<PAGE>   1
                                   FORM 10-Q/A



                       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, 1996            Commission File Number 0-21475



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



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



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



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



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


                                Yes [ ]   No [x]


As of January 31, 1997, 15,993,991 shares of the Registrant's common stock par
value $.001 were issued and outstanding.


                                       -1-
<PAGE>   2
                                      INDEX
<TABLE>
<CAPTION>
                                                                        Page No.
                                                                        --------

PART I   FINANCIAL INFORMATION
         <S>                                                            <C>
         Consolidated Condensed Balance Sheets
         as of October 31, 1996 and April 30, 1996...................      3

         Consolidated Condensed Statements of Operations
         for Three Months Ended October 31, 1996, Three
         Months Ended July 31, 1996, Six Months Ended
         October 31, 1995 and Three Months Ended October
         31, 1995....................................................      4

         Consolidated Condensed Statements of Cash Flows
         for Three Months Ended October 31, 1996, Three
         Months Ended July 31, 1996 and Six Months Ended
         October 31, 1995............................................      5

         Notes to Consolidated Condensed Financial Statements
         for Six-Month Periods Ended October 31, 1996 and
         1995........................................................      6

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

         Management's Discussion and Analysis of Financial
         Condition and Results of Operations for Six Months
         Ended Oct. 31, 1996 As Compared to Six Months Ended
         October 31, 1995............................................     10

              General................................................     10
              Plan of Reorganization.................................     10
              Results of Operations..................................     11
                   Three Months Ended October 31, 1997...............     11
              Liquidity and Capital Resources........................     13
                   Three Months Ended October 31, 1996...............     13
                   Three Months Ended July 31, 1996..................     13
              Seasonality............................................     13

Part II  OTHER INFORMATION...........................................     14

SIGNATURES...........................................................     15
</TABLE>

                                       -2-
<PAGE>   3
                     Consolidated Condensed Balance Sheets
                   As of October 31, 1996 and April 30, 1996
                                  (Unaudited)

<TABLE>
<CAPTION>
                                                     (See Note 2)
                                                     Reorganized    Predecessor
                                                       Company        Company
                                                      10/31/96        4/30/96
                                                     -----------    -----------
<S>                                                  <C>            <C>
Current Assets

Cash                                                 $     2,135    $    26,515
Accounts Receivable - Trade (Net of allowance
   for doubtful accounts of $167,000 in 1996
   & $167,000 in 1995)                                 1,982,694      1,036,927
Due from Suppliers                                        10,704         26,760
Inventory                                              2,010,466      2,384,469
Prepaid Expenses                                         164,156         81,693
Miscellaneous Receivables                                135,039        135,039
Prepaid & Refundable Income Taxes                        182,656        291,146
                                                     -----------    -----------
Total Current Assets                                   4,487,850      3,982,549

Fixed Assets, at Cost, Less Accumulated
   Depreciation                                          177,674        230,055
Due from Suppliers                                        52,198         36,142
Security Deposits                                          4,650          4,650
Reorganization value in excess of amounts
   allocable to identifiable assets                      121,332             --
                                                     -----------    -----------
Total Assets                                         $ 4,843,704    $ 4,253,396
                                                     ===========    ===========
Liabilities and Shareholders Equity (Deficit)

Current Liabilities

Note payable, trade                                  $    35,440    $        --
Accounts Payable & Accrued Expenses, Non-Related         806,295      1,009,248
Accounts Payable & Accrued Expenses, Related           2,604,862      2,129,893
Capital Lease Obligations, Current                        29,190         48,732
Loans payable - Related Party                          1,205,109        557,000
Other liabilities                                             --        531,560
                                                     -----------    -----------
Total Current Liabilities                              4,680,896      4,276,433

Other Liabilities

Capital Lease Obligations, Net of Current Portion         10,530         23,965
                                                     -----------    -----------
Total Liabilities                                      4,691,426      4,300,398

Shareholders Equity

Common Stock, par value $.001 per share ($.01
   in 1995); authorized 50,000,000 shares
   (5,000,000 in 1995); issued 15,993,991
   (1,744,396 in 1995)                                    15,994         17,444
Additional Paid-In Capital                                10,145        590,291
Retained Earnings (since July 31, 1996, date
   of reorganization, total deficit eliminated
   was $713,601)                                         126,142             --
Accumulated deficit                                           --       (637,237)
                                                     -----------    -----------
Total                                                    152,281        (29,502)

Less Treasury Stock                                           (3)       (17,500)
                                                     -----------    -----------
Total Shareholders' Equity (Deficit)                     152,278        (47,002)
                                                     -----------    -----------
Total Liabilities & Shareholders Equity (Deficit)    $ 4,843,704    $ 4,253,396
                                                     ===========    ===========
</TABLE>

See Accompanying Notes to Consolidated Condensed Financial Statements.


                                       -3-
<PAGE>   4
                 Consolidated Condensed Statements of Operations
   For Three Months Ended October 31, 1996, Three Months Ended July 31, 1996,
    Six Months Ended October 31, 1995 and Three Months Ended October 31,1995
                                   (Unaudited)

<TABLE>
<CAPTION>
                               Reorganized
                                 Company                    Predecessor Company
                               -----------     ---------------------------------------------
                              For the Three   For the Three    For the Six      For the Three
                              Months Ended    Months Ended     Months Ended     Months Ended
                              Oct. 31, 1996   July 31, 1996    Oct. 31, 1995    Oct. 31, 1995
                               -----------     -----------      -----------      -----------
<S>                           <C>             <C>              <C>              <C>
Net Sales                      $ 3,653,321     $ 1,993,365      $ 1,454,895      $ 1,263,666

Cost of Goods Sold               2,563,612       1,454,637        4,084,355          743,035
                               -----------     -----------      -----------      -----------

Gross Profit                     1,089,709         538,728       (2,629,460)         520,631

Operating Expenses                 744,384         557,822        4,544,752        2,982,963

Interest                            82,323          57,270          191,448          (29,066)
                               -----------     -----------      -----------      -----------

                                   826,707         615,092        4,736,200        2,953,897
                               -----------     -----------      -----------      -----------

Bankruptcy Administration           28,370              --          402,050          402,050
                               -----------     -----------      -----------      -----------

Pretax Income (Loss)               234,632         (76,364)      (7,767,710)      (2,835,316)

Provision for Income Taxes         108,490              --               --               --
                               -----------     -----------      -----------      -----------

Net Income (Loss)              $   126,142     $   (76,364)     $(7,767,710)     $(2,835,316)
                               ===========     ===========      ===========      ===========

Income per Common Share               0.01

Number of Common Shares
   Outstanding                  15,993,991              --               --               --

Cash Dividends per Common
   Share                              NONE            NONE             NONE             NONE
</TABLE>

See Accompanying Notes to Consolidated Condensed Financial Statements.


                                       -4-
<PAGE>   5
                 Consolidated Condensed Statements of Cash Flows
    for Three Months Ended October 31, 1996, Three Months Ended July 31, 1996
                      and Six Months Ended October 31, 1995
                                   (Unaudited)

<TABLE>
<CAPTION>
                                                                          Predecessor
                                              Reorganized Company           Company
                                         ----------------------------      -----------
                                          For the 3        For the 3       For the 6
                                        Months Ended     Months Ended     Months Ended
                                          10/31/96          7/31/96         10/31/95
                                         -----------      -----------      -----------
<S>                                     <C>              <C>              <C>
Net Cash Used in Operating
   Activities                            $   (57,879)     $   (64,766)     $(1,457,512)

Cash Flows from Investing
   Activities

Acquisition of Property and
   Equipment                                      --               --          (37,272)
                                         -----------      -----------      -----------

Net Cash Used in Investing
   Activities                                     --               --          (37,272)

Cash Flows from Financing
   Activities

Proceeds from Notes Payable                       --               --        3,410,402
Repayments of Notes Payable                       --               --               --
Proceeds from Bankers Acceptances                 --               --        1,118,516
Repayments of Bankers Acceptances                 --               --       (4,127,139)
Proceeds from Officers Loan Payable               --               --               --
Repayments of Capital Leases                 (14,164)         (18,812)         (36,082)
Proceeds from Insurance Note Payable              --           77,225          230,735
Payments of Insurance Notes Payable          (26,580)         (15,205)         (89,987)
Increase in Note Payable to Related
   Party                                      95,801               --          725,395
                                         -----------      -----------      -----------

Net Cash Provided by Financing
   Activities                                 55,057           43,208        1,231,840

Net Decrease in Cash                          (2,822)         (21,558)        (262,944)

Cash and Cash Equivalents--
   Beginning of Period                         4,957           26,515          342,571
                                         -----------      -----------      -----------

Cash and Cash Equivalents--
   End of Period                         $     2,135      $     4,957      $    79,627
                                         ===========      ===========      ===========
</TABLE>

Supplemental disclosures of Cash Flow information:

Debt Note: Interest paid during the three months ended October 31, 1996, the
           three months ended July 31, 1996 and the six months ended October 31,
           1995 was $0, $1,553 and $203,964, respectively.

Income Tax Note: The Company made no income tax payments during the three months
                 ended October 31, 1996, the three months ended July 31, 1996
                 and the six months ended October 31, 1995.

See Accompanying Notes to Consolidated Condensed Financial Statements.


                                       -5-
<PAGE>   6
              Notes to Consolidated Condensed Financial Statements
              for Six-Month Periods Ended October 31, 1996 and 1995
                                   (Unaudited)


1.  BASIS OF PRESENTATION:

The consolidated condensed balance sheet as of October 31, 1996 and the related
consolidated condensed statements of operations and consolidated condensed
statements of cash flows for the six-month periods ended October 31, 1996 and
1995 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, 1996 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, 1996 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.

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 15,993,991 shares of new common stock was issued on July 25, 1996,
out of which 14,880,000 shares were issued to one secured creditor which also
satisfied $15,923 of loans made by the chief executive officer of the Company to
the Company; 800,000 shares were issued to unsecured creditors, and 313,990
shares were issued to the reconfirmation common stock equity interest holders.


                                       -6-
<PAGE>   7

                                   (Continued)
              Notes to Consolidated Condensed Financial Statements
              for Six-Month Periods Ended October 31, 1996 and 1995
                                   (Unaudited)

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:


                                       -7-
<PAGE>   8

                                   (Continued)
              Notes to Consolidated Condensed Financial Statements
              for Six-Month Periods Ended October 31, 1996 and 1995
                                   (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.


                                       -8-
<PAGE>   9
                                   (Continued)
              Notes to Consolidated Condensed Financial Statements
              for Six-Month Periods Ended October 31, 1996 and 1995
                                   (Unaudited)


3.  INVENTORIES:

The inventories consist of finished goods.

4.  PER SHARE INFORMATION:

Per share information for the period ended October 31, 1996 is based on the new
shares issued in the reorganization. Therefore, the Company believes that per
share information for the period ended October 31, 1995 is not meaningful.


                                       -9-
<PAGE>   10

                     Management's Discussion and Analysis of
                  Financial Condition and Results of Operations
                  Six Months Ended Oct. 31, 1996 as Compared to
                         Six Months Ended Oct. 31, 1995

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 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 313,900 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.


                                      -10-
<PAGE>   11

                                   (Continued)
                     Management's Discussion and Analysis of
                  Financial Condition and Results of Operations
                  Six Months Ended Oct. 31, 1996 as Compared to
                         Six Months Ended Oct. 31, 1995


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

Three Months Ended October 31, 1997:

Total sales of $3,653,000 and $1,993,000 for the three months ended October 31,
1996 and July 31, 1996, respectively, were, on a combined basis, $5,646,000, or
288% higher than during the six months ended October 31, 1995. Sales of exercise
equipment of $1,457,000 and $879,000 for the three months ended October 31, 1996
and the three months ended July 31, 1996, respectively, were, on a combined
basis, $2,336,000. These combined sales of exercise products were $416,000 more
than the six months ended October 31, 1995. Sales of sports bags/luggage
products of $2,196,000 and $1,114,000 for the three months ended October 31,
1996 and the three months ended July 31, 1996, respectively, were, on a combined
basis, $3,310,000. These combined sales were $838,000 or 33% more than the six
months ended October 31, 1995. Sales for the six months ended October 31, 1995
were reduced by $3,211,000 of customer credits for a discontinued line of manual
treadmills and ski machines.

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

The Company's gross profits of $1,089,000 and $538,000 for the three months
ended October 31, 1996 and July 31, 1996, respectively, were, on a combined
basis, $1,627,000 or 162% higher than the six months ended October 31, 1995.
This increase is due to the credits of $3,211,000 issued to customers in
connection with a discontinued line of manual treadmills and ski machines which
reduced the sales for the six months ended October 31, 1995.

The following table sets forth the financial statement effect of the Company's
line of treadmills and ski machines for the periods indicated for the six months
ended October 31, 1995:

<TABLE>
<CAPTION>
                                         Predecessor Company
                                             -----------
                                          For the 6 Months
                                           Ended 10/31/95
                                             -----------
<S>                                      <C>
                   Sales                     $   597,000
                   Credits                    (3,211,000)
                                             -----------
                   Net Sales                  (2,614,000)
                   Cost of Sales                 156,000
                                             -----------
                   Gross Profit              $(2,770,000)
                                             ===========
</TABLE>


                                      -11-
<PAGE>   12
                                   (Continued)
                     Management's Discussion and Analysis of
                  Financial Condition and Results of Operations
                  Six Months Ended Oct. 31, 1996 as Compared to
                         Six Months Ended Oct. 31, 1995


Operating expenses of $744,000 and $558,000 for the three months ended October
31, 1996 and the three months ended July 31,1996, respectively, were, on a
combined basis, $3,243,000 less than the six months ended October 31, 1996, due
to the reorganization.

The following is a discussion of the Company's reorganization and adoption of
fresh-start reporting on the various income statement line items during the
three months ended October 31, 1996. For this purpose, the three months ended
October 31, 1996 are compared to the three months ended October 31, 1995.
Decreases of $2,239,000 for the three months ended October 31, 1996 compared to
the three months ended October 31, 1995 are represented approximately by net
changes in the following expenses:

<TABLE>
<S>                                    <C>
      Warehouse Salaries               $  61,000
      Officers Salaries                $  34,000
      Office Salaries                  $ 246,000
      Payroll Taxes                    $  29,000
      Fringe Benefits                  $   8,000
      Showroom Rent                    $ 257,000
      Telephone                        $  14,000
      Promotional Material             $  59,000
      Pension Costs                    $ 743,000
      Insurance                        $ 101,000
      Lawsuits                         $ 290,000
      Consulting Fees                  $ 120,000
      Bad Dept Expense                 $ 543,000
</TABLE>

      Warehouse salaries decreased by $61,000 due to the elimination of
      warehouse employees under the reorganization. Officers salaries decreased
      by $34,000 due to a reduction in salary of the former President of the
      Company in September 1995 and the elimination of a Chief Operating Office
      position in December 1995. Office salaries decreased by $246,000 due to
      the overall reduction in office and administrative staff in the
      reorganization. Payroll taxes and fringe benefits decreased by $29,000 and
      $8,000, respectively, due primarily to the positions and employees
      eliminated during the reorganization. Showroom rent decreased by $257,000
      because a proof of claim for the balance of the lease was recorded during
      the three months ended October 1995. Telephone expenses decreased by
      $14,000 due to the reduction in staff. Promotional expenses decreased by
      $59,000 due to decreased spending. Pension costs decreased by $743,000
      because a proof of claim was filed by the Pension Benefit Guarantee Corp.
      and was entered on the Company's records during the three months ended
      October 1995. Insurance expense decreased by $101,000 due to lower
      liability premiums. Lawsuits expense decreased by $290,000 as a result of
      proofs of claim filed during the bankruptcy proceeding as liabilities
      subject to compromise during the three months ended October 31, 1995.
      Consulting costs decreased by $120,000 because consultants were not hired
      during the reorganization. Bad debt expense decreased by $543,000 because
      of decreased sales value and improved collections.

The Company's pretax profit of $159,000 for the six months ended October 31,
1996 is comprised of a $76,000 loss for the period May 1, 1996 to July 31, 1996,
and a $235,000 profit for the period August 1, 1996 through October 31, 1996.

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

<TABLE>
<CAPTION>
                               Reorganized
                                 Company                   Predecessor Company
                               -----------     ---------------------------------------------
                              For the Three   For the Three    For the Six      For the Three
                              Months Ended    Months Ended     Months Ended     Months Ended
                              Oct. 31, 1996   July 31, 1996    Oct. 31, 1995    Oct. 31, 1995
                               -----------     -----------      -----------      -----------
<S>                           <C>             <C>              <C>              <C>
Net Sales                      $ 3,653,000     $ 1,993,000      $ 1,455,000      $ 1,264,000
Cost of Goods Sold               2,564,000       1,455,000        4,084,000          743,000
                               -----------     -----------      -----------      -----------
Gross Profit                     1,089,000         538,000       (2,629,000)         521,000
Operating Expenses                 744,000         558,000        4,545,000        2,983,000
Interest                            82,000          57,000          191,000          (29,000)
                               -----------     -----------      -----------      -----------
                                   826,000         615,000        4,736,000        2,954,000
                               -----------     -----------      -----------      -----------
Bankruptcy Administration           28,000              --          402,000          402,000
                               -----------     -----------      -----------      -----------
Pretax Income (Loss)               235,000         (77,000)      (7,767,710)      (2,835,000)
Provision for Income Taxes         108,000              --               --               --
                               -----------     -----------      -----------      -----------

Net Income (Loss)              $   127,000     $   (77,000)     $(7,767,000)     $(2,835,000)
                               ===========     ===========      ===========      ===========
</TABLE>


                                      -12-
<PAGE>   13
                                   (Continued)
                     Management's Discussion and Analysis of
                  Financial Condition and Results of Operations
                  Six Months Ended Oct. 31, 1996 as Compared to
                         Six Months Ended Oct. 31, 1995


LIQUIDITY AND CAPITAL RESOURCES

Three Months Ended October 31, 1996:

During the three months ended October 31, 1996, cash used in operating
activities amounted to $57,900. This was the result of net income of $126,000,
decreases in inventory, prepaid expenses, prepaid and refundable taxes and an
increase in accounts payable and accrued expenses (non-related and related
combined) of $258,400, $18,100, $109,304 and $116,200, respectively. These items
were offset by an increase in accounts receivable and due from suppliers of
$724,500.

Financing activities provided cash of $43,200. Proceeds from insurance notes
payable of $77,200 were offset by repayments of insurance notes payable and
repayments of capital lease obligations of $15,200 and $18,800, respectively.
The Company had a negative cash flow of $21,600 for the three months ended July
31, 1996.

Three Months Ended July 31, 1996

During the three months ended July 31, 1996, cash used by operating activities
amounted to $64,800. This was the result of a net loss of $76,400, increases in
accounts receivable and due from suppliers, and prepaid expenses of $221,300 and
$100,600, respectively, which were offset by a decrease in inventory and an
increase in accounts payable and accrued expenses (non-related and related
combined) of $115,600 and $155,800, respectively.

Financing activities provided cash of $43,200. Proceeds from the insurance notes
payable of $77,200 were offset by repayments of insurance notes payable, and
repayments of capital lease obligations of $15,200 and $18,800, respectively.
The Company had a negative cash flow of $21,600 for the three months ended July
31, 1996.

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
                                     Part II



                                OTHER INFORMATION



                                 Not Applicable


                                      -14-
<PAGE>   15
                                   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 November 28, 1997              By /s/ William P. Dolan
     ------------------                -----------------------------------------
                                       William P. Dolan, Vice President, Finance


                                      -15-