<PAGE>

DYNAMIC INTERNATIONAL, LTD. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, SHEET #7
--------------------------------------------------------------------------------

[11] CAPITAL STOCK [CONTINUED]

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

[B] EARN OUT AGREEMENT - In March 1997, the Company entered into an agreement
with Marton Grossman, the Company's chairman and president which provided for
the issuance to Mr. Grossman an aggregate 2,000,000 shares of common stock if
the Company reaches certain earnings criteria as follows:
<TABLE>
<CAPTION>

Earnings Before Shares to
Year Ending Income Tax Be Issued
----------- --------------- ---------
<S> <C> <C>
April 30, 1998 $ 500,000 400,000
April 30, 1999 $1,000,000 600,000
April 30, 2000 $1,500,000 1,000,000
</TABLE>

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

The Company did not meet the performance conditions for the years ended April
30, 2000, 1999 and 1998.

[12] NEW AUTHORITATIVE PRONOUNCEMENTS

In March 2000, the FASB issued Interpretation No. 44 "Accounting for Certain
Transactions Involving Stock Compensation." Among other issues, this
Interpretations clarifies (a) the definition of employee for purposes of
applying Opinion 25, (b) the criteria for determining whether a plan qualifies
as a noncompensatory plan, (c) the accounting consequence of various
modifications to the terms of a previously fixed stock option or award, and (d)
the accounting for an exchange of stock compensation awards in a business
combination. The Company has adopted this pronouncement.

[13] SUBSEQUENT EVENT

[A] PATENT INFRINGEMENT SETTLEMENT - On June 2, 2000, the Company finalized a
settlement for a patent infringement of three patents. As a part of the
settlement, the Company agreed to sell inventory of the related products, which
represents substantially the entire hand exercise and light exercise product
line of the Company, and agreed to a five year noncompete agreement. The
approximate net carrying value of the inventory sold was $900,000. The Company's
sales for the years ended April 30, 2000, 1999 and 1998 were approximately
$1,960,000, $3,132,000, and $3,687,000 of the fitness accessory business.

[B] TERMINATED CREDIT AGREEMENT - During June 2000, the Company terminated its
credit agreement with the Chase Manhattan Bank [See Notes 4 and 10].

F-13