<PAGE>   1
                                    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 July 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 August 31, 1997, 3,198,798 shares* of the Registrant's common stock par
value $.001 were issued and outstanding.









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

* Share data has been adjusted for a one-for-five reverse stock split that is
expected to be completed in September 1997.
<PAGE>   2
                         DYNAMIC INTERNATIONAL, LTD.
                                      
                                      
                                      
                                      
                                    INDEX



<TABLE>
<CAPTION>
                                                                                       Page No.
                                                                                       --------
                                                                    
<S>               <C>                                                            <C>
Part I.    Financial Information                                    
                                                                    
                                                                    
           Consolidated Condensed Balance Sheets                    
           as of July 31, 1997 and April 30, 1997                                      3
                                                                    
                                                                    
           Consolidated Condensed Statements of Operations          
           for the Three Months Ended July 31, 1997 and 1996                           4
                                                                    
                                                                    
           Consolidated Condensed Statements of Cash Flows          
           for the Three Months Ended July 31, 1997 and 1996                           5
                                                                    
                                                                    
           Notes to Consolidated Condensed Financial Statements     
           for the Three-Month Periods Ended July 31, 1997          
           and 1996                                                       6, 7, 8, 9, 10
                                                                    
                                                                    
           Management's Discussion and Analysis of Financial        
           Condition and Results of Operations -- Three Months      
           Ended July 31, 1997 as Compared to Three Months Ended    
           July 31, 1996                                                      11, 12, 13
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
Part II.   Other Information                                                          14
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
Signatures                                                                            15
</TABLE>

                                      -2-
<PAGE>   3
                         DYNAMIC INTERNATIONAL, LTD.
                                      
                                      
                                      
                    Consolidated Condensed Balance Sheets
                                 (Unaudited)

<TABLE>
<CAPTION>
                                                       July 31, 1997       April 30, 1997
                                                       -------------       --------------
<S>                                                    <C>                 <C>
Current Assets
Cash                                                    $    59,245         $    43,543
Accounts Receivable - (Net of allowance for
   doubtful accounts of $167,000)                         1,063,147             887,089
Due from Suppliers                                           45,435              65,273
Inventory                                                 2,786,336           3,301,735
Prepaid Expenses                                            155,618              60,272
Miscellaneous                                                 2,658               2,658
Income Taxes Receivable                                      56,003              39,914
                                                        -----------         -----------
Total Current Assets                                      4,168,442           4,400,484
Fixed Assets, at Cost, Less Accumulated
   Depreciation                                             108,204             125,291
Due from Suppliers                                           36,142              36,142
Security Deposits                                             4,650               4,650
Deferred Stock Offering Costs                               189,867             116,023
Reorganization value in excess of amounts
   allocable to identifiable assets, net                    121,436             124,472
                                                        -----------         -----------
Total Assets                                            $ 4,628,741         $ 4,807,062
                                                        ===========         ===========
Liabilities and Shareholders Equity (Deficit)
Current Liabilities
Accounts Payable & Accrued Expenses, Non-related        $   710,549         $   846,234
Accounts Payable & Accrued Expenses, Related              2,655,946           2,627,580
Capital Lease Obligations, Current                           18,261              24,228
Income Taxes Payable                                             --             103,700
Loans payable - related party                             1,005,350             844,531
                                                        -----------         -----------
Total Current Liabilities                                 4,390,106           4,446,273
Other Liabilities
                                                                            -----------
Loan Payable - related party                                 54,435             215,254
                                                        -----------         -----------
Total Liabilities                                         4,444,541           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)                                            158,064             119,399
                                                        -----------         -----------
Total                                                       184,203             145,538
Less Treasury Stock                                              (3)                 (3)
                                                        -----------         -----------
Total Shareholders' Equity                                  184,200             145,535
                                                        -----------         -----------
Total Liabilities & Shareholders Equity                 $ 4,628,741         $ 4,807,062
                                                        ===========         ===========
</TABLE>

See Accompanying Notes to Consolidated Condensed Financial Statements.

                                     -3-
<PAGE>   4
                         DYNAMIC INTERNATIONAL, LTD.
                                      
                                      
                                      
                                      
               Consolidated Condensed Statements of Operations
                      For the Three Months Ended July 31
                                 (Unaudited)


<TABLE>
<CAPTION>
                                                         Reorganized              Predecessor
                                                           Company                  Company
                                                          For the 3                For the 3
                                                         Months Ended             Months Ended
                                                        July 31, 1997            July 31, 1996
                                                        -------------            -------------
<S>                                                     <C>                     <C>
Net Sales                                                 $1,842,121              $ 1,993,365
                                                                              
Cost of Goods Sold                                         1,282,334                1,454,637
                                                          ----------              -----------
                                                                              
Gross Profit                                              $  559,787              $   538,728
                                                          ----------              -----------
                                                                              
Selling, General and Administrative Expenses                 437,146                  557,822
                                                                              
Interest                                                      59,926                   57,270
                                                          ----------              -----------
                                                                              
                                                          $  497,072              $   615,092
                                                          ----------              -----------
                                                                              
Net Income (Loss) Before Tax                                  62,715                  (76,364)
                                                                              
Provision for Income Taxes                                    24,050                       --
                                                          ----------              -----------
                                                                              
Net Income (Loss)                                         $   38,665              ($   76,364)
                                                          ==========              ===========
                                                                              
Income (Loss) per Common Share                                   .01                     (.02)
                                                                              
Weighted Average Number of Common Shares                                      
     Outstanding                                           3,198,258                3,198,258
                                                                              
Cash Dividends per Common Share                                 None                     None
</TABLE>
                                                                              
See Accompanying Notes to Consolidated Condensed Financial Statements.

                                     -4-
<PAGE>   5
                         DYNAMIC INTERNATIONAL, LTD.
                                      
                                      
                                      
                                      
               Consolidated Condensed Statements of Cash Flows
                      for the Three Months Ended July 31
                                 (Unaudited)

<TABLE>
<CAPTION>
                                                               Reorganized             Predecessor
                                                                 Company                 Company
                                                                For the 3               For the 3
                                                               Months Ended            Months Ended
                                                              July 31, 1997           July 31, 1996
                                                              -------------           -------------
<S>                                                           <C>                     <C>
Cash Flows from Operating Activities

Net income (loss)                                               $  38,665               $ (76,364)
                                                                                      
Adjustments to reconcile net income (loss) to                                         
net cash provided (used) by operating activities:                                     
     Depreciation and amortization                                 20,124                  26,191
     Interest converted to principal                                   --                  36,670
                                                                                      
(Increase) decrease in operating assets:                                              
     Accounts receivable and due from suppliers                  (156,220)               (221,255)
     Inventory                                                    515,399                 115,616
     Prepaid expenses                                             (95,346)               (100,596)
     Miscellaneous receivables                                         --                      --
     Prepaid and refundable income taxes                          (16,089)                   (812)
                                                                                      
Increase (decrease) in operating liabilities:                                         
     Accounts payable and accrued expenses                       (135,686)                155,784
     Income taxes payable                                        (103,700)                     --
                                                                ---------               ---------
                                                                                      
Net Cash Provided (Used) by Operating Activities                   67,147                 (64,766)
                                                                                      
Cash Flows from Investing Activities                                                  
                                                                                      
Net Cash Used by Investing Activities                                  --                      --
                                                                ---------               ---------
                                                                                      
Cash Flows from Financing Activities                                                  
                                                                                      
Proceeds from accounts payable, related party, net                 28,366                      --
Repayment of capital lease obligations                             (5,967)                (18,812)
Proceeds from insurance note payable                                   --                  77,225
Repayment of insurance note payable                                    --                 (15,205)
Payment of deferred offering costs                                (73,844)                     --
                                                                ---------               ---------
                                                                                      
Net Cash Provided (Used) by Financing Activities                  (51,445)                 43,208
                                                                ---------               ---------
                                                                                      
Net increase (decrease) in cash and                                                   
cash equivalents                                                   15,702                 (21,558)
                                                                                      
Cash and cash equivalents, beginning of period                     43,543                  26,515
                                                                ---------               ---------
                                                                                      
Cash and cash equivalents, end of period                        $  59,245               $   4,957
                                                                =========               =========
</TABLE>
                                                                                
Income tax note: The Company made income tax payments of $163,534 during the 
                 three months ended July 31, 1997.

See Accompanying Notes to Consolidated Financial Statements.

                                     -5-
<PAGE>   6
                         DYNAMIC INTERNATIONAL, LTD.
                                      
                                      
                                      
                                      
             Notes to Consolidated Condensed Financial Statements
           for the Three-Month Periods Ended July 31, 1997 and 1996
                                   (Unaudited)


1.  BASIS OF PRESENTATION

The Consolidated Condensed Balance Sheet as of July 31, 1997 and the related
Consolidated Condensed Statements of Operations and Consolidated Condensed
Statements of Cash Flows for the three-month periods ended July 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
three-month period ended July 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 or Reorganization was
filed by the Company on October 30, 1995 and subsequently amended and modified
on February 22, 1996. On April 5, 1996, the creditors voted to accept the
amended and modified Plan (the "Plan"), and on May 23, 1996, the court confirmed
the Plan. The Plan was substantially consummated in August 1996. For accounting
purposes, the Company assumed 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.

                                                                  Continued.....

                                     -6-
<PAGE>   7
                         DYNAMIC INTERNATIONAL, LTD.
                                      
                                      
                                      
                                      
                                 (Continued)
             Notes to Consolidated Condensed Financial Statements
           for the Three-Month Periods Ended July 31, 1997 and 1996
                                 (Unaudited)



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; 160,000 shares
were issued to unsecured creditors; and 62,798 shares were issued to the
reconfirmation common stock equity interest holder.

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 and light
exercise equipment and sports bags/luggage, 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") (which is 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 July 31, 1996 by the American
Institute of Certified Public Accountants. 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 fifty percent of the voting
shares of the emerging entity, both conditions of which were satisfied by the
Company. Although the confirmation date was May 23, 1996, fresh-start reporting
was adopted on July 31, 1996. There were no material fresh-start related
adjustments during the period May 23, 1996 to July 31, 1996.

                                                                  Continued.....

                                     -7-
<PAGE>   8
                         DYNAMIC INTERNATIONAL, LTD.
                                      
                                      
                                      
                                      
                                 (Continued)
             Notes to Consolidated Condensed Financial Statements
           for the Three-Month Periods Ended July 31, 1997 and 1996
                                 (Unaudited)




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.

                                                                  Continued.....
                                      
                                     -8-
<PAGE>   9
                         DYNAMIC INTERNATIONAL, LTD.
                                      
                                      
                                      
                                 (Continued)
             Notes to Consolidated Condensed Financial Statements
           for the Three-Month Periods Ended July 31, 1997 and 1996
                                 (Unaudited)

The following is a proforma Balance Sheet of the Reorganized Company based on
the discounted cash flows as discussed above:


<TABLE>
<CAPTION>
                                                  Balance                                          Reorganized
                                                   Sheet          Stock                              Company
                                                 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                         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:
     Non-current                                  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

Treasury Stock                                  ( 17,500)          17,497           ---                    (3)
                                                ---------        --------        ---------          ----------

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

     TOTAL LIABILITIES AND
          EQUITY (DEFICIT)                     4,412,693            ---           133,580           4,546,273
                                               =========         =========       ========           =========
</TABLE>

                                     -9-
<PAGE>   10
                         DYNAMIC INTERNATIONAL, LTD.
                                      
                                      
                                      
                                      
                                 (Continued)
             Notes to Consolidated Condensed Financial Statements
           for the Three-Month Periods Ended July 31, 1997 and 1996
                                 (Unaudited)


3.  INVENTORIES

The inventories consist of finished goods.

4.  OTHER ITEMS

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 successful, the
Company intends to utilize the net proceeds of approximately $5,100,000 for the
repayment of current debt, purchase of inventory, general corporate services,
and working capital.

Simultaneous with the public offering, the Company intends to declare a
one-for-five reverse stock split. All share data for the reorganized Company has
been adjusted for the split.

                                     -10-
<PAGE>   11
                         DYNAMIC INTERNATIONAL, LTD.
                                      
                                      
                                      
                                      
                   Management's Discussion and Analysis of
                Financial Condition and Results of Operations
                       Three Months Ended July 31, 1997
                                as Compared to
                       Three Months Ended July 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".

PLAN OF REORGANIZATION

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

In May 1996, the Bankruptcy Court approved a plan of reorganization pursuant to
which creditors would receive partial satisfaction of their claims. The amount
of claims allowed under the bankruptcy proceedings aggregated approximately
$17,223,800, which exceeded the assets as recorded immediately subsequent to the
confirmation of the Plan by approximately $12,970,400. Under the Plan, the
Company made cash payments in the amount of approximately $515,800. MG Holding
Corp. ("MG"), which had purchased a promissory note from the Company's principal
financial institution, received 14,880,000 shares of Common Stock, in
satisfaction of such promissory note, representing approximately 93% of the
issued and outstanding shares thereby gaining absolute control over the
Company's affairs. An additional 800,000 shares and 320,000 shares were issued
to the Company's unsecured creditors and the Company's existing security
holders, respectively. The value of the cash and securities distributed under
the Plan 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.
Numbers of shares issued under the Plan and disclosed herein have not been
adjusted for the reverse stock split.

                                                                  Continued.....

                                     -11-
<PAGE>   12
                         DYNAMIC INTERNATIONAL, LTD.
                                      
                                      
                                      
                                      
                                 (Continued)
                   Management's Discussion and Analysis of
                Financial Condition and Results of Operations
                       Three Months Ended July 31, 1997
                                as Compared to
                       Three Months Ended July 31, 1996

RESULTS OF OPERATIONS

Sales for the three months ended July 31, 1997 decreased from $1,993,000 to
$1,842,000, totaling $151,000 or 7.5% from the three months ended July 31, 1996.
Sales of the Company's exercise equipment and sports bags/luggage lines
decreased by $76,000 and $75,000, respectively.

The Company does not believe that the decrease in sales of its products
represents a material trend. The Company believes that the decrease is primarily
the result of the reorganization proceedings. The Company will attempt to
reverse this trend by expanding its product lines and increasing the
attractiveness of its products by developing new packaging. There can be no
assurance that the Company will be successful in this effort.

Operating expenses decreased by approximately $122,000 due primarily to
decreases in the following expenses:

<TABLE>
<CAPTION>
<S>               <C>                                <C>
                  Officer salaries                   $ 38,000
                  Salesmen salaries                  $ 23,000
                  Office salaries                    $ 17,000
                  Payroll taxes                      $  4,000
                  Travel & entertainment             $ 12,000
                  Insurance                          $ 12,000
                  Shipping expenses                  $ 46,000
</TABLE>

Interest expense remained relatively constant.

The Company had a pretax profit of $62,715 compared to a pretax loss of $76,364
in the prior year's three-month period.

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

<TABLE>
<CAPTION>                       
                                         Reorganized            Predecessor
                                           Company                Company
                                          For the 3              For the 3
                                        Months Ended            Months Ended
                                        July 31, 1997           July 31, 1996
                                        -------------           -------------
<S>                                     <C>                     <C>
Net Sales                                 1,842,000               1,993,000
Cost of Sales                             1,282,000               1,454,000
                                          ---------               ---------
Gross Profit                                560,000                 539,000
                                          ---------               ---------
Operating Expenses                          438,000                 558,000
Interest                                     60,000                  57,000
                                          ---------               ---------
                                            498,000                 615,000
                                          ---------               ---------
Pretax Income                                62,000                 (76,000)
Tax Provision                                24,000                   ---
                                          ---------               ----------
Income                                       38,000                 (76,000)
                                             ======                 ========
</TABLE>                        
                                          
                                                      Continued.....
                                
                                     -12-
<PAGE>   13
                         DYNAMIC INTERNATIONAL, LTD.
                                      
                                      
                                      
                                      
                                 (Continued)
                   Management's Discussion and Analysis of
                Financial Condition and Results of Operations
                       Three Months Ended July 31, 1997
                                as Compared to
                       Three Months Ended July 31, 1996

LIQUIDITY AND CAPITAL RESOURCES

During the three months ended July 31, 1997, cash provided by operating
activities was $67,147. This was primarily the result of the net income of
$38,000 and a decrease in inventory of $515,000. These sums were offset by
increases in accounts receivable and due from suppliers of $156,000; prepaid
expenses of $95,346; decreases in accounts payable and accrued expenses of
$135,685; and income taxes payable of $103,000.

Financing activities used cash of $51,445.

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.

                                     -13-
<PAGE>   14
                         DYNAMIC INTERNATIONAL, LTD.
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                          Part II. Other Information
                                      
                                      
                                      
                                Not Applicable
                                      
                                     -14-
<PAGE>   15
                         DYNAMIC INTERNATIONAL, LTD.
                                      
                                      
                                      
                                      
                                  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: September 19, 1997          By /s/ William P. Dolan
      ------------------             -----------------------------------------
                                     William P. Dolan, Vice President, Finance

                         
                                     -15-