<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 January 31, 1998            Commission File Number 0-21475



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



             Nevada                                             93-1215401
(State or other jurisdiction o                                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 February 28, 1998, 4,418,798 shares of the Registrant's common stock par
value $.001 were issued and outstanding.







<PAGE>   2
                                                                        



                                      INDEX
<TABLE>
<CAPTION>

                                                                                                           Page No.
<S>                                                                                                        <C>
PART I        FINANCIAL INFORMATION

              Consolidated Condensed Balance Sheets
              as of January 31, 1998 and April 30, 1997........................................................3

              Consolidated Condensed Statements of Operations
              for Nine Months and Three Months Ended January 31,
              1998, Six Months Ended January 31, 1997
              Three Months Ended July 31, 1996.................................................................4

              Consolidated Condensed Statements of Stockholders' Equity........................................5

              Consolidated Condensed Statements of Cash Flows for
              Nine Months Ended January 31, 1998, Six Months Ended
              January 31, 1997, Three Months Ended July 31, 1996...............................................6

              

              Notes to Consolidated Condensed Financial Statements
              for Nine-Month Periods Ended January 31, 1998 and
              1997.............................................................................................7

                   1.  Basis of Presentation...................................................................7
                   2.  Reorganization and Management Plan......................................................7
                   3.  Inventories.............................................................................10
                   4.  Per Share Information...................................................................10
                   5.  Public Offering.........................................................................10

              Management's Discussion and Analysis of Financial
              Condition and Results of Operations for Nine Months
              Ended January 31, 1998 As Compared to Nine Months
              Ended January 31, 1997...........................................................................11

                   General.....................................................................................11
                   Plan of Reorganization......................................................................11
                   Results of Operations.......................................................................12                   
              Management's Discussion and Analysis of Financial
              Condition and Results of Operations for Three Months
              Ended January 31,1998 As Compared to Three Months
              Ended January 31, 1997...........................................................................14
                   Liquidity and Capital Resources.............................................................14   
                   Seasonality.................................................................................14

Part II       OTHER INFORMATION................................................................................15

SIGNATURES.....................................................................................................16
</TABLE>
<PAGE>   3

                         Dynamic International, Ltd.

                     Consolidated Condensed Balance Sheets
                                   (Unaudited)

<TABLE>
<CAPTION>
                                                             Jan. 31, 1998          April 30, 1997
                                                             -------------           -------------
                                                                                      (Restated)
<S>                                                          <C>                    <C>
Current Assets
Cash                                                         $ 2,015,437                  43,543
Accounts Receivable - (Net of allowance
for doubtful accounts of $167,000                              1,287,205                 887,089
Due from Suppliers                                                54,238                  65,273
Inventory                                                      2,507,130               3,325,795
Prepaid Expenses                                                 421,775                  60,272
Miscellaneous                                                      4,158                   2,658
Income Taxes Receivable                                              -0-                  39,914
                                                             -----------             -----------
Total Current Assets                                           6,289,943               4,424,544
Fixed Assets, at Cost, Less Accumulated
   Depreciation                                                   74,032                 125,291
Due from Suppliers                                                   -0-                  36,142
Security Deposits                                                  3,050                   4,650
Deferred Stock Offering Costs                                        -0-                 116,023
Reorganization value in excess of amounts
   allocable to identifiable assets, net                         115,364                 124,472
                                                             -----------             -----------
Total Assets                                                 $ 6,482,389             $ 4,831,122
                                                             ===========             ===========
Liabilities and Shareholder's Equity (Deficit)
Current Liabilities
Accounts Payable & Accrued Expenses,
  Non-related                                                $   267,860             $   846,234
Accounts Payable & Accrued Expenses,
   Related                                                       934,806               2,627,580
Capital Lease Obligations, Current                                 1,208                  24,228
Income Taxes Payable                                              34,856                  91,872
Loans payable - related party                                        -0-                 844,531
                                                             -----------             -----------
Total Current Liabilities                                      1,238,730               4,434,445
Other liabilities                                                 ---                      ---
Loan Payable - related party                                                             215,254
                                                             -----------             -----------
Total Liabilities                                              1,238,730               4,649,699

Shareholders Equity
Common Stock                                                       4,399                   3,199
Additional Paid-In Capital                                     4,904,663                  22,940
Retained Earnings                                                334,600                 155,287
                                                             -----------             -----------
Total                                                          5,243,662                 181,426
Less Treasury Stock                                                   (3)                     (3)
                                                                                     
Total Shareholders' Equity                                     5,243,659                 181,423
                                                             -----------             -----------
Total Liabilities & Shareholders Equity                      $ 6,482,389             $ 4,831,122
                                                             ===========             ===========
</TABLE>

See Accompanying Notes to Consolidated Condensed Financial Statements.
<PAGE>   4
                         Dynamic International, Ltd.
<TABLE>
<CAPTION>
                                  Consolidated Condensed Statements of Operations

                                                  Reorganized Company                                  Predecessor Co.
                         ---------------------------------------------------------------------         ---------------

                         Nine months       Three months          Six months       Three months        Three months
                         End.1/31/98       End.1/31/98           End.1/31/97      End.1/31/97         End.7/31/96

                                                                 (Restated)        (Restated)
<S>                      <C>               <C>                  <C>               <C>                  <C>
Net Sales                 6,148,447        $2,454,022           $6,203,405         $2,550,083           $1,983,164

Other
Income                       24,286            13,428               11,735             11,736              10,201

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

                          6,172,733         2,467,450            6,215,140          2,561,819           1,993,365

Cost of Goods sold        4,253,902         1,829,948            4,240,892          1,677,300           1,454,637
                          ---------         ---------            ---------          ---------           ---------

Gross Profit              1,918,831           637,502            1,974,248            884,519             538,728

Operating Expenses        1,468,840           541,751            1,504,258            759,874             557,822
Interest                    145,164            26,237              156,880             74,557              57,270
                           --------          --------            ---------           --------             -------

                          1,614,004           567,988            1,661,138            834,431             615,092

Bankruptcy                    1,093               -0-               34,159              5,789                -0-
Administration

Income (Loss)               
Before Tax                  303,734            69,514              278,951             44,299             (76,364)

Provision for               
Income Taxes                124,421            27,163              113,244             15,791                   0
                           --------           -------              -------             ------            --------

Income (Loss)              $179,313           $42,351             $165,707            $28,508            $(76,364)
                           ========           =======             ========            =======            ========

Income per Common             0.053            $0.011               $0.052             $0.009
 Share: Basic

Weighted Average
Number of Common
Shares Outstanding        3,369,687         3,706,954            3,198,258          3,198,258
</TABLE>

See Accompanying Notes to Consolidated Condensed Financial Statements.
<PAGE>   5
                                                                               6
                           Dynamic International Ltd.
           Consolidated Condensed Statements of Stockholders' Equity

<TABLE>
<CAPTION>
                                                       Additional      Retained      Treasury       Stockholders'
                                        Common         Paid            Earnings      Stock          Equity
                                        Stock          Capital         (DEFICIT)     at Cost        (Deficit)
                                        --------      ---------       ----------     -------        -----------
<S>                                    <C>           <C>             <C>            <C>            <C>
Balance -- May 1, 1995                  17,444         590,291        (7,582,536)    (17,500)       (6,992,301)
Net Income                                                             6,945,299                     6,945,299
                                        --------      ---------       ----------     -------        ----------
Balance -- April 31, 1996               17,444         590,291          (637,237)    (17,500)          (47,002)

Net loss for the three
months ended July 31, 1996                                               (76,364)                      (76,364)
                                        --------      ---------       ----------     -------        ----------
Balance- July 31, 1996                  17,444         590,291          (713,601)    (17,500)         (123,366)

Eliminate predecessor
equity accounts and to
reflect new issuance of
shares in connection with
fresh start                             (1,450)       (580,146)          713,601      17,497           149,502
                                        --------     ---------        ----------     -------        ----------
                                        15,994          10,145                 0          (3)           26,136
To reflect 1 for 5 reverse
 split                                 (12,795)         12,795                                               0
                                        --------     ---------        ----------     -------        ----------
Balance -- July 31, 1996                 3,199          22,940                 0          (3)           26,136

Adjustment at the date of the
implementation of fresh start
accounting for the cumulative effect
of applying retroactively the new
method of valuing inventories at                                                                             0
August 1, 1996                                                           145,205                       145,205

Net income for the Nine
Months Ended April 30, 1997                                               10,082                        10,082
                                                                                                             0
                                        --------     ---------        ----------     -------        ----------
Balance April 30, 1997                    3,199         22,940           155,287          (3)          181,423

Net income Nine Months ended
 January 31, 1998                                                        179,313                       179,313
Proceeds from stock issuance              1,200      4,881,723                                       4,882,923
                                        --------     ---------        ----------     -------        ----------
Balance January 31, 1998                  4,399      4,904,663           334,600          (3)        5,243,659
                                        ========     =========        ==========     =======        ==========
</TABLE>

The par value of the common stock prior to July 31, 1996 was $.01 per share.
The par value of the common stock of the reorganized company commencing July
31, 1996 is $.001 per share.

See Accompanying Notes to Consolidated Financial Statements.
<PAGE>   6


                                Dynamic International, Ltd.
                     Consolidated Condensed Statements of Cash Flows
                                     (Unaudited)
<TABLE>
<CAPTION>

                                                                                                   Pedecessor
                                                         Reorganized Company                        Company
                                                    ---------------------------------              ----------
                                                    Nine Months             Six Months              Three Months
                                                       Ended                   Ended                   Ended
                                                      1/31/98                 1/31/97                 7/31/96
                                                    -----------             -----------             -----------
<S>                                             <C>                         <C>                     <C>
Net Cash Provided (Used) by
   Operating Activities                              (1,944,246)                 (2,021)                (64,766)

Cash Flows from Investing
   Activities:                                               --                      --                     --

Net Cash Used in Investing
   Activities                                                --                      --                      --

Cash Flows from Financing Activities:
Net Proceeds from Stock Offering                      4,882,922
Repayments of Capital Leases obligations                (23,020)                (23,889)                (18,812)
Proceeds from Insurance Note Payable                         --                      --                  77,225
Repayments of Insurance Notes Payable                        --                 (53,160)                (15,205)
Payments of Deferred Offering Costs                     116,023
Payment of Note Payable to Related
Party                                                (1,059,785)                 95,801                      --
                                                      ---------                  ------                  ------
Net Cash Provided by (used)Financing
   Activities                                         3,916,140                  18,752                  43,208

Net Increase (Decrease) in Cash
and cash Equivalents                                  1,971,894                  16,731                 (21,558)

Cash and Cash Equivalents--
   Beginning of Period                                   43,543                   4,957                  26,515
                                                    -----------             -----------             -----------

Cash and Cash Equivalents--
   End of Period                                    $ 2,015,437             $    21,688             $     4,957
                                                    ===========             ===========             ===========
</TABLE>

See Accompanying Notes to Consolidated Condensed Financial Statements.
<PAGE>   7



                         Dynamic International, Ltd.
              Notes to Consolidated Condensed Financial Statements
             for Nine-Month Periods Ended January 31, 1998 and 1997
                                   (Unaudited)


1.  BASIS OF PRESENTATION:

The consolidated condensed balance sheet as of January 31, 1998 and the related
consolidated condensed statements of operations, consolidated condensed
statements of stockholders' equity and consolidated condensed statements of cash
flows for the nine-month periods ended January 31, 1998 and 1997 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
nine-month period ended January 31, 1998 are not necessarily indicative of the
operating results for the entire year.

2.  REORGANIZATION AND MANAGEMENT PLAN:

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

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

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

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

Chapter 11 claims filed against the Company and subsequently allowed in the
bankruptcy proceeding totaled approximately $17,200,000. The Plan discharged
such claims through distributions of cash of approximately $515,000 and issuance
of shares of new common stock. The cash distributions were paid in August 1996.
A total of 3,198,798 shares of new common stock was issued on July 25, 1996, out
<PAGE>   8
                         Dynamic International, Ltd.
             Notes to Consolidated Condensed Financial Statements
             for Nine-Month Periods Ended January 31, 1998 and 1997
                                 (Unaudited)
                                 (Continued)

of which 2,976,000 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; 160,000 shares were issued to unsecured creditors, and 62,798
shares were issued to the reconfirmation common stock equity interest holders.

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

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

As part of the reorganization, the Company will continue to sell hand
exercise,light exercise equipment and luggage/sports bags, all of which have a
proven market acceptance. Management believes it can increase revenues by
increasing its focus on direct response marketing. Therefore, it intends to
develop plans to use infomercials to market these products. Management believes
these increased marketing efforts, adequate financing through 
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 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.

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

The following is a proforma balance sheet of the reorganized Company based on
the discounted cash flows as discussed above:
<PAGE>   9


              Notes to Consolidated Condensed Financial Statements
             for Nine-Month Periods Ended January 31, 1998 and 1997
                                 (Unaudited)
                                 (Continued)

<TABLE>
<CAPTION>
                                                  Balance                                          Reorganized
                                                   Sheet          Stock                                B/S
                                                 7/31/96         Exchange       Fresh Start          7/31/96
<S>                                            <C>               <C>             <C>               <C>
Current Assets:

   Cash                                            4,957                                                4,957
   Accounts receivable, net                    1,258,182                                            1,258,182
   Inventory                                   2,268,853                                            2,268,853
   Prepaid & refundable income
      taxes                                      291,960                                              291,960
   Other assets                                  328,030                                              328,030
                                               ---------                                            ---------

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

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

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

Current Liabilities:

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

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

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

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

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

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

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

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

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

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

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

The other Current Liabilities adjustment is comprised of loans from MG Holdings
Corp. to pay creditors pursuant to the Plan. The liability to the reorganized
company is $515,638.
<PAGE>   10

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

3.  INVENTORIES:

The inventories consist of finished goods. During the three month period ended
January 31, 1998 the Company changed its method of determining the cost of
inventories from the LIFO method to the FIFO method. Under the current
economic environment of low inflation, the Company believes that the FIFO
method will result in a better measurement of operating results. This change
has been applied by retroactively restating the accompanying consolidated
financial statements. This change increased net income for the six months ended
January 31, 1997 by $8,655 or .002 cents per share. The balance of retained
earnings as of August 1,1996 (see note 2 reorganization and management plan)
and April 30, 1997 have been adjusted for the effect (net of taxes) of applying
retroactively the new method of valuing inventories.

4.  PER SHARE INFORMATION:

Per share information for the three month period ended January 31, 1998 is based
on the new shares issued in the reorganization. Therefore, the Company believes
that per share information for the period ended July 31, 1996 is not meaningful.
All share data for the reorganized Company has been adjusted for a one-for-five
reverse stock split which was completed in September 1997. Effective with these
financial statements, the company adopted SFAS 128, "earnings per share". All
per share data have been retroactively adjusted.

5.  PUBLIC OFFERING:

On December 22, 1997, the Company completed a public sale of 1,200,000 units;
each consisting of one share of common stock, one Class A Warrant and one Class
B Warrant at $5.00 per unit. The net proceeds of approximately $4,882,000 are
being used for the repayment of current debt, purchase of inventory, general
corporate services and working capital.
<PAGE>   11

                         Dynamic International, Ltd.
                     Management's Discussion and Analysis of
                  Financial Condition and Results of Operations
                Nine Months Ended January 31, 1998 as Compared to
                       Nine Months Ended January 31, 1997

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
nine months ended January 31,1997 are reported by combining the financial
results for the six-month period ended January 31, 1997 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 received partial satisfaction of their
claims. The amount of claims allowed under the bankruptcy proceedings
aggregated approximately $17,223,800, which exceeded the assets as recorded
immediately subsequent to the confirmation of the Plan by approximately
$12,970,400. Under the Plan, the Company made cash payments in the amount of
approximately $515,800. MG Holdings Corp., which had purchased a promissory
note from the Company's principal financial institution, received 2,976,000
shares of common stock, in satisfaction of such promissory note, representing
approximately 93% of the then issued and outstanding shares, thereby gaining
absolute control over the Company's affairs. An additional 160,000 shares and
62,798 shares were issued to the Company's unsecured creditors and the
Company's existing security holders, respectively. The value of the cash and
securities distributed under the Plan aggregated $531,561. An amount of
$16,692,193, representing the difference between the value of the total
distribution and the amount of allowable claims under the bankruptcy, was
recorded as an extraordinary gain.
<PAGE>   12

                         Dynamic International, Ltd.
                     Management's Discussion and Analysis of
                  Financial Condition and Results of Operations
                Nine Months Ended January 31, 1998 as Compared to
                         Nine Months Ended January 31, 1997
                                 (Continued)

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 Financial results for the six months and three months
ended January 31, 1997, have been restated to account for a change in the
method of determining the cost of inventories from the last-in, first-out
(LIFO) method to the first-in, first-out (FIFO) method during the three months
ended January 31, 1998.

Sales for the nine months ended January 31, 1998, decreased by $2,038,000 or
24.9% to $6,148,000 from $8,186,000 for the combined periods of the six months
ended January 31, 1997 and the three months ended July 31, 1996 of $6,203,000
and $1,983,000, respectively. Sales of sports bags/luggage products of
$3,585,000 for the nine months ended January 31, 1997 were $338,000 or 8.6%
less than the $3,923,000 of combined sports bags/luggage sales for the six
months ended January 31, 1997 and the three months ended July 31, 1996 of
$2,809,000 and $1,114,000, respectively. Sales of exercise products of
$2,564,000 for the nine months ended January 31, 1998 were $1,721,000 or 40%
less than the $4,285,000 of combined sales of exercise products for the six
months ended January 31, 1997 and the three months ended July 31, 1996 of
$3,406,000 and $879,000, respectively.

The company's gross profit of $1,919,000 for the nine months ended January 31,
1998 was $593,000 less than the combined gross margin of $2,512,000 for the six
months ended January 31, 1997 and the three months ended July 31, 1996 of
$1,974,000 and $538,000, respectively. The reduced gross profit is the result of
the lower sales for the nine months ended January 31, 1998.

The company's pretax profit of $304,000 for the nine months ended January 31,
1998 was $101,000 more than the combined pretax profit of $203,000 for the six
months ended January 31, 1997 and the three months ended July 31, 1996.

The company believes that the decline in sales for this period is primarily
attributable to a shift in focus from increasing sales volume to generating
revenues from merchandise that produces a higher gross profit. As a result
approximately $1,735,000 of the decrease in sales of the company's products
were due to a decrease in sales to one customer to whom the Company no longer
wished to sell  products at prices that would have an adverse impact on its
gross profit percentage.  The Company believes that the decision to shift its
focus from an emphasis on revenues to profit as discussed above, represents a
positive development.  There can be no assurance that the Company will be
successful in attaining a higher gross profit percentage.
<PAGE>   13
                         Dynamic International, Ltd.
                   Management's Discussion and Analysis of
                 Financial Condition and Result of Operations
           Nine Months Ended January 31, 1998 as Compared to the 
                     Nine Months Ended January 31, 1997.
                                 (Continued)

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

<TABLE>
<CAPTION>
                                                                                             Predecessor
                                          Reorganized Company                                  Company
                            -----------------------------------------------                  -----------
                              Nine Months                        Six Months                   Three Months
                            Ended 1/31/98                     Ended 1/31/97                  Ended 7/31/96
<S>                         <C>                               <C>                            <C>
Net Sales                     $ 6,148,000                       $ 6,203,000                    $ 1,993,000
Other Income                       24,000                            12,000                            -0-
                              -----------                       -----------                    -----------
                                6,172,000                         6,215,000                      1,993,000
Cost of Goods
Sold                            4,254,000                         4,241,000                      1,455,000
                                ---------                         ---------                      ---------

Gross Margin                    1,918,000                         1,974,000                        538,000

Operating Expenses              1,469,000                         1,504,000                        558,000
Interest                          145,000                           157,000                         57,000
                                ---------                         ---------                     ----------
                                1,614,000                         1,661,000                        615,000
Bankruptcy
Administration                      1,000                            34,000                            -0-
                                ---------                         ---------                     ----------

Pretax Income (Loss)              303,000                           279,000                       (77,000)

Provision for
Income Tax                        124,000                           113,000                            -0-
                                 --------                          --------                       --------
Net Income (Loss)                $179,000                          $166,000                      ($77,000)
</TABLE>

Due to the application of fresh-start accounting, the financial statements for
the periods after reorganization are not comparable in any respects to the
financial statements for the periods prior to the reorganization. Therefore, a
discussion of the changes in operating expense, will compare the three months
ended January 31, 1998 with the three months ended January 31, 1996. For this
discussion see "Managements Discussion and Analysis of Financial Condition for
the Three Months Ended January 31, 1998 Compared to the Three Months Ended
January 31, 1997."


<PAGE>   14
                         Dynamic International, Ltd.
                    Management's Discussion and Analysis of
                  Financial Condition and Results of Operations
               Three Months Ended January 31, 1998 as Compared to
                       Three Months Ended January 31, 1997

RESULTS OF OPERATIONS

Sales for the three months ended January 31, 1998, decreased by $96,000 or 3.8%
to $2,454,000 from $2,550,000 for the three months ended January 31, 1997.
Sales of exercise equipment of $1,001,000 for the three months ended January
31, 1998 were $937,000, or 48% less than than the three onths ended January 31,
1997. Sales of the sports bags/luggage products of $1,453,000 for the three
months ended January 31, 1998 were $841,000 or 127% more than the three months
ended January 31, 1997.

The Company's gross margin decreased by $247,000 for the three months ended
January 31, 1998 compared to the three months ended January 31, 1997. The
decrease can be primarily attributed to a change in the sales mix, from the
prior years quarter, with higher sales of sports bags/luggage products which
have lower margins than the exercise products.

Operating expenses for the three months ended January 1998 were $218,000 less
than the three months ended January 31, 1997. This decrease is represented
approximately by net changes in the following expenses:

         Shipping fees.................................$15,000
         Promotional expenses..........................$16,000
         Officer salaries..............................$32,000
         Insurance.....................................$17,000
         Professional fees............................$130,000

Shipping fees decreased by $15,000 due to an increase in direct sales.
Promotional expenses decreased by $16,000 due to decreased expenditures. Officer
salaries decreased by $32,000 as a result of the departure by the former
president of the Company in March of 1997. Insurance expense decreased by
$17,000 due to lower product liability premiums. Professional fees decreased due
to lower expenditures in this area.

Pretax income for the three months ended January 31, 1998 of $69,000 was
$25,000, or 156% more than the three months ended January 31, 1997, due
primarily to the decrease in operating expenses.

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



<TABLE>
<CAPTION>
                                     Three Months         Three Months
                                        Ended                Ended
                                     Jan. 31, 1998        Jan. 31, 1997
                                     -------------        -------------
<S>                                   <C>                   <C>
Sales                                 $2,454,000            $2,550,000
Other income                              13,000                12,000
                                      ----------            ----------

                                       2,467,000             2,562,000

Cost of sales                          1,830,000             1,677,000
                                      ----------            -----------

Gross profit                             637,000               885,000

Operating expenses                       542,000               760,000
Interest                                  26,000                75,000
                                      ----------             ----------
                                         568,000               835,000

Bankruptcy administration                    -0-                 6,000
                                      ----------            ----------

Pretax income                             69,000                44,000

Provision for income taxes                27,000                16,000
                                      ----------            ----------
Net income                            $   42,000            $   28,000
                                      ==========            ==========
</TABLE>

LIQUIDITY AND CAPITAL RESOURCES

Operating activities used cash of $1,944,000 for the nine months ended January
31, 1998. Net Income of $179,000 along with a decrease in inventory of $819,000,
due to lower purchases, were the primary providers of cash from operations
during the nine months ended January 31, 1998.

Net income and inventory reductions were offset by increased accounts
receivable, increases in prepaid expenses and a decrease in accounts payable and
accrued expenses of $352,000, $362,000 and $2,271,000, respectively.

Financing activities provided cash of $3,916,000 as proceeds from a stock
offering of $4,882,922 were used to pay a note payable to MG Holding Co., a
company owned by Marton B. Grossman, the President of the Company of $1,060,000.
In addition, the proceeds have been used to purchase inventory, package design
and marketing.

Pursuant to an unwritten understanding, Achim Importing Inc. ("Achim") a
company owned by Marton B. Grossman, President of the Company, 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 sports/luggage bags related to the holiday season.
<PAGE>   15
                         Dynamic International, Ltd.
                                     Part II



                                OTHER INFORMATION

ITEM 1     Legal Proceedings.

            Not Applicable

ITEM 2     Changes in Securities and Use of Proceeds.

           On December 22, 1997 the Company offered through Patterson Travis,
Inc.the underwriter for the offering 1,200,000 units ("Units"), each Unit
consisting of one share of Common Stock, one redeemable Class A Warrant (the
"Class A Warrants) and one redeemable Class B Warrant (the Class B Warrants,
together with the Class A Warrants, The "Warrants") at a price of $5.00 per
Unit.  Each Class A Warrant entitles the holder to purchase one share of Common
Stock at $6.00, until June 12, 1999.  Each Class B Warrant entitles the holder
to purchase one share of Common Stock at $10.00,  until December 12, 2000.  
The registration statement (file #333-25425) was declared effective on December
12, 1997.  The offering was consummated on December 22, 1997.

          The use of the proceeds to date was as follows:

<TABLE>
<CAPTION>
          <S>                                      <C>
          Gross Proceeds                           $6,000,000
          Payments to Patterson Travis, Inc.,
           underwriter
                Commission                           (600,000)
                Consulting                            (20,000)
                Non-accountable expense              (180,000)
          Legal expenses                             (100,000)
          Accounting                                 (220,000)
          Payments to related parties
                MG Holding
                           Note                    (1,059,785)
                           Interest                  (105,303)
                Achim Importing Co.
                           Inventory               (1,408,198)
          Other inventory purchases                   (22,500)
          Package design costs                        (73,050)
          Show expense                                (56,523)
          Working capital                            (154,642)
                                                    ---------
          Balance of Proceeds                      $2,000,000
                                                    =========
</TABLE>

ITEM 3     Defaults upon Senior Securities

           Not Applicable

ITEM 4     Submission of Matters to a Vote of Security Holders

           Not Applicable

ITEM 5     Other Information

           Not Applicable

ITEM 6     Exhibits and Reports on Form 8K

           (a)  Exhibit

                18 Letter From Registrant's Independent Auditors

           (b)  Reports on Form 8K

                Not Applicable
<PAGE>   16




                                   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   March 17, 1998                  By /s/ William P. Dolan
     ------------------                ----------------------------------------
                                       William P. Dolan, Vice President, Finance