<PAGE>

                                    FORM 10-Q



                       SECURITIES AND EXCHANGE COMMISSION
                              WASHINGTON, DC 20549



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



For the Quarter ended October 31, 1997            Commission File Number 0-21475



                           DYNAMIC INTERNATIONAL, LTD.
--------------------------------------------------------------------------------
              (Exact Name of Registrant As Specified In Its Charter)



             Nevada                                           93-1215401
-------------------------------                           -------------------
(State or other jurisdiction of                            (I.R.S. employer
incorporation or organization)                            identification no.)



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



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



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

                        Yes  x/            No  
                           ------             ------


As of November 30, 1997,  3,198,798 shares of the Registrant's  common stock par
value $.001 were issued and outstanding.


<PAGE>

                                      INDEX
                                                                        Page No.
                                                                        --------
PART I        FINANCIAL INFORMATION

              Consolidated Condensed Balance Sheets
              as of October 31, 1997 and April 30, 1997......................3

              Consolidated Condensed Statements of Operations
              for Six and Three Months Ended October 31, 1997, Three Months 
              Ended October 31, 1996, Three Months Ended
              July 31, 1996..................................................4

              Consolidated Condensed Statements of Cash Flows for
              Six Months Ended October 31, 1997, Three Months Ended
              October 31, 1996, Three Months Ended July 31, 1996.............5

              Notes to Consolidated Condensed Financial Statements
              for Six-Month Periods Ended October 31, 1997 and
              1996...........................................................6

                   1.  Basis of Presentation.................................6
                   2.  Reorganization and Management Plan....................6
                   3.  Inventories...........................................9
                   4.  Per Share Information.................................9
                   5.  Public Offering.......................................9

              Management's Discussion and Analysis of Financial
              Condition and Results of Operations for Six Months
              Ended October 31, 1997 As Compared to Six Months
              Ended October 31, 1996........................................10

                   General..................................................10
                   Plan of Reorganization...................................10
                   Results of Operations....................................11
                   Liquidity and Capital Resources..........................12
                   Seasonality..............................................13

              Management's Discussion and Analysis of Financial
              Condition and Results of Operations for Three Months
              Ended October 31, 1997 As Compared to Three Months
              Ended October 31, 1996........................................14

                   Results of Operations....................................14

Part II       OTHER INFORMATION.............................................16

SIGNATURES..................................................................17


<PAGE>

                      Consolidated Condensed Balance Sheets
                                   (Unaudited)
<TABLE>
<CAPTION>

                                                                        Oct. 31, 1997          April 30, 1997
                                                                       --------------         ---------------
<S>                                                                    <C>                     <C>       
Current Assets
--------------
Cash                                                                       $   14,628              $   43,543
Accounts Receivable - (Net of allowance
   for doubtful accounts of $167,000)                                       1,032,209                 887,089
Due from Suppliers                                                             23,378                  65,273
Inventory                                                                   2,385,644               3,301,735
Prepaid Expenses                                                              192,845                  60,272
Miscellaneous                                                                   2,658                   2,658
Income Taxes Receivable                                                        ---                     39,914
                                                                           ----------              ----------
Total Current Assets                                                        3,651,362               4,400,484
Fixed Assets, at Cost, Less Accumulated
   Depreciation                                                                91,118                 125,291
Due from Suppliers                                                             36,142                  36,142
Security Deposits                                                               3,050                   4,650
Deferred Stock Offering Costs                                                 296,544                 116,023
Reorganization value in excess of amounts
   allocable to identifiable assets, net                                      118,400                 124,472
                                                                           ----------              ----------
Total Assets                                                               $4,196,616              $4,807,062
                                                                           ==========              ==========
Liabilities and Shareholders Equity
-----------------------------------
Current Liabilities
-------------------
Accounts Payable & Accrued Expenses,
   Non-related                                                             $  726,802              $  846,234
Accounts Payable & Accrued Expenses,
   Related                                                                  2,146,636               2,627,580
Capital Lease Obligations, Current                                             12,294                  24,228
Income Taxes Payable                                                            3,494                 103,700
Loans payable - related party                                               1,059,785                 844,531
                                                                           ----------              ----------
Total Current Liabilities                                                  $3,949,011               4,446,273
Other Liabilities
-----------------
Loan Payable - related party                                                  ---                     215,254
                                                                           ----------              ----------
Total Liabilities                                                           3,949,011               4,661,527
Shareholders Equity
-------------------
Common Stock                                                                    3,199                   3,199
Additional Paid-In Capital                                                     22,940                  22,940
Retained Earnings (since July 31, 1996,
   date of reorganization, total deficit
   eliminated was $713,601)                                                   221,469                 119,399
                                                                           ----------              ----------
Total                                                                         247,608                 145,538
Less Treasury Stock                                                                (3)                     (3)
                                                                           ----------              ----------
Total Shareholders' Equity                                                    247,605                 145,535
                                                                           ----------              ----------
Total Liabilities & Shareholders Equity                                    $4,196,616              $4,807,062
                                                                           ==========              ==========
</TABLE>


See Accompanying Notes to Consolidated Condensed Financial Statements.

<PAGE>
<TABLE>
<CAPTION>

                                      Consolidated Condensed Statements of Operations
                        for Six Months Ended October 31, 1997, Three Months Ended October 31, 1997,
                          Three Months Ended October 31, 1996, Three Months Ended July 31, 1996,
                                                        (Unaudited)

                                                                                                         Predecessor
                                                    Reorganized Company                                    Company
                                         --------------------------------------------------------       -------------      
                                         For 6 Months         For 3 Months          For 3 Months        For 3 Months
                                             Ended                Ended                 Ended               Ended
                                         Oct. 31, 1997        Oct. 31, 1997         Oct. 31, 1996       July 31, 1996
                                         -------------        -------------         -------------       -------------
<S>                                      <C>                  <C>                   <C>                 <C>        
Net Sales                                $3,694,425           $1,860,262            $ 3,653,321         $ 1,993,365
Other Income                                 10,858                2,900                 ---                 ---
                                          ---------            ---------             ----------          -------
                                          3,705,283            1,863,162              3,653,321           1,993,365
Cost of Goods Sold                        2,487,510            1,205,176              2,563,612           1,454,637
                                         ----------           ----------             ----------          ----------
Gross Profit                              1,217,773              657,986              1,089,709             538,728
Operating Expenses                          927,088              489,941                744,384             557,822
Interest                                    118,927               59,001                 82,323              57,270
                                          ---------           ----------              ---------           ---------
                                          1,046,015              548,942                826,707             615,092
                                          ---------           ----------              ---------           ---------

Bankruptcy Administration                     1,094                1,094                 28,370               ---
                                          ---------           ----------              ---------           -------
Pretax Income (Loss)                        170,664              107,950                234,632             (76,364)
Provision for Income Taxes                   68,594               44,544                108,490               ---
                                         ----------           ----------              ---------           -------
Net Income (Loss)                        $  102,070           $   63,406            $   126,142         $   (76,364)
                                         ==========           ==========            ===========         ============
Income per Common Share                      0.03                 0.02                   0.04                 ---
Number of Common Shares
   Outstanding                            3,198,258            3,198,258              3,198,258               ---
Cash Dividends per Common
   Share                                    NONE                 NONE                   NONE                NONE

</TABLE>


See Accompanying Notes to Consolidated Condensed Financial Statements.







<PAGE>
<TABLE>
<CAPTION>

                                      Consolidated Condensed Statements of Cash Flows
                        for Six Months Ended October 31, 1997, Three Months Ended October 31, 1996,
                                           and Three Months Ended July 31, 1996
                                                        (Unaudited)

                                                                       Reorganized Company
                                                           --------------------------------------------------------
                                                           For 6 Months          For 3 Months          For 3 Months
                                                              Ended                 Ended                 Ended
                                                             10/31/97              10/31/96               7/31/96
                                                           -------------        -------------          -------------
<S>                                                        <C>                   <C>                   <C>        
Net Cash Provided (Used) 
   by Operating Activities                                 $ 165,884             $  (57,879)            $  (64,766)
Cash Flows from Investing
-------------------------
   Activities
   ----------
Acquisition of Property and
   Equipment                                                   ---                     ---                   ---
                                                           ---------                --------             ---------
Net Cash Used in Investing
   Activities                                                  ---                     ---                   ---
Cash Flows from Financing
-------------------------
   Activities
   ----------
Repayments of Capital Leases                                 (14,278)               (14,164)               (18,812)
Proceeds from Insurance Note Payable                           ---                     ---                  77,225
Payments of Insurance Notes Payable                            ---                  (26,580)               (15,205)
Increase in Note Payable to Related
   Party                                                       ---                   95,801                  ---
Payments of Deferred Offering Costs                         (180,521)                  ---                   ---
                                                           ----------             ---------             ----------
Net Cash Provided by Financing
   Activities                                               (194,799)                55,057                 43,208
Net Decrease in Cash                                         (28,915)                (2,822)               (21,558)
Cash and Cash Equivalents--
   Beginning of Period                                        43,543                  4,957                 26,515
                                                           ---------                 ------             ----------
Cash and Cash Equivalents--
   End of Period                                           $  14,628                $ 2,135             $    4,957
                                                           =========                =======             ==========

<FN>

Supplemental disclosures of Cash Flow information:

Debt Note:   Interest paid during the six months ended October 31, 1997 
             and the three months ended July 31, 1996 was $0 and $1,553,
             respectively.

Income Tax Note:  The Company  made  income tax  payments of
                  $163,534  during the six  months  ended  October  31,
                  1997. The Company made no income tax payments  during
                  the three months ended October 31, 1996 and the three
                  months ended July 31, 1996.
</TABLE>



See Accompanying Notes to Consolidated Condensed Financial Statements.




<PAGE>

              Notes to Consolidated Condensed Financial Statements
              for Six-Month Periods Ended October 31, 1997 and 1996
                                   (Unaudited)


1.  BASIS OF PRESENTATION:

The consolidated  condensed balance sheet as of October 31, 1997 and the related
consolidated  condensed  statements of  operations  and  consolidated  condensed
statements  of cash flows for the  six-month  periods ended October 31, 1997 and
1996 are unaudited. In the opinion of management, all adjustments (which include
only normally recurring  adjustments)  necessary for a fair presentation of such
financial statements have been made.

The April 30,  1997  balance  sheet  data was  derived  from  audited  financial
statements but does not include all disclosures  required by generally  accepted
accounting principles. The interim financial statements and notes thereto should
be read in conjunction  with the financial  statements and notes included in the
Company's  latest annual report on Form 10-K.  The results of operations for the
six-month  period ended October 31, 1997 are not  necessarily  indicative of the
operating results for the entire year.

2.  REORGANIZATION AND MANAGEMENT PLAN:

In 1994,  the  Company  added a new line of  products  consisting  primarily  of
treadmills and ski machines.  Initially, the Company was successful in marketing
these products.  However,  due to defective  products delivered by the Company's
manufacturers,  primarily located in the People's Republic of China, the Company
was forced to allow substantial returns by its customers. Although pursuant to a
written agreement, the manufacturers  acknowledged the defects and agreed to pay
for returns and to provide  replacement  goods at no cost,  they  breached  this
agreement  soon  thereafter.  For the year ended  April 30,  1996,  the  Company
suffered  significant losses in the amount of approximately  $3,700,000 from its
venture into this line of business.

At April 30,  1995,  the  Company  was not in  compliance  with  certain  of the
financial  covenants which enabled the bank to declare the outstanding  balances
of all amounts due the bank to be immediately due and payable. In July 1995, the
lender  bank  effectively  terminated  its  relationship  with the Company as it
experienced  difficulty in complying  with the terms of the loans.  As a result,
certain  collateral  was  liquidated by the lender bank. On August 22, 1995, the
lender bank sold and assigned the loan balance of $6,800,000.  The assigned loan
was secured by a security interest in substantially all of the Company's assets.
As discussed below, the assignor was issued 2,976,000 shares of new common stock
in consideration of forgiving the $6,800,000 outstanding loan.

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

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

Chapter 11 claims  filed  against the Company  and  subsequently  allowed in the
bankruptcy  proceeding totaled  approximately  $17,200,000.  The Plan discharged
such claims through distributions of cash of approximately $515,000 and issuance
of shares of new common stock. The cash  distributions were paid in August 1996.
A total of 3,198,798 shares of new common stock was issued on July 25, 1996, out
of which 2,976,000 shares were issued to one secured creditor which also


<PAGE>


                                   (Continued)
              Notes to Consolidated Condensed Financial Statements
              for Six-Month Periods Ended October 31, 1997 and 1996
                                   (Unaudited)

satisfied $15,923 of loans made by the chief executive officer of the Company to
the  Company;  160,000  shares were issued to  unsecured  creditors,  and 62,798
shares were issued to the reconfirmation common stock equity interest holders.

The  discharge  of  claims  was  reflected  in  the  April  30,  1996  financial
statements. The stock distribution value is based on the reorganization value of
the Company  determined by projecting cash flows over an eleven-year  period and
discounting  such cash flows at a cost of capital rate of 15% and the  statutory
federal,  state and local tax rates currently in effect. The discounted residual
value at the end of the forecast period is based on the  capitalized  cash flows
for the last year of that period.  Cash  distributions  and the estimated  stock
distribution  value totaling  $531,561 has been recorded as other liabilities as
of April 30, 1996.  The gain of  approximately  $16,700,000  resulting  from the
excess of the  allowed  claims  over the total  value of the cash and the common
stock distributed to the secured and unsecured creditors has been recorded as an
extraordinary gain for the year ended April 30, 1996.

The  eleven-year  cash flow  projection  was based on estimates and  assumptions
about circumstances and events that have not yet taken place. Such estimates and
assumptions  are  inherently  subject to  significant  economic and  competitive
uncertainties  and contingencies  beyond the control of the Company,  including,
but not limited to,  those with respect to the future  courses of the  Company's
business  activity.  Accordingly,  there  will  usually be  differences  between
projections  and actual results because events and  circumstances  frequently do
not occur as expected, and those differences may be material.

As  part  of  the  reorganization,  the  Company  will  continue  to  sell  hand
exercise,light  exercise equipment and luggage/sports  bags, all of which have a
proven  market  acceptance.  Management  believes  it can  increase  revenues by
increasing  its focus on direct  response  marketing.  Therefore,  it intends to
develop plans to use infomercials to market these products.  Management believes
these  increased  marketing  efforts,  adequate  financing  through  its related
entity,  Achim  Importing  Co.,  Inc.  ("Achim"),  an entity  owned by Marton B.
Grossman,  Chairman  and  President  of  the  Company,   discontinuance  of  the
unprofitable  products,  and  sustainable  gross  profit  percentages,   can  be
effectively  implemented  within the next twelve  months.  The  Company  adopted
fresh-start  reporting" in accordance  with  Statement of Position  ("SOP") 90-7
issued by the American  Institute of Certified  Public  Accountants  on July 31,
1996.  SOP  90-7  calls  for  the  adoption  of  fresh-start  reporting  if  the
reorganization  value of the  emerging  entity  immediately  before  the date of
confirmation is less than the total of all post-Petition and allowed claims, and
if holders of existing voting shares  immediately  before  confirmation  receive
less than 50% of the voting shares of the emerging  entity,  both  conditions of
which wee satisfied by the Company.  Although the confirmation  date was May 23,
1996,  fresh-start reporting was adopted on July 31, 1996. Thee were no material
fresh-start related adjustments during the period May 23, 1996 to July 31, 1996.

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

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





<PAGE>

                                   (Continued)
              Notes to Consolidated Condensed Financial Statements
              for Six-Month Periods Ended October 31, 1997 and 1996
                                   (Unaudited)

<TABLE>
<CAPTION>
                                                 Balance                                           Reorganized
                                                   Sheet          Stock                                B/S
                                                 7/31/96         Exchange       Fresh Start          7/31/96
                                              ----------         --------       -----------        -----------
<S>                                                <C>           <C>            <C>               <C>  
Current Assets:
   Cash                                            4,957                                                4,957
   Accounts receivable, net                    1,258,182                                            1,258,182
   Inventory                                   2,268,853                                            2,268,853
   Prepaid & refundable income
      taxes                                      291,960                                              291,960
   Other assets                                  328,030                                              328,030
                                               ---------                                            ---------

      Total Current Assets                     4,151,982                                            4,151,982

Fixed assets, net                                203,863                                              203,863
Other assets                                      56,848                                               56,848
Reorganization value in excess
   of amounts allocable to
   Identifiable assets                             ---                            133,580             133,580
                                               ---------                         --------           ---------

      TOTAL ASSETS                             4,412,693            ---           133,580           4,546,273
                                               =========         ========        ========           =========

Current Liabilities:

   Loans payable--MG                             593,670                                              593,670
   Loans payable--Trade                           62,020                                               62,020
   Accounts payable & accrued
      expenses                                 3,294,925                                            3,294,925
   Capital lease obligations--
      Current                                     32,226                                               32,226
   Other current liabilities                     531,561          (15,923)         ---                515,638
                                               ---------         ---------       -------            ---------

      Total Current Liabilities                4,514,402          (15,923)         ---              4,498,479

Other Liabilities                                 21,658            ---            ---                 21,658
                                               ---------         --------        -------            ---------

   Total Liabilities                           4,536,060          (15,923)         ---              4,520,137
                                               ---------         ---------       -------            ---------

Common stock par value                            17,444          (17,444)         ---                 15,994
                                                                   15,994

Additional paid-in capital                       590,290         (590,291)       (580,021)             10,145
                                                                  590,167

Accumulated deficit                             (713,601)           ---           713,601                ---
                                               ----------        --------        --------           --------

                                                (105,867)          (1,574)        133,580              26,139

Less: Treasury stock                             (17,500)          17,497                                  (3)
                                               ----------        --------        --------           ----------

   Total Equity                                 (123,367)          15,923         133,580              26,136
                                               ----------        --------        --------           ---------

      TOTAL LIABILITIES AND
          EQUITY                               4,412,693             ---          133,580           4,546,273
                                               =========         =========       ========           =========

</TABLE>

The other Current Liabilities  adjustment is comprised of loans from MG Holdings
Corp. to pay creditors  pursuant to the Plan.  The liability to the  reorganized
company is $515,638.






<PAGE>
                                   (Continued)
              Notes to Consolidated Condensed Financial Statements
              for Six-Month Periods Ended October 31, 1997 and 1996
                                   (Unaudited)


3.  INVENTORIES:

The inventories consist of finished goods.

4.  PER SHARE INFORMATION:

Per share  information for the period ended October 31, 1997 is based on the new
shares issued in the  reorganization.  Therefore,  the Company believes that per
share  information  for the period  ended July 31, 1996 is not  meaningful.  All
share data for the  reorganized  Company has been  adjusted  for a  one-for-five
reverse stock split which was completed in September 1997.

5.  PUBLIC OFFERING:

The Company is offering for public sale 1,200,000 units,  each consisting of one
share of common  stock,  on Class A Warrant and one Class B Warrant at $5.00 per
unit.  Although no assurance can be given  that  the sale will be completed, the
Company intends to utilize the net proceeds of approximately  $4,920,000 for the
repayment of current debt,  purchase of inventory,  general corporate  services,
and working capital.



<PAGE>

                     Management's Discussion and Analysis of
                  Financial Condition and Results of Operations
                Six Months Ended October 31, 1997 as Compared to
                        Six Months Ended October 31, 1996

GENERAL

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

As a consequence  of the Company's  fresh-start  accounting as described  below,
which the Company adopted effective on July 31, 1996,  financial results for the
six months  ended  October 31,  1996 are  reported by  combining  the  financial
results for the  three-month  period ended October 31, 1996 and the three months
ended July 31, 1996.

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

PLAN OF REORGANIZATION

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

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



<PAGE>

                                   (Continued)
                     Management's Discussion and Analysis of
                  Financial Condition and Results of Operations
                Six Months Ended October 31, 19976 as Compared to
                        Six Months Ended October 31, 1996

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

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

RESULTS OF OPERATIONS

     Sales for the six months ended October 31, 1997 decreased by $1,952,000, or
34.6% to $3,694,000 from $5,646,000 for the combined periods of the three months
ended  October  31,  1996  and  July  31,  1996 of  $3,653,000  and  $1,993,000,
respectively.  Sales of sports  bags/luggage  products of $2,132,000 for the six
months ended October 31, 1997 were $1,178,000, or 35.5% less than the $3,310,000
of combined  sports  bags/luggage  sales for the three months ended  October 31,
1996 and the three  months  ended July 31, 1996 of  $2,196,000  and  $1,114,000,
respectively.  Sales of exercise products of $1,562,000 for the six months ended
October 31, 1997 were  $774,000,  or 32.7% less than the  $2,336,000 of combined
sales of exercise  products for the three months ended  October 31, 1996 and the
three months ended July 31, 1996 of $1,457,000 and $879,000, respectively.

The Company's  gross profit of  $1,218,000  for the six months ended October 31,
1997 was $411,000  less than the combined  gross  profit of  $1,629,000  for the
three months ended  October 31, 1996 and the three months ended July 31, 1996 of
$1,090,000 and $539,000, respectively. The reduced gross profit is the result of
the lower sales for the six months ended October 31, 1997.  Notwithstanding  the
decline in sales and the resulting  decrease in gross  profit,  the gross profit
percentage  increased by 4% over the combined six-month period ended October 31,
1996 due to sales of merchandise with a higher gross profit.

The  Company's  pretax  profit of $171,000 for the six months ended  October 31,
1997 was $13,000  higher than the  combined  pretax  profit of $158,000  for the
three months ended October 31, 1996 and the three months ended July 31, 1996.

The Company  believes  that the  decline in sales for this  period is  primarily
attributable  to a shift in focus from  increasing  sales  volume to  generating
revenues from  merchandise  that  produces a higher gross  profit.  As a result,
approximately  $294,000 and $904,000 of the decrease in the  Company's  exercise
and sports bags/luggage products,  respectively, were due to a decrease in sales
to one customer to whom the Company no longer  wished to sell products at prices
that would have an adverse impact on its gross profit percentage. The balance of
the  decrease  in sales of the  Company's  sports  bags/luggage  line was caused
primarily  by a large  shipment of  merchandise  which  occurred in October 1996
while the current year's shipment of merchandise  occurred in November 1997. The
Company  believes  that the  decision  to shift its focus  from an  emphasis  on
revenues to profit as discussed  above,  represents a positive  development that
has already resulted in an increase in the gross profit percentage. There can be
no assurance that this trend will continue in the future.
<PAGE>
                                   (Continued)
                     Management's Discussion and Analysis of
                  Financial Condition and Results of Operations
                Six Months Ended October 31, 19976 as Compared to
                        Six Months Ended October 31, 1996

     The  following  table  sets  forth the  results of  operations  for the  
periods discussed above:
<TABLE>
<CAPTION>
                                                                                 Predecessor
                                      Reorganized Company                          Company
                                 -------------------------------------          -------------
                                 For 6 Months            For 3 Months           For 3 Months
                                    Ended                   Ended                  Ended
                                 Oct. 31, 1997           Oct. 31, 1996          July 31, 1996
                                 -------------           -------------          -------------
<S>                              <C>                     <C>                       <C>       
Net Sales                        $3,694,000              $3,653,000                $1,993,000
Other Income                         11,000                  ---                       ---
                                  ---------              ----------                ----------
                                  3,705,000               3,653,000                 1,993,000
Cost of Goods
   Sold                           2,488,000               2,564,000                 1,455,000
                                  ---------              ----------                ----------
Gross Profit                      1,217,000               1,089,000                   538,000
Operating
   Expenses                         927,000                 744,000                   558,000
Interest                            118,000                  82,000                    57,000
                                  ---------               ---------                 ---------
                                  1,045,000                 826,000                   615,000
                                  ---------               ---------                 ---------
Bankruptcy
   Administration                     1,000                  28,000                     ---
                                  ---------               ---------                 ---------
Pretax Income
   (Loss)                           171,000                 235,000                   (77,000)
Provision for
   Income Taxes                      69,000                 108,000                     ---
                                  ---------               ---------                 ---------

Net Income
   (Loss)                        $  102,000              $  127,000                $  (77,000)
                                 ==========              ==========                ===========

</TABLE>


Due to the application of fresh-start  accounting,  the financial statements for
the periods  after  reorganization  are not  comparable  in any  respects to the
financial statements for the periods prior to the reorganization.  Therefore,  a
discussion  of the changes in  operating  expense  will compare the three months
ended  October 31, 1997 with the three months ended  October 31, 1996.  For this
discussion, see "Management's Discussion and Analysis of Financial Condition for
the Three  Months  Ended  October 31, 1997 as Compared to the Three Months Ended
October 31, 1996".


LIQUIDITY AND CAPITAL RESOURCES

Operating  activities  provided  cash  of  $165,000  for  the  six  months ended
October 31, 1997. Net income of $102,000,  along with a decrease in inventory of
$916,000  due to  lower  purchases,  were the  primary  providers  of cash  from
operations during the six months ended October 31, 1997.

Net  income  and  inventory   reductions  were  offset  by  increased   accounts
receivable, increases in prepaid expenses and a decrease in accounts payable and
accrued expenses of $145,000, $132,000 and $600,000, respectively.

Financing  activities  used  cash  of $195,000  due  primarily to an increase of
$181,000 in costs related to a stock  offering.  The Company had a negative cash
flow of $29,000 for the six months ended October 31, 1997.

Pursuant  to an  unwritten  understanding,  Achim  makes  its  lines  of  credit
available  to the Company  which will enable it to finance the  purchases of its
inventory  from its  overseas  suppliers.  Also,  from time to time,  Achim will
purchase  the products  directly  from the  manufacturer  and resell them to the
Company without markup. Achim charges the Company interest on the unpaid balance
of the purchases. The Company believes that cash generated by operations and the
availability  of  Achim's  credit  line to finance  the  Company's  purchase  of
inventory  will be  sufficient  to finance  its  operations  for the next twelve
months.


SEASONALITY

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


<PAGE>

                     Management's Discussion and Analysis of
                  Financial Condition and Results of Operations
               Three Months Ended October 31, 1997 as Compared to
                       Three Months Ended October 31, 1996

RESULTS OF OPERATIONS

Sales for the three months ended October 31, 1997 were $1,793,000,  or 49% lower
than the three months ended  October 31,  1996.  Sales of exercise  equipment of
$768,000 for the three months ended October 31, 1997 were $690,000,  or 47% less
than the three months ended October 31, 1996.  Sales of the sports  bags/luggage
products  of  $1,095,000  for the  three  months  ended  October  31,  1997 were
$1,103,000,  or 50% less than the three  months  ended  October  31,  1996.  The
Company  believes  that the  decline  in  sales  for this  period  is  primarily
attributable  to a shift in focus from  increasing  sales  volume to  generating
revenues from  merchandise  that  produces a higher gross  profit.  As a result,
approximately  $294,000 and $904,000 of the decrease in the  Company's  exercise
and sports bags/luggage products,  respectively, were due to a decrease in sales
to one customer to whom the Company no longer  wished to sell products at prices
that would have an adverse impact on its gross profit percentage. The balance of
the  decrease  in sales of the  Company's  sports  bags/luggage  line was caused
primarily  by a large  shipment of  merchandise  which  occurred in October 1996
while the current year's shipment of merchandise  occurred in November 1997. The
Company  believes  that the  decision  to shift its focus  from an  emphasis  on
revenues to profit as discussed  above,  represents a positive  development that
has already resulted in an increase in the gross profit percentage. There can be
no assurance that this trend will continue in the future.

The  Company's  gross  profit  decreased  by $432,000 for the three months ended
October 31, 1997  compared  to the three  months  ended  October 31,  1996.  The
decrease in the gross profit was primarily  the result of the  decreased  sales.
Notwithstanding the decline in sales and the resulting decrease in gross profit,
the gross profit percentage increased by 5.5% for the three months ended October
31, 1997  compared to the three  months  ended  October 31, 1996 due to sales of
merchandise with a higher gross profit.

Operating  expenses for the three months ended  October 1997 were  $254,000 less
than the three  months  ended  October 31, 1996.  This  decrease is  represented
approximately by net changes in the following expenses:

              Shipping fees................................$120,000
              Promotional expenses.........................$ 13,000
              Officer salaries.............................$ 38,000
              Insurance....................................$ 30,000
              Professional fees............................$ 58,000

Shipping  fees  decreased by $120,000 due to the decrease in sales.  Promotional
expenses  decreased  by  $13,000  due to  decreased  expenditures  in this area.
Officer salaries decreased by $38,000 as a result of the departure by the former
president of the Company in March 1997.  Insurance  expense decreased by $30,000
due to lower product  liability  premiums.  Professional  fees  decreased due to
lower expenditures in this area.

Pretax  income  for  the  three  months  ended  October 31, 1997 of $107,000 was
$128,000,  or 54.4% less than the three  months  ended  October  31,  1996,  due
primarily to the decrease in sales.

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

<PAGE>
                                   (Continued)
                     Management's Discussion and Analysis of
                  Financial Condition and Results of Operations
               Three Months Ended October 31, 1997 as Compared to
                       Three Months Ended October 31, 1996
<TABLE>
<CAPTION>

                                                                Three Months              Three Months
                                                                   Ended                     Ended
                                                                Oct. 31, 1997             Oct. 31, 1996
                                                                -------------             -------------
<S>                                                             <C>                       <C>        
          Sales                                                 $ 1,860,000               $ 3,653,000

          Other income                                                3,000                    ---
                                                                  ---------                 ---------

                                                                  1,863,000                 3,653,000

          Cost of sales                                           1,205,000                 2,564,000
                                                                  ---------                 ---------

          Gross profit                                              658,000                 1,089,000

          Operating expenses                                        490,000                   744,000

          Interest                                                   59,000                    82,000
                                                                  ---------                 ---------

                                                                    549,000                   826,000

          Bankruptcy administration                                   1,000                    28,000
                                                                  ---------                 ---------

          Pretax income                                             108,000                   235,000

          Provision for income taxes                                 45,000                   109,000
                                                                  ---------                 ---------

          Net income                                            $    63,000               $   126,000
                                                                ===========               ===========

</TABLE>


<PAGE>



                                     Part II



                                OTHER INFORMATION



                                 Not Applicable


<PAGE>

                                   SIGNATURES



Pursuant to the  requirements  of the  Securities  and Exchange Act of 1934, the
Registrant  has duly  caused  this  report  to be  signed  on its  behalf by the
undersigned thereunto duly authorized.



                           DYNAMIC INTERNATIONAL, LTD.









Date December 16, 1997         By /s/ William P. Dolan
                                 ______________________________________________
                                  William P. Dolan, Vice President, Finance