<PAGE>
 
                    U.S. SECURITIES AND EXCHANGE COMMISSION
                              Washington, DC 20549

                                 FORM 10-QSB/A

[ X ]  QUARTERLY REPORT PURSUANT SECTION 13 OF 15(d) OF THE SECURITIES EXCHANGE
       ACT OF 1934
       For the quarterly period ended March 31, 1998

[   ]  TRANSITION REPORT PURSUANT SECTION 13 OF 15(d) OF THE SECURITIES
       EXCHANGE ACT OF 1934
       For the transition period from _________ to _________


                       COMMISSION FILE NUMBER 33-18521-NY



                      CREATIVE MASTER INTERNATIONAL, INC.
       (Exact name of small business issuer as specified in its charter)

                     DELAWARE                         11- 2854355
         (State or other jurisdiction             (IRS Employer
         of incorporation or organization)        Identification No.)



                          CASEY IND. BLDG., 8TH FLOOR
                           18 BEDFORD RD., TAIKOKTSUI
                               KOWLOON, HONG KONG
                    (Address of principal executive offices)

                  ISSUER'S TELEPHONE NUMBER: 011-8522-396-0147



Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Securities Exchange Act during the past 12 months (or for
such shorter period that the registrant was required to file such reports) and
(2) has been subject to such filing requirements for the past 90 days.  
Yes  X     No 
    ---       ---

State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable dated: May 13, 1998, 4,999,746 shares.

Transitional Small Business Disclosure Format (check one):   Yes       No  X
                                                                 ---      ---
<PAGE>
 
                               TABLE OF CONTENTS
                               -----------------
                                        
<TABLE> 
<CAPTION> 
                                                                                     PAGE
                                                                                     ----
<S>                                                                                  <C> 
PART 1 - FINANCIAL INFORMATION
 
   ITEM 1 - FINANCIAL STATEMENTS
 
            Consolidated Condensed Statements of Operations - for each of the
            three-month periods ended March 31, 1997 and 1998 (unaudited)                1
 
            Consolidated Condensed Balance Sheets - as of December 31, 1997
            (audited) and March 31, 1998 (unaudited)                                     2
 
            Consolidated Condensed Statements of Cash Flows - for each of the
            three-month periods ended March 31, 1997 and 1998 (unaudited)                3

            Notes to Consolidated Condensed Financial Statements                      4-18
 
   ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
            AND RESULTS OF OPERATIONS                                                19-22
 
PART II - OTHER INFORMATION
 
   ITEM 1 - LEGAL PROCEEDINGS                                                           23
                                                                                         
   ITEM 2 - CHANGES IN SECURITIES                                                       23
                                                                                         
   ITEM 3 - DEFAULTS UPON SENIOR SECURITIES                                             23
                                                                                         
   ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS                         23
                                                                                         
   ITEM 5 - OTHER INFORMATION                                                           23
                                                                                         
   ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K                                            23
</TABLE>

                                      (i)
<PAGE>
 
              CREATIVE MASTER INTERNATIONAL, INC. AND SUBSIDIARIES

                CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS

         FOR THE THREE MONTHS ENDED MARCH 31, 1997 AND 1998 (UNAUDITED)
                  (AMOUNTS EXPRESSED IN UNITED STATES DOLLARS)



<TABLE>
<CAPTION>
                                                  THREE MONTHS ENDED MARCH 31,
                                                 -----------------------------
                                                      1997           1998
                                                      ----           ----
                                                     $'000          $'000
                                                  (UNAUDITED)    (UNAUDITED)
<S>                                               <C>            <C>
Net sales......................................         4,053          5,596
 
Cost of goods sold.............................        (3,176)        (3,822)
 
Gross profit...................................           877          1,774
Selling, general and
     administrative expenses...................          (502)          (852)
 
Operating income...............................           375            922
 
Interest income................................            28              0
Interest expense...............................           (54)           (70)
Other income (expenses), net...................           (34)            12
Amortization of goodwill.......................           (16)           (27)
 
Income before income taxes and minority
 interests.....................................           299            837
 
Provision for income taxes.....................           (33)           (99)
 
Income before minority interests...............           266            738
Minority interests.............................           (21)          (131)
 
Net income.....................................           245            607
                                                    =========      =========
 
Net income per common share....................     $    0.05      $    0.12
                                                    =========      =========
 
Weighted average number of common
     shares outstanding........................     4,999,746      4,999,746
                                                    =========      =========
</TABLE>


  The accompanying notes are an integral part of these consolidated condensed
                           statements of operations.

                                       1
<PAGE>
 
              CREATIVE MASTER INTERNATIONAL, INC. AND SUBSIDIARIES

                     CONSOLIDATED CONDENSED BALANCE SHEETS

        AS OF DECEMBER 31, 1997 (AUDITED) AND MARCH 31, 1998 (UNAUDITED)
                  (AMOUNTS EXPRESSED IN UNITED STATES DOLLARS)

<TABLE>
<CAPTION>
                                                                DECEMBER 31, 1997  MARCH 31, 1998
                                                                -----------------  ---------------
ASSETS                                                                 $'000            $'000
------                                                                               (UNAUDITED)
<S>                                                             <C>                <C>
Current Assets:
   Cash and bank deposits.................................                 471              770
   Accounts receivable, net...............................               2,827            3,196
   Deposits and prepayments...............................                 307              400
   Inventories, net.......................................               2,928            3,110
                                                                        ------           ------
                                                                                         
Total current assets......................................               6,533            7,476
                                                                                         
Machinery, equipment and capital leases...................               3,155            3,121
Goodwill..................................................                 810              783
Long-term investment......................................                   1                1
                                                                        ------           ------
                                                                                         
Total assets..............................................              10,499           11,381
                                                                        ======           ======
                                                                                         
LIABILITIES, MINORITY INTERESTS AND                                                      
-----------------------------------                                                      
STOCKHOLDERS' EQUITY                                                                     
--------------------                                                                     
Current liabilities:                                                                     
   Short-term bank borrowings.............................               1,290            1,667
   Capital lease obligations, current portion.............                 764              588
   Accounts payable.......................................               1,908            2,306
   Deposits from customers................................                 560              248
   Accrued liabilities....................................               1,579            1,604
   Due to directors.......................................                 861              724
   Due to parent company..................................                   9                0
   Taxation payable.......................................                  68              169
   Dividend payable.......................................                 323              265
                                                                        ------           ------
                                                                                         
Total current liabilities.................................               7,362            7,571
                                                                                         
Capital lease obligations, non-current portion............                 266              203
Deferred taxation.........................................                  57               57
                                                                        ------           ------
                                                                                         
Total liabilities.........................................               7,685            7,831
                                                                        ------           ------
                                                                                         
Minority interests........................................                  75              206
                                                                        ------           ------
                                                                                         
Stockholders' equity:                                                                    
Common stock, par value $0.0001; authorized                                              
   60,000,000 shares; outstanding and fully paid                                         
   4,999,746 shares.......................................                   1                1
Additional paid-in capital................................               1,401            1,401
Retained earnings.........................................               1,337            1,945
Cumulative translation adjustments........................                   -               (3)
                                                                        ------           ------
                                                                                         
Total stockholders' equity................................               2,739            3,344
                                                                        ------           ------
                                                                                         
Total liabilities, minority interests and stockholders'                                  
 equity...................................................              10,499           11,381
                                                                        ======           ======
</TABLE>

  The accompanying notes are an integral part of these consolidated condensed
                                balance sheets.

                                       2
<PAGE>
 
              CREATIVE MASTER INTERNATIONAL, INC. AND SUBSIDIARIES

                CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS

         FOR THE THREE MONTHS ENDED MARCH 31, 1997 AND 1998 (UNAUDITED)
                 (AMOUNTS EXPRESSED IN UNITED STATES DOLLARS)

<TABLE>
<CAPTION>
                                                                  MARCH 31,
                                                        ---------------------------
                                                            1997           1998
                                                        ---------------------------
                                                           $'000          $'000
                                                         (UNAUDITED)   (UNAUDITED)
<S>                                                      <C>           <C>
Cash flows from operating activities:
Net income............................................          245           607
Adjustments to reconcile net income to net cash
       provided by operating activities -
    Net gain on disposal of machinery and
       equipment......................................           (2)            -
    Minority interests................................           21           131
    Depreciation of machinery and equipment...........          117           126
    Amortization of goodwill..........................           16            27
    Deferred income taxes.............................           14             -
(Increase) Decrease in operating assets -
    Accounts receivable, net..........................         (274)         (369)
    Deposits and prepayments..........................            2           (93)
    Inventories, net..................................         (290)         (182)
Increase (Decrease) in liabilities -
    Accounts payable..................................           58           398
    Deposits from customers...........................          140          (312)
    Accrued liabilities...............................          110            25 
    Due to parent company.............................          (89)           (9)
    Taxation payable..................................           13           101
                                                              -----         -----
Net cash provided by operating activities.............           81           450
                                                              -----         -----
Cash flows from investing activities:
    Acquisition of machinery and equipment............           (6)          (94)
    Net cash outflow from acquisition of a
       subsidiary.....................................           (1)            -
    Decrease in due from a related company............           11             -
                                                              -----         -----
Net cash (used in) provided by investing activities...            4           (94)
                                                              -----         -----

Cash flows from financing activities:
    Increase (Decrease) in bank overdrafts............           (7)            -
    New short-term bank loans.........................           68           420
    Decrease in import trust receipts bank 
        loans.........................................           19           (43)
    Repayment of capital element of capital...........
       lease obligations..............................         (151)         (239)
    Decrease in due to directors......................           (5)         (137)
    Dividends paid to a minority interests of
       subsidiary.....................................           (2)          (58)
                                                              -----         -----
 
Net cash used in financing activities.................          (78)          (57)
                                                              -----         -----
 
Net increase in cash and cash equivalents.............            7           299
Cash and cash equivalents, at beginning of period.....          435           471
                                                              -----         -----
Cash and cash equivalents, at end of period...........          442           770
                                                              =====         =====
</TABLE>


  The accompanying notes are an integral part of these consolidated condensed
                           statements of cash flows.

                                       3
<PAGE>
 
             CREATIVE MASTER INTERNATIONAL, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

      (AMOUNTS EXPRESSED IN UNITED STATES DOLLARS UNLESS OTHERWISE STATED)



1.   ORGANIZATION AND PRINCIPAL ACTIVITIES

Creative Master International, Inc. ("the Company") is incorporated in the State
of Delaware, United States of America. With effect from March 2, 1998, the
Company changed its name from Davin Enterprises, Inc. to Creative Master
International, Inc., the present one.

During the period from January 1, 1995 to December 30, 1997, the Company's sole
asset was investment in a 9.6% interest in Target Vision Inc., a company
incorporated in the State of Delaware, United States of America, which was
principally engaged in the trading of communication systems.

ACQUISITION OF CML

On December 30, 1997, the Company acquired a 100% interest in Creative Master
Limited ("CML"; a company incorporated in Hong Kong) by issuing 4,806,000 shares
of common stock of par value $0.0001 each (after the reverse stock splits and
the redenominations of par value as described in Note 15) to Acma Strategic
Holdings Limited ("ASHL"; a company incorporated in Hong Kong), Mr. Sheck-Pui
Kwok and Mr. Carl Ka-Wing Tong. ASHL is 90% owned by Acma Ltd., a company
incorporated in Singapore and listed on the Singapore Stock Exchange Limited,
and 10% owned by Mr. Carl Ka-Wing Tong. CML and its subsidiaries (the "CML
Group") are principally engaged in the manufacturing of collectible replica
racing and classic cars for sale to customers in the United States of America
and Europe. The CML Group maintains its head office in Hong Kong, where it
coordinates sales and marketing, purchasing and administrative functions. Its
production facilities are located in Guangdong Province, the People's Republic
of China ("the PRC").

2.   BASIS OF PRESENTATION

The acquisition of CML by the Company on December 30, 1997 has been treated as a
reverse acquisition since CML is the continuing entity as a result of the
exchange reorganization.  On this basis, the historical financial statements
prior to December 30, 1997 represent the consolidated financial statements of
the CML Group.

                                       4
<PAGE>
 
             CREATIVE MASTER INTERNATIONAL, INC. AND SUBSIDIARIES

      NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS - (CONTINUED)


3.   SUBSIDIARIES

Details of the Company's subsidiaries (which together with the Company are
collectively referred to as "the Group") as of March 31, 1998 were as follows:

<TABLE>
<CAPTION>
                                                           Percentage
                                           Place of        of equity
Name                                     Incorporation   interest held    Principal activities
----                                     -------------   -------------    --------------------
<S>                                      <C>             <C>              <C>
 
Creative Master Limited                  Hong Kong                100%    Manufacturing and trading of
                                                                          collectible replica products
 
Excel Master Limited                     Hong Kong                100%    Trading of collectible replica
                                                                          products
 
Mastercraft Engineering Limited
(formerly known as Queenex
Enterprises Limited)                     Hong Kong                100%    Manufacturing of molds
                                                                Note b
 
Carison Engineering Limited              Hong Kong                 70%    Manufacturing of molds
(formerly known as Carison Limited)                             Note c
 
Techtime Industries Limited              Hong Kong                 55%    Manufacturing of collectible replica
                                                                          products
 
Donguan Chuangying Toys                  The PRC                Note a    Manufacturing of collectible
Factory Co., Ltd                                                          replica products
</TABLE>
---------------------

Notes

a  Dongguan Chuangying Toys Factory Co., Ltd. is a contractual joint venture
   established in the PRC to be operated for 12 years until October 2006. Under
   the joint venture contract dated September 10, 1994 and the supplemental
   contract dated April 1, 1996, the Group's joint venture partner is not
   entitled to any profit of the joint venture and is not responsible for any
   loss of the joint venture. In view of their profit sharing arrangement, the
   joint venture is regarded as 100% owned by the Company.

b  Effective from April 15, 1998, Queenex Enterprises Limited changed its name
   to Mastercraft Engineering Limited ("MEL"), the present one. Prior to April
   14, 1998, MEL was 100% owned by the Group. On April 14, 1998, MEL issued
   9,000 shares of common stock of par value $0.129 each (equivalent of HK$1
   each) to three parties which are not involved in management of the Company at
   par and 11,000 shares of common stock to the Group at par. 

c  Effective from May 20, 1998, Carison Limited changed its name of Carison
   Engineering Limited, the present one.

                                       5
<PAGE>
 
             CREATIVE MASTER INTERNATIONAL, INC. AND SUBSIDIARIES

      NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS - (CONTINUED)


4. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

   A.  BASIS OF CONSOLIDATION

       The consolidated financial statements include the accounts of the
       Company, its subsidiaries and its contractual joint venture which is
       considered as a de facto subsidiary. All material intra-group balances
       and transactions have been eliminated on consolidation.

   B.  GOODWILL

       Goodwill, being the excess of cost over the fair value of the Group's
       share of net assets of subsidiaries acquired, is amortized on a straight-
       line basis over ten years. The amortization recorded during the three
       months ended March 31, 1997 and 1998, was approximately $16,000 and
       $27,000, respectively. Accumulated amortization as of December 31, 1997
       and March 31, 1998, was approximately $139,000 and $166,000 respectively.
       Management assesses the remaining life of the goodwill annually, taking
       into consideration current operating results and future prospects of the
       subsidiaries.

   C.  CONTRACTUAL JOINT VENTURE

       A contractual joint venture is an entity established between the Group
       and one or more other parties, with the rights and obligations of the
       joint venture partners governed by a contract. If the Group owns more
       than 50% of the joint venture and is able to govern and control its
       financial and operating policies and its board of directors, such joint
       venture is considered as a de facto subsidiary and is accounted for as a
       subsidiary.

   D.  INVENTORIES

       Inventories are stated at the lower of cost, on a first-in first-out
       basis, and market value. Costs of work-in-process and finished goods are
       composed of direct materials, direct labor and an attributable portion of
       production overhead.

   E.  MACHINERY, EQUIPMENT AND CAPITAL LEASES

       Machinery, equipment and capital leases are recorded at cost. Gains or
       losses on disposals are reflected in current operations. Depreciation for
       financial reporting purposes is provided using the straight-line method
       over the estimated useful lives of the assets as follows: machinery and
       tools 3 to 10 years, leasehold improvements 3 to 10 years, furniture and
       office equipment 3 to 5 years, and motor vehicles 3 to 4 years. All
       ordinary repair and maintenance costs are expensed as incurred.

       The Group recognizes an impairment loss on machinery and equipment when
       evidence, such as the sum of expected future cash flows (undiscounted and
       without interest charges), indicates that future operations will not
       produce sufficient revenue to cover the related future costs, including
       depreciation, and when the carrying amount of the asset cannot be
       realized through sale.  Measurement of the impairment loss is based on
       the fair value of the assets.

   F.  LONG-TERM INVESTMENT

       Investments held for the long-term are stated at market value. Income
       from investments is accounted for to the extent of dividends received and
       receivable.

                                       6
<PAGE>
 
             CREATIVE MASTER INTERNATIONAL, INC. AND SUBSIDIARIES

      NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS - (CONTINUED)


   G.  NET SALES

       Net sales represent the invoiced value of merchandise/molds supplied to
       customers, net of sales returns and allowances. Sales are recognized upon
       delivery of goods and passage of title to customers.

       Deposits or advanced payments from customers prior to delivery of goods
       and passage of title are recorded as deposits from customers.

   H.  INCOME TAXES

       The Group accounts for income tax under the provisions of Statement of
       Financial Accounting Standards No. 109, which requires recognition of
       deferred tax assets and liabilities for the expected future tax
       consequences of events that have been included in the financial
       statements or tax returns. Deferred income taxes are provided using the
       liability method. Under the liability method, deferred income taxes are
       recognized for all significant temporary differences between the tax and
       financial statement bases of assets and liabilities.

   I.  OPERATING LEASES

       Operating leases represent those leases under which substantially all the
       risks and rewards of ownership of the leased assets remain with the
       lessors. Rental payments under operating leases are charged to expense on
       the straight-line basis over the period of the relevant leases.

   J.  FOREIGN CURRENCY TRANSLATION

       The translation of the financial statements of subsidiaries into United
       States dollars is performed for balance sheet accounts using the closing
       exchange rate in effect at the balance sheet dates and for revenue and
       expense accounts using an average exchange rate during each reporting
       period. The gains or losses resulting from translation are included in
       stockholders' equity separately as cumulative translation adjustments.
       Aggregate losses (gains) from foreign currency transactions included in
       the results of operations for the three months ended March 31, 1997 and
       1998, were approximately $14,000 and $15,000, respectively.

   K.  NET INCOME PER COMMON SHARE

       Net income per common share is computed in accordance with Statement of
       Financial Accounting Standards No. 128 by dividing net income for each
       period by the weighted average number of shares of common stock
       outstanding during the period, as if the common stock issued for the
       acquisition of CML (see Note 1) and the reverse stock splits and the
       redenominations of par value (see Note 15) had been consummated prior to
       the periods presented. The weighted average number of shares used to
       compute net income per common share was 4,999,746 for all periods
       presented.

   L.  USE OF ESTIMATES

       The preparation of financial statements in conformity with generally
       accepted accounting principles in the United States of America requires
       management to make estimates and assumptions that affect certain reported
       amounts and disclosures. Accordingly, actual results could differ from
       those estimates.

                                       7
<PAGE>
 
             CREATIVE MASTER INTERNATIONAL, INC. AND SUBSIDIARIES

      NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS - (CONTINUED)


   M.  FAIR VALUE OF FINANCIAL INSTRUMENTS

       The Company's financial instruments are carried at cost, which
       approximate their fair values.

5. ACCOUNTS RECEIVABLE

Accounts receivable comprised:

<TABLE>
<CAPTION>
                                                     DECEMBER 31, 1997    MARCH 31, 1998
                                                     -----------------    --------------
                                                            $'000              $'000
                                                                             (UNAUDITED)
<S>                                                  <C>                  <C>
Trade receivables.............................               2,996             3,335
Less: Allowance for doubtful accounts.........                (139)             (139)
                                                            ------            ------
Accounts receivable, net......................               2,827             3,196
                                                            ======            ======
</TABLE>

6. DEPOSITS AND PREPAYMENTS

Deposits and prepayments comprised:

<TABLE>
<CAPTION>
                                                     DECEMBER 31, 1997    MARCH 31, 1998
                                                     -----------------    --------------
                                                            $'000              $'000
                                                                            (UNAUDITED)
<S>                                                  <C>                  <C>
Deposits for acquisition of molds.............                 149               180
Rental and utility deposits...................                  69                 8
Prepayments...................................                  83               201
Others........................................                   6                11
                                                              ----              ----
                                                               307               400
                                                              ====              ====
</TABLE>

7. INVENTORIES

Inventories comprised:

<TABLE> 
<CAPTION> 
                                                     DECEMBER 31, 1997    MARCH 31, 1998
                                                     -----------------    --------------
                                                            $'000              $'000
                                                                            (UNAUDITED)
<S>                                                  <C>                  <C>
Raw materials..................................               1,358             1,403
Work-in-process................................                 722               662
Finished goods.................................                 959             1,156
                                                             ------            ------
Less: Allowance for slow-moving and obsolete                  3,039             3,221
   inventories.................................                (111)             (111)
                                                             ------            ------
Inventories, net...............................               2,928             3,110
                                                             ======            ======
</TABLE>

                                       8
<PAGE>
 
             CREATIVE MASTER INTERNATIONAL, INC. AND SUBSIDIARIES

      NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS - (CONTINUED)


8.   MACHINERY, EQUIPMENT AND CAPITAL LEASES

Machinery, equipment and capital leases comprised:

<TABLE>
<CAPTION>
                                                     DECEMBER 31, 1997    MARCH 31, 1998
                                                     -----------------    --------------
                                                            $'000              $'000
                                                                             (UNAUDITED)
<S>                                                  <C>                  <C>
Machinery and equipment: 
   Machinery and tools.........................                 769               789
   Leasehold improvements......................               1,033             1,101
   Furniture and office equipment..............                 455               459
   Motor vehicles..............................                  21                21
Capital leases:
   Machinery and tools.........................               2,412             2,412
   Furniture and office equipment..............                  14                14
                                                            -------           -------
Cost...........................................               4,704             4,796
Less: Accumulated depreciation.................
   Machinery and equipment.....................              (1,066)           (1,138)
   Capital leases..............................                (483)             (537)
                                                            -------           -------
Machinery, equipment and capital leases, net...               3,155             3,121
                                                            =======           =======
</TABLE>

9.   LONG-TERM INVESTMENT

Long-term investment represented a 9.6% interest in Target Vision Inc. (a
company incorporated in the State of Delaware, United States of America), which
was principally engaged in the trading of communication systems. The carrying
cost of the long-term investment represented:

<TABLE>
<CAPTION>
                                                     DECEMBER 31, 1997    MARCH 31, 1998
                                                     -----------------    --------------
                                                            $'000              $'000
                                                                             (UNAUDITED)
<S>                                                  <C>                  <C>
Long-term investment...........................                 685               685
Less: Write down of investment cost............                (684)             (684)
                                                              -----             -----
Long-term investment, net......................                   1                 1
                                                              =====             =====
</TABLE>

The carrying cost of the long-term investment approximated its market value.
 
10.  GOODWILL

<TABLE>
<CAPTION>
                                                     DECEMBER 31, 1997    MARCH 31, 1998
                                                     -----------------    --------------
                                                            $'000              $'000
                                                                             (UNAUDITED)
<S>                                                  <C>                  <C>
Goodwill.......................................                 949               949
Less: Accumulated amortization.................                (139)             (166)
                                                              -----             -----
Goodwill, net..................................                 810               783
                                                              =====             =====
</TABLE>

                                       9
<PAGE>
 
             CREATIVE MASTER INTERNATIONAL, INC. AND SUBSIDIARIES

      NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS - (CONTINUED)


11.  SHORT-TERM BANK BORROWINGS

Short-term bank borrowings comprised:

<TABLE>
<CAPTION>
                                           DECEMBER 31, 1997  MARCH 31, 1998
                                           -----------------  --------------
                                                  $'000            $'000
                                                                (UNAUDITED)
<S>                                        <C>                <C>
Short-term loans...................                 908            1,328
Import trust receipts bank loans...                 382              339
                                                 ------           ------
 
                                                  1,290            1,667
                                                 ======           ======
</TABLE>


Short-term bank borrowings are denominated in Hong Kong dollars and bear
interest at the Hong Kong prime lending rate plus 1.5% to 4.3%, which ranged
from 11.0% to 13.8% per annum as of December 31, 1997; and at the Hong Kong
prime lending rate plus 1.5% to 4.3% which ranged from 10.5% to 14.5% per annum
as of March 31, 1998.  They were collaterized by the Company's bank deposits of
approximately $72,000 and $276,000 as of December 31, 1997 and March 31, 1998,
respectively, personal guarantees provided by Mr. Leo Sheck-Pui Kwok and Mr.
Carl Ka-Wing Tong, mortgage over real estate property owned by Mr. Carl Ka-Wing
Tong, a corporate guarantee provided by Acma Strategic Holdings Limited, and a
standby letter of credit issued by Acma Ltd. (see Note 18).  They were drawn for
working capital purposes and are renewable with the consent of the relevant
banks.

                                       10
<PAGE>
 
             CREATIVE MASTER INTERNATIONAL, INC. AND SUBSIDIARIES

      NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS - (CONTINUED)


Supplemental information with respect to short-term bank borrowings for the year
ended December 31, 1997 and for the three months ended March 31, 1998, are as
follows:

<TABLE>
<CAPTION> 
                                         MAXIMUM        AVERAGE          WEIGHTED
                                          AMOUNT         AMOUNT          AVERAGE         WEIGHTED
                                       OUTSTANDING    OUTSTANDING      INTEREST RATE      AVERAGE
                                       DURING THE     DURING THE      AT THE END OF    INTEREST RATE
                                       YEAR/PERIOD    YEAR/PERIOD          THE           DURING THE
YEAR ENDED DECEMBER 31, 1997             $'000          $'000          YEAR/PERIOD      YEAR/PERIOD
----------------------------           
<S>                                    <C>            <C>            <C>               <C>
 
Overdrafts..........................        111             17             12.5%            12.1%
                                        =========      =========         =========        ========= 
                                                                                       
Short-term loans....................        908            686             10.7%            10.1%
                                        =========      =========         =========        ========= 
                                                                                       
Import trust receipts loans.........        448            291             12.5%            11.9%
                                        =========      =========         =========        ========= 
                                                                                       
THREE MONTHS ENDED MARCH 31, 1998                                                      
           (UNAUDITED)                                                                 
---------------------------------                                                      
                                                                                       
Overdrafts..........................         49             24                0%            14.0%
                                        =========      =========         =========        ========= 
                                                                                       
Short-term loans....................      1,346          1,212             11.1%            11.0%
                                        =========      =========         =========        ========= 
                                                                                       
Import trust receipts loans.........        339            323             11.6%            11.8%
                                        =========      =========         =========        ========= 
</TABLE>

12.  CAPITAL LEASE OBLIGATIONS

Future minimum lease payments under capital leases, together with the present
value of the minimum lease payments, are:

<TABLE>
<CAPTION>
                                                         DECEMBER 31, 1997    MARCH 31, 1998
                                                         -----------------    --------------
                                                               $'000              $'000
                                                                               (UNAUDITED)
<S>                                                      <C>                  <C>
Payable during the following period
- Within one year................................                 830               627
- Over one year but not exceeding two years......                 195               163
- Over two years but not exceeding three years...                  91                54
                                                               ------             -----
 
Total minimum lease payments.....................               1,116               844
Less: Amount representing interest...............                 (86)              (53)
                                                               ------             -----
 
Present value of minimum lease payments..........               1,030               791
Less: Current portion............................                (764)             (588)
                                                               ------             -----
 
Non-current portion..............................                 266               203
                                                               ======             =====
</TABLE>

                                       11
<PAGE>
 
             CREATIVE MASTER INTERNATIONAL, INC. AND SUBSIDIARIES

      NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS - (CONTINUED)


13.  ACCRUED LIABILITIES
 
Accrued liabilities comprised:

<TABLE>
<CAPTION>
                                                    DECEMBER 31, 1997   MARCH 31, 1998
                                                    -----------------   --------------
                                                           $'000            $'000
                                                                         (UNAUDITED)
<S>                                                 <C>                 <C>
Accruals for operating expenses
 - Salaries, wages and bonus................                 575              327
 - Subcontracting charges...................                 463              330
 - Rentals..................................                  41               20
 - Others...................................                 120              345
Accruals for purchases of loose tools and
  consumables...............................                 269              423
Others......................................                 111              159
                                                          ------           ------
 
                                                           1,579            1,604
                                                          ======           ======
</TABLE>


14.  INCOME TAXES

The Company and its subsidiaries are subject to income taxes on an entity basis
on income arising in or derived from the tax jurisdiction in which they operate.
The Company is subject to the United States federal tax at a rate of 35%. The
Hong Kong subsidiaries are subject to Hong Kong profits tax at a rate of 16.5%
for the year ended December 31, 1997 and for the three months ended March 31,
1997, and 16% for the three months ended March 31, 1998.

The contractual joint venture established in the PRC (Dongguan Chuangying Toys
Factory Co., Ltd.) is subject to PRC income taxes at a rate of 33% (30% state
income tax and 3% local income tax). However, the joint venture is exempted from
state income tax and local income tax for two years starting from the first year
of profitable operations and it is subject to a 50% reduction in state income
tax for the next three years. The first profitable year of operations for
Dongguan Chuangying Toys Factory Co., Ltd. was the year ended December 31, 1997.
If the tax holiday had not existed, the Group's income tax expenses would have
been increased by approximately $350 and $4,000 for the three months ended
March 31, 1997 and 1998, respectively.

Provision for income taxes for the year ended December 31, 1997 and the three
months ended March 31, 1998 represent provisions for current Hong Kong profits
tax. The reconciliation of the United States federal income tax

                                       12
<PAGE>
 
             CREATIVE MASTER INTERNATIONAL, INC. AND SUBSIDIARIES

      NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS - (CONTINUED)


rate to the effective income tax rate based on income (loss) before income taxes
and minority interests stated in the consolidated condensed statements of
operations is as follows:

<TABLE>
<CAPTION>
                                                          YEAR ENDED       THREE MONTHS ENDED
                                                      DECEMBER 31, 1997      MARCH 31, 1998
                                                      -----------------    ------------------
                                                                               (UNAUDITED)
<S>                                                   <C>                  <C>
United States federal income tax rate........                35.0%                 35.0%
 
Non-taxable income arising from activities
   which qualified as offshore...............               (6.0)%                 (25)%
 
Non-taxable/non-deductible activities........               (3.6)%                  (3)%
 
Tax losses not recognized....................                 7.7%                 13.9%
 
Effect of different tax rates in foreign
   jurisdictions.............................              (20.1)%                 (9.1)%
                                                           ------                  ---- 
Effective income tax rate....................                13.0%                 11.8%
                                                           ======                  ====
</TABLE>

15.  SHARE CAPITAL

During the period from January 1, 1995 to May 28, 1996, the Company had
authorized share capital of 250,000,000 shares of common stock, par value
$0.0001 each, and outstanding share capital of 193,745,200 shares of common
stock, par value $0.0001 each. On May 29, 1996, the Company effected a one-for-
one hundred reverse stock split and a redenomination of par value in share
capital, resulting in 1,937,452 shares of common stock, par value $0.0001 each,
outstanding. Also, on May 29, 1996, the authorized share capital of the Company
was decreased from 250,000,000 shares of common stock, par value $0.0001 each,
to 50,000,000 shares of common stock, par value $0.0001 each. On December 30,
1997, the Company issued 48,060,000 shares of common stock (after the one-for-
one hundred reverse stock split as described above but before the one-for-ten
reverse stock split as described below), par value $0.0001 each, to the
stockholders of CML in connection with its acquisition of CML as described in
Note 1 to the accompanying financial statements. On March 2, 1998, the
authorized capital of the Company was increased to 60,000,000 shares of common
stock, par value $0.0001 each. On March 12, 1998, the Company effected a one-
for-ten reverse stock split and a redenomination of par value in share capital,
resulting in 60,000,000 shares of common stock, par value $0.0001 each,
authorized, and 4,999,746 shares of common stock, par value $0.0001 each,
outstanding.

The effects of the one-for-one hundred reverse stock split, the one-for-ten
reverse stock split, and the redenominations of par value in share capital have
been reflected retroactively in the financial statements and all net income
per common share computations.


16.  OPERATING LEASE COMMITMENTS

The Group has various operating lease agreements for office, factory and staff
quarters premises, which extend through 2006. Rental expenses for the year ended
December 31, 1997 and the three months ended March 31, 1998 were approximately
$602,000 and $176,000, respectively. Future minimum rental payments as of
December 31, 1997 and March 31, 1998, under agreements classified as operating
leases with non-cancelable terms, are as follows:

                                       13
<PAGE>
 
             CREATIVE MASTER INTERNATIONAL, INC. AND SUBSIDIARIES

      NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS - (CONTINUED)


<TABLE>
<CAPTION> 
                                                            DECEMBER 31, 1997   MARCH 31, 1998
                                                            -----------------   --------------
                                                                  $'000              $'000
                                                                                  (UNAUDITED)
<S>                                                         <C>                 <C>
Payable during the following period
  - Within one year.................................                 563              583
  - Over one year but not exceeding two years.......                 487              563
  - Over two years but not exceeding three years....                 427              471
  - Over three years but not exceeding four years...                 448              431
  - Over four years but not exceeding five years....                 390              431
  - Thereafter......................................                 977              963
                                                                  ------           ------
                                                                   3,292            3,442
                                                                  ======           ======
</TABLE>


17.  RETIREMENT PLAN

The Group's employees in the PRC are all hired on a contractual basis and
consequently the Group has no obligation for pension liabilities to these
employees.

From January 1, 1997, the employees in Hong Kong, after completing a probation
period, may join the Company's defined contribution pension fund managed by an
independent trustee.  Both the Group and its Hong Kong employees make monthly
contributions to the plan of 5% of the employees' basic salaries. The Hong Kong
employees are entitled to receive their entire contribution together with
accrued interest thereon at any time upon retirement or leaving the Group, and
100% of the Group's employer contribution thereon upon retirement on leaving the
Group after completing ten years of service or at a reduced scale of between 30%
to 90% after completing three to nine years of service.  Any forfeited
contributions made by the Group and the accrued interest thereon are used to
reduce future employer's contributions. The aggregate amount of the Group's
employer contributions (net of forfeited contributions) for the year ended
December 31, 1997 was approximately $50,000 and for the three months ended March
31, 1998 was $13,000.

The Group has no other post-retirement or post-employment benefit plans.

18.  BANKING FACILITIES

As of December 31, 1997 and March 31, 1998, the Company had banking facilities
of approximately $1,421,000 and $1,884,000, respectively, for overdrafts, loans
and trade financing. Unused facilities as of the same dates amounted to
approximately $99,000 and $128,000 respectively. These facilities were secured
by:

    a.   Pledges of the Group's bank deposits of approximately $72,000 and
         $276,000 as of December 31, 1997 and March 31, 1998, respectively;

    b.   Personal guarantees provided by Mr. Leo Sheck-Pui Kwok and Mr. Carl Ka-
         Wing Tong;

    c.   Mortgage over real estate property owned by Mr. Carl Ka-Wing Tong;

    d.   Corporate guarantee provided by Acma Strategic Holdings Limited; and

    e.   A standby letter of credit issued by Acma Ltd. of approximately
         $388,000 as of March 31, 1998.

                                       14
<PAGE>
 
             CREATIVE MASTER INTERNATIONAL, INC. AND SUBSIDIARIES

      NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS - (CONTINUED)


19.  RELATED PARTY TRANSACTIONS

     a   The Company entered into the following transactions with related
         companies:

<TABLE>
<CAPTION>
                                              YEAR ENDED     THREE MONTHS ENDED
                                           DECEMBER 31, 1997   MARCH 31, 1998
                                           -----------------   --------------
                                                 $'000             $'000
                                                                 (UNAUDITED)
<S>                                        <C>                 <C>
Management fee paid to Acma Strategic
   Holdings Limited.....................           115                34
</TABLE>

     b   Details of amounts due to directors of the Company as of December 31,
         1997 and March 31, 1998, are as follows:

<TABLE>
<CAPTION>
                                           DECEMBER 31, 1997   MARCH 31, 1998
                                           -----------------   --------------
                                                 $'000             $'000
                                                                 (UNAUDITED)
<S>                                        <C>                 <C>
Mr. Leo Sheck-Pui Kwok..................           612               575
Mr. Carl Ka-Wing Tong...................           249               149
                                                  ----              ----
                                                   861               724
                                                  ====              ====
</TABLE>


The amounts due to directors are unsecured, non-interest bearing and without
pre-determined repayment terms.

     c   Details of amount due to parent company as of December 31, 1997 and
         March 31, 1998, are as follows:.

<TABLE>
<CAPTION>
                                           DECEMBER 31, 1997        MARCH 31, 1998
                                           -----------------      ------------------
                                                 $'000                   $'000
                                                                      (UNAUDITED)
<S>                                        <C>                    <C>
Acma Strategic Holdings Limited.........             9                      -
                                                     =                      =
</TABLE>

   The amount due to the parent company was unsecured, non-interest bearing and
   without pre-determined repayment terms.

     d   As of December 31, 1997 and March 31, 1998, the Company's banking
         facilities were secured by personal guarantees provided by Mr. Sheck-
         Pui Kwok and Mr. Carl Ka-Wing Tong; mortgage over real estate property
         owned by Mr. Carl Ka-Wing Tong; corporate guarantee provided by Acma
         Strategic Holdings Limited; and a standby letter of credit issued by
         Acma Ltd. of approximately $388,000.

                                       15
<PAGE>
 
             CREATIVE MASTER INTERNATIONAL, INC. AND SUBSIDIARIES

      NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS - (CONTINUED)


20.  SEGMENTAL ANALYSIS
 
     a   NET SALES

         Net sales comprised:

<TABLE>
<CAPTION>
                             THREE MONTHS ENDED MARCH 31, 
                           ---------------------------------
                                1997               1998
                               $'000               $'000
                                                (UNAUDITED)
<S>                        <C>                <C>
Sales of merchandise...         3,360              4,560
Sales of molds.........           670                879
Others.................            23                157
                               ------             ------
                                4,053              5,596
                               ======             ======
</TABLE>

A substantial portion of Group's sales are made to the United States of America.
 
     b   ASSETS

Substantially all of the Group's assets are located in Hong Kong and the PRC.

     c    MAJOR CUSTOMERS

Details of individual customers accounting for more than 5% of the Group's sales
are as follows:

<TABLE>
<CAPTION> 
                                                 YEAR ENDED         THREE MONTHS ENDED
                                              DECEMBER 31, 1997        MARCH 31, 1998
                                              -----------------     ------------------
                                                    $'000                  $'000
                                                                        (UNAUDITED)
<S>                                           <C>                   <C>
MBI Inc..............................                64.2%                   41.0%
Mattel Vendor Operations Asia Ltd....                14.8%                   40.0%
Brookfield Collectors Guild..........                 4.7%                    5.0%
Tyco Hong Kong Limited...............                 5.6%                    0.0 %
</TABLE>

     d   MAJOR SUPPLIERS

<TABLE>
<CAPTION> 
                                                 YEAR ENDED         THREE MONTHS ENDED
                                              DECEMBER 31, 1997        MARCH 31, 1998
                                              -----------------     ------------------
                                                    $'000                  $'000
                                                                        (UNAUDITED)
<S>                                           <C>                   <C>
Manfield Coatings Co., Ltd...........                 9.0%                  9.3%
Genesis Off-set Printing Co., Ltd....                 8.5%                 13.6%
Lee Kee Metal Co., Ltd...............                 6.1%                 10.1%
Zinamet Co., Ltd.....................                 6.9%                  0.0%
</TABLE>

                                       16
<PAGE>
 
             CREATIVE MASTER INTERNATIONAL, INC. AND SUBSIDIARIES

      NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS - (CONTINUED)


21.  OPERATING RISKS
 
   a   COUNTRY RISK

   The Group's operations are conducted in Hong Kong and the PRC. Accordingly,
   the Group's business, financial condition and results of operations may be
   influenced by the political, economic and legal environments in Hong Kong and
   the PRC, and by the general state of the Hong Kong and the PRC economies.

   On July 1, 1997, sovereignty over Hong Kong was transferred from the United
   Kingdom to the PRC, and Hong Kong became a Special Administrative Region of
   the PRC (the "Hong Kong SAR"). As provided in the Basic Law of the Hong Kong
   SAR of the PRC, the Hong Kong SAR will have full economic autonomy and its
   own legislative, legal and judicial systems for fifty years. The Group's
   management does not believe that the transfer of sovereignty over Hong Kong
   will have an adverse impact on the Group's financial and operating
   environment.  There can be no assurance, however, that changes in political
   or other conditions will not result in such an adverse impact.

   The Group's operations in the PRC are subject to special considerations and
   significant risks not typically associated with companies in North America
   and Western Europe. These include risks associated with, among others, the
   political, economic and legal environments and foreign currency exchange. The
   Group's results may be adversely affected by changes in the political and
   social conditions in the PRC, and by changes in governmental policies with
   respect to laws and regulations, anti-inflationary measures, currency
   conversion and remittance abroad, and rates and methods of taxation, among
   other things.

   b   DEPENDENCE ON STRATEGIC RELATIONSHIP

   The Group conducts its manufacturing operations through its contractual joint
   venture established between the Company and a PRC party, and several
   subcontracting agreements entered into with certain PRC parties. The
   deterioration of any or all of these strategic relationships may have an a
   verse effect on the operations of the Group.

   c   CONCENTRATION OF CREDIT RISK

   Concentration of accounts receivable is as follows:

<TABLE>
<CAPTION> 
                                            DECEMBER 31, 1997    MARCH 31, 1998
                                            -----------------    --------------
                                                  $'000              $'000
                                                                  (UNAUDITED)
<S>                                         <C>                  <C>
 
Five largest accounts receivable...                92.1%             98.1%
                                                   =====             =====
</TABLE>

The Group performs ongoing credit evaluation of each customer's financial
condition. It maintains reserves for potential credit losses and such losses in
aggregate have not exceeded management's projections.

                                       17
<PAGE>
 
             CREATIVE MASTER INTERNATIONAL, INC. AND SUBSIDIARIES

      NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS - (CONTINUED)


22.  OTHER SUPPLEMENTAL INFORMATION

The following items were included in the consolidated statements of operations:

<TABLE>
                                                 THREE MONTHS ENDED      THREE MONTHS ENDED
                                                   MARCH 31, 1997          MARCH 31, 1998
                                                   --------------          --------------
                                                        $'000                  $'000
                                                                             (UNAUDITED)
<S>                                                <C>                     <C>
 
Depreciation of machinery and equipment
  - owned assets..............................             77                     72
  - assets held under capital leases..........             40                     54
Provision for doubtful account................              -                      -
Provision for slow-moving and obsolete                                  
   inventories................................              -                      -
Interest expenses for                                                   
  - bank overdrafts and loans.................             28                     40
  - capital lease obligations.................             26                     30
Operating lease rentals for rented premises...            105                    128
Repairs and maintenance expenses..............             69                     40
Net foreign exchange (gain) loss..............              3                     15
                                                         ====                   ====
</TABLE>

23.  RECENT ACCOUNTING PRONOUNCEMENTS

In June 1997, the Financial Accounting Standards Board issued Statement No. 130,
"Reporting Comprehensive Income", which is effective for financial statements
issued for fiscal years beginning after December 15, 1997. This statement
establishes standards for the reporting and display of comprehensive income and
its components in a full set of general purpose financial statements.
Comprehensive income consists of net income and other comprehensive income.
Other comprehensive income refers to revenues, expenses, gains and losses that
under generally accepted accounting principles are included in comprehensive
income but are excluded from net income. Adoption of this statement is not
expected to have an impact on the Company's current disclosures and
presentation.

In June 1997, the Financial Accounting Standards Board issued Statement No. 131,
"Disclosures about Segments of an Enterprise and Related Information", which is
effective for financial statements issued for fiscal years beginning after
December 15, 1997. This statement requires that public companies report certain
information about their major customers, operating segments, products and
services, and the geographic areas in which they operate. Adoption of this
statement is not expected to have an impact on the Company's current disclosures
and presentation.

In February 1998, the Financial Accounting Standards Board issued Statement No.
132, "Employers' Disclosures about Pensions and Other Postretirement Benefits",
which is effective for financial statements issued for fiscal years beginning
after December 15, 1997. This statement revises employers' disclosures about
pension and other postretirement benefit plans. Adoption of this statement is
not expected to have an impact on the Company's current operations.

                                       18
<PAGE>
 
ITEM 2 -  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
          RESULTS OF OPERATIONS

             PRELIMINARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

The statements contained in this Form 10-QSB/A that are not purely historical
are forward-looking statements within the meaning of Section 27A of the
Securities Act of 1933, as amended and Section 21E of the Securities Exchange
Act of 1934, as amended.  These include statements about the Company's
expectations, beliefs, intentions or strategies for the future, which are
indicated by words or phrases such as "anticipate," "expect," "intend," "plan,"
"will," "the Company believes," "management believes" and similar words or
phrases.  The forward-looking statements are based on the Company's current
expectations and are subject to certain risks, uncertainties and assumptions.
The Company's actual results could differ materially from results anticipated in
these forward-looking statements.  All forward-looking statements included in
this document are based on information available to the Company on the date
hereof, and the Company assumes no obligation to update any such forward-looking
statements.

OVERVIEW:

   The Company is a leading independent manufacturer of collectible-quality,
die-cast replicas of cars, trucks, buses and other items.  Die-cast collectibles
are distinguishable from die-cast toys by their authentic design, exacting
engineering and attention to detail, including abundant use of identifiable
brand names, logos and other licensed marks.  The die-cast products the Company
manufactures are 1/12/th/ to 1/64/th/ scale and include as many as 450 parts,
including numerous moveable parts.  They are marketed and distributed by the
Company's customers primarily to collectors, hobbyists and enthusiasts at retail
prices ranging from $20 to $200 or more.  The Company's customers are leading
U.S. and European marketers and distributors of vehicle replicas and other
collectibles, including Danbury Mint, Mattel, Hallmark Cards, Paul's Model Art
and Brookfield Collectors Guild.

   The Company's mission is to provide the highest level of product quality and
customer service among independent manufacturers of die-cast collectibles.  The
Company offers its customers turnkey product development and manufacturing
capabilities that are customized to meet their specific needs.  The Company's
vertically integrated process affords complete sourcing of raw materials,
engineering, assembly, quality control and final packaging of die-cast products
in commercial quantities.  Depending on the customer's needs, the Company
provides a self-contained production area within one of its factories with
tooling and other production functions dedicated to manufacturing the customer's
products according to its particular design, engineering and quality
requirements.  This approach permits customers to closely supervise and control
all aspects of the production process and to protect the confidentiality of
their product design and engineering.  The Company's turnkey process enables its
customers to shorten the lead time from conceptual design to product delivery
and to minimize production costs while maintaining high quality and reliability.

   All of the Company's manufacturing operations are conducted through CML, the
Company's wholly-owned Hong Kong subsidiary, and CML's subsidiaries.  CML was
co-founded in 1986 by Carl Ka-Wing Tong and Leo Sheck-Pui Kwok.  The Company's
manufacturing facilities are located in the Dongguan region of Guangdong
Province, China, approximately 60 miles northwest of Hong Kong.  The Dongguan
facilities contain an aggregate of approximately 320,000 square feet of
manufacturing space and related housing for up to approximately 4,100 workers.

On December 30, 1997, CML completed an exchange reorganization with Davin
Enterprises, Inc., a public company that was incorporated in Delaware in April
1987.  In March 1998, Davin Enterprises, Inc. changed its name to Creative
Master International, Inc.

                                       19
<PAGE>
 
   Through the exchange reorganization, the Company acquired all of the
outstanding capital stock of CML from Messrs. Tong and Kwok and Acma Strategic
Holdings Limited in exchange for the Company's issuance to them of 4,806,000
shares of common stock, representing approximately 96% of the Company's
outstanding stock.  Davin Enterprises, Inc. had no significant assets,
liabilities, business or operations prior to the exchange reorganization.  The
acquisition of CML by the Company on December 30, 1997 has been treated as a
reverse acquisition since CML is the continuing entity as a result of the
exchange reorganization.  On this basis, the historical financial statements
prior to December 30, 1997 represent the consolidated financial statements of
CML.

RESULTS OF OPERATIONS


<TABLE> 
<CAPTION> 
                                                   Three Months Ended March 31,
                                                   ----------------------------
                                                       1998          1997
                                                      ------        ------
                                                       $'000         $'000
<S>                                                <C>           <C>
                                                                
Sales..............................................    5,596         4,053
Gross Profit.......................................    1,774           877
Selling, general and administrative expenses.......     (852)         (502)
Operating income...................................      922           375
Income before income taxes and minority interests..      837           299
Provision for income taxes.........................      (99)          (33)
Minority interests.................................     (131)          (21)
Net income.........................................      607           245
                                                       =====         =====
</TABLE>

Three Months Ended March 31, 1998 Compared To Three Months Ended March 31, 1997

   Net Sales. Net sales for the three months ended March 31, 1998 were
$5,596,000, an increase of $1,543,000, or 38%, from $4,053,000 for the three
months ended March 31, 1997. This increase was due primarily to an increase in
sales volume of the Company's products to existing and new customers and a
direct result of the increase in capacity.

   Cost of Goods Sold. Cost of goods sold for the three months ended March 31,
1998 was $3,822,000, an increase of $646,000, or 20%, from $3,176,000 for the
three months ended March 31, 1997. This increase was due to additional raw
material purchases that were made to meet increased sales volume.

   Selling, General And Administrative Expenses. Selling, general and
administrative expenses totaled $852,000 for the three months ended March 31,
1998, an increase of $350,000, or 70%, from $502,000 for the three months ended
March 31, 1997. Selling, general and administrative expenses constituted 15% of
net sales for the three months ended March 31, 1998 and 12% of net sales for the
three months ended March 31, 1997. Selling, general and administrative expenses
increased due to an increase in administrative and personnel costs to support
the increase in sales and manufacturing capacity.

   Interest Income. Interest income was not material for the three months ended
March 31, 1998, as compared to $28,000 in the three months ended March 31, 1997.
The decrease in interest reflects the utilization of cash to meet increased
sales and manufacturing capacity.

   Interest Expenses. Interest expense was $70,000, or 1.3% of net sales, for
the three months ended March 31, 1998 as compared to $54,000, or 1.3% of net
sales, for the three months ended March 31, 1997. The increase in interest
expenses was attributable to higher interest rates and finance charges
associated with additional capital requirements needed to meet manufacturing
needs.

                                       20
<PAGE>
 
   Minority Interests. The Company includes in net income before minority
interests all net income of its wholly-owned and majority-owned subsidiaries.
The portion of such net income attributable to minority interests in the
subsidiaries held by others is then eliminated.  Minority interests at March 31,
1998 totaled approximately $131,000.

   Provision For Income Taxes. The Company's provision for income taxes was
$99,000 for the three months ended March 31, 1998, reflecting an effective
income tax rate of 12%, for the three months ended March 31, 1998. The Company's
provision for income taxes was $33,000 for the three months ended March 31,
1997, reflecting an effective income tax rate of 11%. The difference in the
effective tax rate was due to changes in contributions from subsidiaries with
minority interests.

LIQUIDITY AND CAPITAL RESOURCES

   For the three months ended March 31, 1998, the Company's operations provided
cash of $450,000. The Company's cash balance increased by $299,000 to $770,000
at March 31, 1998, as compared to $471,000 at March 31, 1997.

   The Company's working capital deficit decreased to $95,000 at March 31, 1998,
as compared to $829,000 at December 31, 1997.  Net accounts receivable increased
by $369,000, or 13%, to $3,196,000 at March 31, 1998, as compared to $2,827,000
at December 31, 1997 as result of sales volume increases. Consistent with
practices in the die-cast collectibles industry, the Company offers accounts
receivable terms to its customers. This practice has created working capital
requirements that the Company generally has financed with a combination of
internally generated cash flow and credit facilities provided by affiliates and
third parties.  The Company has not experienced any significant problems with
collection of its account receivable.

   The Company's accounts payable and accrued liabilities increased by $423,000,
or 12%, to $3,910,000 at March 31, 1998, as compared to $3,487,000 at December
31, 1997. The increase in accounts payable and accrued liabilities was primarily
due to increased purchases of raw materials and packing materials for
anticipated sales and the increase in accrued liabilities was a result of
manufacturing expansion.

   The Company's inventories increased by $182,000 or 6% to $3,110,000 at March
31, 1998, as compared to $2,928,000 at December 31, 1997 as a result of
increased purchasing of materials to accommodate increased sales and
manufacturing.

   For the three months ended March 31, 1998, additions to property, plant and
equipment aggregated $94,000 as compared to $1,226,000 at December 31, 1997. The
Company anticipates that additional expenditures in connection with the
continuing expansion and improvement of production facilities at the Dongguan
facility during the remainder of 1998 will be approximately $3,147,000, a
portion of which is expected to be funded by capital lease financing.

   The Company anticipates that its operating cashflow, combined with cash on
hand, bank lines of credit and other external credit sources, and credit
facilities provided by affiliates or related parties, are adequate to satisfy
the Company's working capital requirements for the year ending of December 31,
1998. In addition, any additional expansion of the Dongguan facility, the
development or acquisition of additional support facilities may require the use
of debt or equity by the Company.

Inflation.  The Company believes that inflation has not had a material impact on
its business in recent years.

                                       21
<PAGE>
 
Year 2000 Compliance

   The Company is not aware of any material operational issues or costs
associated with preparing its internal systems for the year 2000.  However,
there can be no assurance that there will not be a delay in, or increased costs
associated with, the Company's implementation of the necessary systems and
changes to address the year 2000 issues.  If the Company is unable to implement
such systems and changes in a timely manner, it could have a material adverse
effect on the Company's business, financial condition and results of operations.

   The Company also relies, directly and indirectly, on external systems of
business enterprises such as financial institutions, government agencies,
customers and suppliers for accurate exchange of data.  Even if the internal
systems of the Company are not materially affected by the year 2000 issue, the
Company could be affected by disruptions in the operation of the enterprises
with which the Company interacts.

Currency Exchange Fluctuations

   All of the Company's sales are denominated either in U.S. dollars or Hong
Kong dollars, while its expenses are denominated primarily in Hong Kong dollars
and renminbi, the Chinese currency, the basic unit of which is the yuan.  Given
the current Asian financial crisis, there can be no assurance that the yuan-to-
U.S. dollar rate will remain stable.  Although a devaluation of the Hong Kong
dollar or renminbi relative to the U.S. dollar would be likely to reduce the
Company's expenses, any material increase in the value of the Hong Kong dollar
or renminbi relative to the U.S. dollar would increase the Company's expenses,
and could have a material adverse effect on the Company's business, financial
condition and results of operations.  The Company has never engaged in currency
hedging operations and has no present intention to do so.

Seasonality

   Each year, the Company ceases production for a two-week period due to the
Chinese New Year holiday, which occurs during late January or early February.
This holiday shutdown has typically resulted in lower revenues during the first
quarter of each year than during the other three quarters.

   The Company experiences fluctuations in quarterly sales due to the timing of
receipt of orders from customers and product shipments.  The Company also incurs
substantial tooling and other costs of manufacturing new products from three to
nine months in advance of obtaining the first customer orders for the new
product.  This long lead time may contribute to fluctuations in the Company's
quarterly results of operations.

International Sales

   The Company sells substantially all of its products to customers in the U.S.
and Europe.  In 1997 approximately 6.2% of the Company's net sales were
attributable to sales to European customers.  The U.S. and European governments
may, from time to time, impose new quotas, duties, tariffs, or other charges or
restrictions, or adjust presently prevailing quota, duty or tariff levels, which
could adversely affect the Company's ability to continue to export products to
the U.S. and Europe at current or increased levels.

                                       22
<PAGE>
 
                          PART II - OTHER INFORMATION

ITEM 1 - LEGAL PROCEEDINGS

         NONE

ITEM 2 - CHANGES IN SECURITIES

         On March 12, 1998, the Company effected a 1-for-10 reverse stock split
         of its common stock, which resulted in 4,999,746 shares outstanding.

ITEM 3 - DEFAULTS UPON SENIOR SECURITIES

         NONE

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

         In January 1998, the majority of the Company's stockholders voted by
         their consent in writing to change the Company's name from "Davin
         Enterprises, Inc." to "Creative Master International, Inc." and to
         increase the Company's authorized capital stock to 60,000,000 shares of
         common stock. In March 1998, the majority of the Company's stockholders
         voted by their consent to effect a 1-for-10 reverse stock split of the
         Company's common stock.

ITEM 5 - OTHER INFORMATION

         NONE

ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K

         During the quarter ended March 31, 1998, the Company filed two reports
         on Form 8-K, as follows: Form 8-K for the event dated December 30, 1997
         with respect to Items 1 and 2, and Form 8-K for the event dated
         December 31, 1997 with respect to Item 6.

         Exhibits:

         10.1   Lease of Unit A2, Casey Industrial Building, Kowloon, Hong Kong
                between Creative Master Limited and Fortune Wind Investments
                Limited. (To be filed by amendment)

                                       23
<PAGE>
 
                                   SIGNATURES

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

                                  CREATIVE MASTER INTERNATIONAL INC.

 


Date:   October 30, 1998          By: /s/ Carl Tong
                                      ------------------------------------------
                                      Carl Tong, President

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