<PAGE>

                                    FORM 10-Q


                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549



(MARK ONE)

[X]   QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
      EXCHANGE ACT OF 1934
      FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2001

      OR

[ ]   TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
      EXCHANGE ACT OF 1934
      FOR THE TRANSITION PERIOD FROM ______ TO ______


                           COMMISSION FILE NO. 0-22545


                                 DSI TOYS, INC.
             (Exact name of Registrant as specified in its charter)


                      TEXAS                                  74-1673513
          (State or other jurisdiction                    (I.R.S. Employer
        of incorporation or organization)                Identification No.)


       1100 WEST SAM HOUSTON PARKWAY NORTH
                 HOUSTON, TEXAS                                 77043
    (Address of principal executive offices)                 (Zip Code)


        Registrant's telephone number including area code: (713) 365-9900


   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 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


     As of November 9, 2001, 9,066,365 shares of common stock par value $.01 per
share, of DSI Toys, Inc. were outstanding.

<PAGE>

                                TABLE OF CONTENTS


                                                                            PAGE

                         PART I - FINANCIAL INFORMATION


Item 1. FINANCIAL STATEMENTS

        Consolidated Balance Sheet as of September 30, 2001 and
          December 31, 2000..................................................1
        Consolidated Statement of Operations for the Three Months
          and Nine Months Ended September 30, 2001 and  2000.................2
        Consolidated Statement of Cash Flows for the Nine Months Ended
          September 30, 2001 and 2000........................................3
        Consolidated Statement of Shareholders' Equity.......................5
        Notes to Consolidated Financial Statements...........................6



Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
          AND RESULTS OF OPERATIONS..........................................8


                           PART II - OTHER INFORMATION


Item 1. LEGAL PROCEEDINGS...................................................15

Item 5. OTHER INFORMATION...................................................15

Item 6. EXHIBITS AND REPORTS ON FORM 8-K....................................15

Signatures..................................................................16



                                       i
<PAGE>

                         PART I - FINANCIAL INFORMATION

ITEM 1.   FINANCIAL STATEMENTS

                                 DSI TOYS, INC.
                           CONSOLIDATED BALANCE SHEET

<TABLE>
<CAPTION>
                                                                    SEPTEMBER 30, 2001      DECEMBER 31, 2000
                                                                   --------------------   --------------------
                                                                       (Unaudited)
<S>                                                                    <C>                    <C>
                             ASSETS

Current Assets:
    Cash                                                               $    150,389           $    177,682
    Restricted cash                                                         450,000                150,000
    Accounts receivable, net                                             15,131,677              6,522,883
    Inventories                                                          12,668,279              6,687,195
    Prepaid expenses                                                      2,143,783              1,740,945
    Deferred income taxes                                                   754,391                385,000
                                                                       ------------           ------------
             Total current assets                                        31,298,519             15,663,705

Property and equipment, net                                               1,882,227              2,415,084
Deferred income taxes                                                     1,780,000              1,780,000
Goodwill, net                                                             9,369,477              9,754,524
Other assets                                                                462,863                385,827
                                                                       ------------           ------------
                                                                       $ 44,793,086           $ 29,999,140
                                                                       ============           ============
               LIABILITIES AND SHAREHOLDERS' EQUITY

Current Liabilities:
    Accounts payable and accrued liabilities                           $ 17,719,162           $  7,901,290
    Current portion of long-term debt                                     3,733,939              1,689,911
    Current portion of long-term debt due to a related party              1,743,493              1,424,478
    Income taxes payable                                                    187,059                112,325
                                                                       ------------           ------------
             Total current liabilities                                   23,383,653             11,128,004

Long-term debt                                                            8,093,364              6,464,268
Long-term debt due to a related party                                     3,599,232              4,291,037
Deferred income taxes                                                       188,849                188,849
                                                                       ------------           ------------
             Total liabilities                                           35,265,098             22,072,158
Shareholders' equity:
    Preferred stock, $.01 par value, 5,000,000 shares authorized,
             None issued or outstanding
    Common stock, $.01 par value, 35,000,000 shares authorized,
             9,066,365 shares issued and outstanding                         90,664                 90,664
    Additional paid-in capital                                            5,173,465              5,173,465
    Common stock warrants                                                 2,802,500                102,500
    Accumulated other comprehensive loss                                    (76,068)               (27,062)
    Retained earnings                                                     1,537,427              2,587,415
                                                                       ------------           ------------
                   Total shareholders' equity                             9,527,988              7,926,982
                                                                       ------------           ------------
                                                                       $ 44,793,086           $ 29,999,140
                                                                       ============           ============
</TABLE>

          See accompanying notes to consolidated financial statements.


                                       1
<PAGE>

                                 DSI TOYS, INC.
                      CONSOLIDATED STATEMENT OF OPERATIONS
                                   (UNAUDITED)

<TABLE>
<CAPTION>
                                                       THREE MONTHS ENDED SEPTEMBER 30,      NINE MONTHS ENDED SEPTEMBER 30,
                                                       -------------------------------       -------------------------------
                                                           2001               2000               2001               2000
                                                       ------------       ------------       ------------       ------------
<S>                                                    <C>                <C>                <C>                <C>
Net sales                                              $ 29,927,783       $ 29,915,591       $ 46,065,190       $ 50,412,558
Cost of goods sold                                       21,203,145         20,483,673         33,622,175         35,391,788
                                                       ------------       ------------       ------------       ------------
Gross profit                                              8,724,638          9,431,918         12,443,015         15,020,770
Selling, general and administrative expenses              5,192,933          6,832,944         13,169,780         13,794,519
                                                       ------------       ------------       ------------       ------------
Operating income (loss)                                   3,531,705          2,598,974           (726,765)         1,226,251
Interest expense                                           (326,668)          (372,883)          (864,358)        (1,046,628)
Other income                                                107,316             86,800            167,106            141,295
                                                       ------------       ------------       ------------       ------------
Income (loss) before income taxes                         3,312,353          2,312,891         (1,424,017)           320,918
Benefit from (provision for) income taxes                (1,331,064)          (832,640)           374,029           (115,531)
                                                       ------------       ------------       ------------       ------------
Net income (loss)                                      $  1,981,289       $  1,480,251       $ (1,049,988)      $    205,387
                                                       ============       ============       ============       ============

BASIC EARNINGS PER SHARE
    Earnings (loss) per share                          $       0.22       $       0.16       $      (0.12)      $       0.02
                                                       ============       ============       ============       ============
    Weighted average shares outstanding                   9,066,365          9,066,365          9,066,365          9,049,023
                                                       ============       ============       ============       ============

DILUTED EARNINGS PER SHARE
    Earnings (loss) per share                          $       0.22       $       0.16       $      (0.12)      $       0.02
                                                       ============       ============       ============       ============
    Weighted average shares outstanding                   9,066,365          9,118,553          9,066,365          9,097,094
                                                       ============       ============       ============       ============
</TABLE>

          See accompanying notes to consolidated financial statements.


                                       2
<PAGE>

                                 DSI TOYS, INC.
                      CONSOLIDATED STATEMENT OF CASH FLOWS
                                   (UNAUDITED)


<TABLE>
<CAPTION>
                                                                             NINE MONTHS ENDED SEPTEMBER 30,
                                                                             -------------------------------
                                                                                2001                2000
                                                                             -----------        -----------
<S>                                                                          <C>                <C>
Cash flows from operating activities:
    Net income (loss)                                                        $(1,049,988)       $   205,387
    Adjustments to reconcile net income (loss) to net cash
        used by operating activities:
        Depreciation and amortization                                            997,706          1,151,937
        Amortization and write-off of
           debt discount and issuance costs                                       34,783             19,457
        Amortization of goodwill                                                 385,047            385,011
        Provision for doubtful accounts                                           43,144            (25,210)
        Loss (gain) on abandonment or sale of equipment                          (23,617)            32,173
        Deferred income taxes                                                   (369,391)          (511,260)
        Changes in assets and liabilities:
           Restricted cash                                                      (300,000)
           Accounts receivable                                                (8,651,938)        (7,872,548)
           Inventories                                                        (5,981,084)        (5,483,265)
           Income taxes payable                                                   74,734            472,819
           Prepaid expenses                                                     (402,838)        (1,400,056)
           Accounts payable and accrued liabilities                            9,817,872          7,166,187
                                                                             -----------        -----------
             Net cash used by operating activities                            (5,425,570)        (5,859,368)

Cash flows from investing activities:
    Cash used for acquisition of Meritus                                                           (884,033)
    Capital expenditures                                                        (535,824)        (1,160,092)
    Proceeds from sale of equipment                                               94,592
    Increase in other assets                                                       5,681             56,586
                                                                             -----------        -----------
             Net cash used in investing activities                              (435,551)        (1,987,539)

Cash flows from financing activities:
    Net borrowings under revolving lines of credit                             1,673,439          5,072,213
    Net borrowings on long-term debt                                           1,999,685          2,279,234
    Borrowings (payments) of long-term debt due to related party                (372,790)         4,800,000
    Payments of assumed Meritus debt                                                             (4,382,541)
    Net proceeds from issuance of warrants                                     2,700,000
    Debt and stock issue refunds (costs)                                        (117,500)            35,000
                                                                             -----------        -----------
             Net cash provided by financing activities                         5,882,834          7,803,906

Effect of exchange rate changes on cash                                          (49,006)           (28,524)
                                                                             -----------        -----------
Net decrease in cash                                                             (27,293)           (71,525)
Cash and cash equivalents, beginning of period                                   177,682            478,970
                                                                             -----------        -----------
Cash and cash equivalents, end of period                                     $   150,389        $   407,445
                                                                             ===========        ===========
</TABLE>


          See accompanying notes to consolidated financial statements.


                                       3
<PAGE>

                                 DSI TOYS, INC.
                CONSOLIDATED STATEMENT OF CASH FLOWS (CONTINUED)
                                   (UNAUDITED)


<TABLE>
<CAPTION>
                                                      NINE MONTHS ENDED SEPTEMBER 30,
                                                       -----------------------------
                                                           2001             2000
                                                       ------------    -------------
<S>                                                    <C>             <C>
Supplemental disclosure of cash flow information:

Acquisition of Meritus:
  Property, plant and equipment acquired                               $    (748,730)
  Accounts receivable and other assets acquired                             (838,564)
  Liabilities assumed                                                      7,475,172
  Note payable issued to the seller                                        1,690,000
  Common stock issued (including treasury shares)                          1,801,415
  Goodwill resulting from Meritus acquisition                            (10,263,327)
                                                       ------------    -------------
  Net cash paid for Meritus acquisition                                $    (884,034)
                                                       ============    =============

</TABLE>

          See accompanying notes to consolidated financial statements.

                                       4

<PAGE>

                                 DSI TOYS, INC.
                 CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
                                   (Unaudited)

<TABLE>
<CAPTION>

                                                             ADDITIONAL
                                     COMMON STOCK             PAID-IN
                                 SHARES         AMOUNT        CAPITAL       WARRANTS
                               -----------   -----------    -----------   -----------
<S>                             <C>          <C>            <C>           <C>
Balance, December 31, 1999      8,719,000    $    87,190    $ 4,934,919   $   102,500

   Comprehensive loss:
      Net loss
      Foreign currency
        translation adj
        net of tax

   Comprehensive loss
   Issuance of 347,365
      common shares and
      185,843 shares from
      the treasury                347,365          3,474        238,546
                              -----------    -----------    -----------   -----------
Balance, December 31, 2000      9,066,365         90,664      5,173,465       102,500

   Comprehensive loss:
      Net loss
      Foreign currency
        translation adj
        net of tax

   Comprehensive loss
   Warrants issued                                                          2,700,000
                              -----------    -----------    -----------   -----------
Balance, March 31, 2001         9,066,365         90,664      5,173,465     2,802,500

   Comprehensive loss:
      Net loss
      Foreign currency
        translation adj
        net of tax

   Comprehensive loss
                              -----------    -----------    -----------   -----------
Balance, June 30, 2001          9,066,365         90,664      5,173,465     2,802,500

   Comprehensive loss:
      Net income
      Foreign currency
         translation adj
         net of tax
   Comprehensive income
                              -----------    -----------    -----------   -----------
Balance, September 30, 2001     9,066,365    $    90,664    $ 5,173,465   $ 2,802,500
                              ===========    ===========    ===========   ===========
</TABLE>

<TABLE>
<CAPTION>
                                 ACCUMULATED
                                   OTHER
                                COMPREHENSIVE        RETAINED            TREASURY
                                INCOME (LOSS)    EARNINGS(DEFICIT)        STOCK         TOTALS
                                -------------    -----------------    ------------   -----------
<S>                             <C>                <C>                <C>            <C>
Balance, December 31, 1999      $   (12,626)       $ 3,436,401        $(1,559,395)   $ 6,988,989

   Comprehensive loss:
      Net loss                                        (848,986)                         (848,986)
      Foreign currency
        translation adj
        net of tax                  (14,436)                                             (14,436)
                                                                                     -----------
   Comprehensive loss                                                                   (863,422)
   Issuance of 347,365
      common shares and
      185,843 shares from
      the treasury                                                      1,559,395      1,801,415
                                -----------        -----------        -----------    -----------
Balance, December 31, 2000          (27,062)         2,587,415                         7,926,982

   Comprehensive loss:
      Net loss                                      (1,549,947)                       (1,549,947)
      Foreign currency
        translation adj
        net of tax                   14,098                                               14,098
                                                                                     -----------
   Comprehensive loss                                                                 (1,535,849)
   Warrants issued                                                                     2,700,000
                                -----------        -----------        -----------    -----------
Balance, March 31, 2001             (12,964)         1,037,468                         9,091,133

   Comprehensive loss:
      Net loss                                      (1,481,330)                       (1,481,330)
      Foreign currency
        translation adj
        net of tax                   (1,997)                                              (1,997)
                                                                                     -----------
   Comprehensive loss                                                                 (1,483,327)
                                -----------        -----------        -----------    -----------
Balance, June 30, 2001              (14,961)          (443,862)                        7,607,806

   Comprehensive loss:
      Net income                                     1,981,289                         1,981,289
      Foreign currency
         translation adj
         net of tax                 (61,107)                                             (61,107)
                                                                                     -----------
   Comprehensive income                                                                1,920,182
                                -----------        -----------        -----------    -----------
Balance, September 30, 2001     $   (76,068)       $ 1,537,427                       $ 9,527,988
                                ===========        ===========        ===========    ===========
</TABLE>

          See accompanying notes to consolidated financial statements.


                                       5

<PAGE>

                                 DSI TOYS, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (UNAUDITED)

1.    BASIS OF PRESENTATION

      The accompanying unaudited consolidated financial statements of DSI Toys,
Inc. and its wholly-owned subsidiaries (the "Company") have been prepared in
accordance with accounting principles generally accepted in the United States of
America for interim financial information and with the instructions to Form
10-Q. Accordingly, they do not include all of the information and footnotes
required by accounting principles generally accepted in the United States of
America for complete financial statements and should be read in conjunction with
the financial statements and notes thereto appearing in the Company's Annual
Report on Form 10-K for the fiscal year ended December 31, 2000.

      In the opinion of the Company's management, all adjustments necessary for
a fair presentation of the results of operations for all periods reported have
been included. Such adjustments consist only of normal recurring items.

     The results of operations for the three months and nine months ended
September 30, 2001, are not necessarily indicative of the results expected for
the full year ending December 31, 2001.

2.    ACCOUNTS RECEIVABLE

     Accounts receivable consist of the following:


                                            SEPTEMBER 30,       DECEMBER 31,
                                                2001                2000
                                            ------------        ------------
     Trade receivables .................    $ 17,732,641        $  9,642,883
     Provisions for:
       Discounts and markdowns .........      (1,060,540)         (1,670,229)
       Return of defective goods .......      (1,515,424)         (1,029,771)
       Doubtful accounts ...............         (25,000)           (420,000)
                                            ------------        ------------
     Accounts receivable, net ..........    $ 15,131,677        $  6,522,883
                                            ============        ============

3.   SEGMENT INFORMATION

     Financial information for the nine months ended September 30, 2001, and
     2000, is as follows:

<TABLE>
<CAPTION>
                                                       United States        Hong Kong        Consolidated
                                                      ---------------     ------------       -------------
<S>                                                    <C>                <C>                <C>
Nine months ended September 30, 2001:
   Net sales .....................................     $ 16,717,170       $ 29,348,020       $ 46,065,190
   Operating income (loss) .......................       (3,056,134)         2,329,369           (726,765)
Total assets at September 30, 2001 ...............       35,689,159          9,103,927         44,793,086


Nine months ended September 30, 2000:
   Net sales .....................................     $ 13,512,844       $ 36,899,714       $ 50,412,558
   Operating income (loss) .......................       (3,934,063)         5,160,314          1,226,251
Total assets at September 30, 2000 ...............       32,037,354          9,541,373         41,578,727

</TABLE>


                                       6
<PAGE>

4.    LIQUIDITY

      The Company budgeted approximately $2.0 million for capital expenditures
during fiscal 2001 consisting primarily of purchases of tools and molds and
information technology systems. As of September 30, 2001, the actual capital
expenditures represent the majority of those which will be purchased in 2001.
The Company's ability to meet its maturing debt and other cash requirements is
dependent on the continuation of sufficient lending arrangements, additional
cash infusions, and/or cash from operations. In connection with any future cash
needs or acquisition opportunities, the Company may incur additional debt or
issue additional equity or debt securities depending on market conditions, as
well as other factors. However, there can be no assurance the Company will meet
its projected operating results.

      The Hong Kong Credit Facility will terminate on November 30, 2001. The
Company is currently negotiating an agreement with a different Hong Kong bank to
provide similarly structured seasonal financing as has been provided by State
Street Bank and Trust. The Company believes the negotiations will be successful.
In the event the negotiations are not successful, the Company believes it will
be able to replace the Hong Kong Credit Facility in a manner such that there
will be no material adverse effect on the Company meeting its cash requirements
and capital expenditures in the foreseeable future.

5.    INCOME TAXES

      At September 30, 2001, the Company had $2.5 million of deferred tax assets
primarily consisting of net operating loss (NOL) carryforwards and foreign
income tax credits. The benefit from utilization of net operating loss
carryforwards could be subject to limitations if significant ownership changes
occur in the Company. The Company's ability to realize the entire benefits of
its deferred tax assets requires that the Company achieves certain future
earnings levels prior to the expiration of its NOL carryforwards and foreign
income tax credits. The Company could be required to record a valuation
allowance for a portion or all of its deferred tax assets if market conditions
deteriorate and future earnings are below, or projected to be below, its current
estimates. The Company continues to believe it will generate sufficient taxable
income to ensure realization of the benefits; accordingly, no valuation
allowance has been provided.

6.    NEW ACCOUNTING PRONOUNCEMENTS

     In June 2001, the Financial Accounting Standards Board ("FASB") issued
Financial Accounting Standard ("SFAS") No. 141, "Business Combinations." SFAS
No. 141 is applicable to all business combinations completed after June 30,
2001, prohibits the use of pooling-of-interests method of accounting for
business combinations and provides a new definition of intangible assets. The
Company entered into the merger with Meritus prior to the issuance of SFAS No.
141.

     Also in June 2001, the FASB issued SFAS No. 142, "Goodwill and Other
Intangible Assets." SFAS No. 142 eliminates the amortization of goodwill and
requires that goodwill be reviewed annually for impairment. SFAS No. 142 also
requires that the useful lives of previously recognized intangible assets be
reassessed and the remaining amortization periods be adjusted accordingly.
SFAS No. 142 is effective for fiscal years beginning after December 15, 2001,
and affects all goodwill and other intangible assets recognized on the
Company's balance sheet at that date, regardless of when the assets were
initially recognized. At September 30, 2001, the Company's balance sheet
contains $9.3 million in goodwill. The Company has not yet determined the
effect of SFAS No. 142 on its financial statements.

                                       7
<PAGE>

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
        OF OPERATIONS

      EXCEPT AS OTHERWISE INDICATED, REFERENCES TO THE "COMPANY" REFER TO DSI
TOYS, INC. AND ITS FOUR WHOLLY-OWNED HONG KONG SUBSIDIARIES, DSI(HK) LIMITED
("DSI(HK)"), MERITUS INDUSTRIES LIMITED, RSP PRODUCTS LIMITED AND ELITE DOLLS
LIMITED. THE TERMS "FISCAL YEAR" AND "FISCAL" REFER TO THE COMPANY'S FISCAL
YEAR, WHICH IS THE YEAR ENDING DECEMBER 31 OF THE CALENDAR YEAR MENTIONED (E.G.,
A REFERENCE TO FISCAL 2000 IS A REFERENCE TO THE FISCAL YEAR ENDED DECEMBER 31,
2000). EFFECTIVE DECEMBER 31, 1999, THE COMPANY CHANGED ITS FISCAL YEAR END FROM
JANUARY 31 TO A CALENDAR YEAR END.

GENERAL

      The following discussion and analysis should be read in conjunction with
the financial statements and notes thereto, and the information included
elsewhere herein.

      The Company designs, develops, markets and distributes high quality,
innovative dolls, toys and consumer electronics products. Core products include
youth electronics such as TECH-LINK(R) brand communications products,
EOBRAIN(TM) brand hand-held electronic companions, Kawasaki(R) brand musical
instruments, GEARHEAD(R) brand remote control vehicles and a full range of doll
brands including SWEET FAITH(R), PRIDE & JOY(R), TOO CUTE TWINS(TM), HUSH LI'L
BABY(R), LITTLE DARLINGS(R), and the ELITE(R) brand of LIFETIME PLAY DOLLS(TM).
The Company's web site can be reached at www.dsitoys.com.

      The Company has three major product categories: Juvenile Audio Products,
Girls Toys and Boys Toys.

JUVENILE AUDIO PRODUCTS

      The Juvenile Audio Product category consists of Youth Communications
products and Musical Instruments. Products in the Youth Communications line
include walkie-talkies, wrist watch walkie-talkies, and audio products. The
portfolio of brands in this category include TECH-LINK(R) and MICRO LINK(TM)
communications products, Harley-Davidson(R) walkie-talkies and bike alarms and
the Company's new EOBRAIN(TM) brand hand-held electronic companions. The Musical
Instrument line includes the branded category of Kawasaki(R) guitars, drum pads,
saxophones, keyboards and mixer keyboards, as well as the Josie and The
Pussycats(TM) musical products brand.

GIRLS TOYS

      The Girls Toys product category includes dolls, plush toys, play sets,
accessories, and activity toys. The Girls Toys portfolio of brands includes
SWEET FAITH(R), PRIDE & JOY(R), DEAR GRACE(TM), GOOD WILL(R), PRECIOUS
PRAYERS(TM), LITTLE DARLINGS(R), HUSH LI'L BABY(R), BABY BEANS(R) and the
ELITE(R) brand of LIFETIME PLAY DOLLS(TM). New introductions for 2001 in this
category include TOO CUTE TWINS(TM), SUSIE SO SMART(TM), and "Happy Birthday to
You" dolls, KITTY KITTY KITTENS(R) plush toys, and the unique FASHION BUZZ(TM)
AIR NAILS SALON(TM) activity set.

BOYS TOYS

      The Boys Toys product category includes remote-control and infra-red
control vehicles. The portfolio of brands in this product category are
GEARHEAD(R) remote-controL vehicles, including INSECTOR(TM), and the new, unique
ultra-articulated STREET SAVAGE(TM). THE GEARHEAD(R) brand also includes
GEARHEAD(R) JR. infra-red control vehicles.



                                       8
<PAGE>

RESULTS OF OPERATIONS

      The following table sets forth for the periods indicated certain income
and expense items expressed as a percentage of net sales:

<TABLE>
<CAPTION>
                                                                             PERCENT OF NET SALES
                                                         -----------------------------------------------------------
                                                             THREE MONTHS ENDED                NINE MONTHS ENDED
                                                                SEPTEMBER 30,                     SEPTEMBER 30,
                                                            2001            2000             2001             2000
                                                         ---------       ----------       ----------       ----------
<S>                                                        <C>              <C>              <C>              <C>
Net sales ...........................................      100.0%           100.0%           100.0%           100.0%
Costs of goods sold .................................       70.8             68.5             73.0             70.2
                                                           -----            -----            -----            -----
Gross profit ........................................       29.2             31.5             27.0             29.8
Selling, general and administrative expenses ........       17.4             22.8             28.6             27.4
                                                           -----            -----            -----            -----
Operating income (loss) .............................       11.8              8.7             (1.6)             2.4
Interest expense ....................................       (1.1)            (1.2)            (1.9)            (2.1)
Other income ........................................        0.4              0.3              0.4              0.3
                                                           -----            -----            -----            -----
Income (loss) before income taxes ...................       11.1              7.8             (3.1)             0.6
Benefit from (provision for) income taxes ...........       (4.5)            (2.8)             0.8             (0.2)
                                                           -----            -----            -----            -----
Net income (loss) ...................................        6.6%             5.0%            (2.3)%            0.4%
                                                           =====            =====            =====            =====
</TABLE>


     Consumer confidence may have been impacted by the events of September 11,
2001, and thereafter. Therefore, the retail environment since those events and
during the upcoming holiday season brings new challenges which could affect the
Company's results of operations for fiscal 2001.

THREE MONTHS ENDED SEPTEMBER 30, 2001, COMPARED TO THE THREE MONTHS ENDED
SEPTEMBER 30, 2000

      NET SALES. Net sales in total for the three months ended September 30,
2001, were nearly identical to the $29.9 million in the third quarter of 2000.
Sales did vary in each product category. An increase in Girls Toys was offset by
decreases in Juvenile Audio, Boys Toys and other categories. The Company had
anticipated higher net sales in the third quarter as a result of order slippage
from the second quarter. However, the increase in net sales resulting from such
order slippage was negated by the fall off in sales as a result of the slowing
economy and the events of September 11, 2001.

      Net sales of Juvenile Audio Products during the third quarter ended
September 30, 2001, decreased $1.0 million, or 7.9%, to $12.8 million from $13.8
million in the third quarter of 2000. The major product groups in this category
are Youth Communications and Musical Instruments, providing $6.8 million and
$6.0 million, respectively, in sales for the quarter ending September 30, 2001.
Youth Communications product sales increased in this quarter when compared to
the same quarter last year, reflecting increased shipments of the MICRO-LINK(TM)
Walkie Talkies. Sales of Musical Instrument products decreased this quarter as
compared to the same quarter last year, as a result of reduced warehouse club
business with one, non-primary customer.

      Net sales of Girls Toys increased $2.5 million, or 22.9%, to $13.6 million
during the third quarter ended September 30, 2001, from $11.1 million in the
third quarter of 2000. Sales for the quarter include a sales increase in new,
2001 television promoted dolls, which include TOO CUTE TWINS(TM) and SUSIE SO
SMART(R); in 2000, only HUSH LIL BABY(R) was promoted. Additionally, sales of
the newly introduced girls' activity toy, AIR NAILS Salon(TM) and new dolls in
the PRIDE AND JOY(R) line, along with continued shipments of KITTY, KITTY,
KITTENS(R), offset declining sales in the ELITE(R) doll line and other girls
dolls and accessories.

      Net sales of Boys Toys declined $1.2 million or 29.8%, to $2.9 million in
the third quarter ended September 30, 2001, from $4.1 million in the third
quarter of 2000. The decrease was primarily due to the discontinuation of the
BLOCKMEN(R) line of military products.



                                       9
<PAGE>

      Net sales of products in other categories during the third quarter ended
September 30, 2001, decreased $300,000, or 33.3%, to $600,000 from $900,000 in
the third quarter of 2000. The decrease was due primarily to reduced sales of
games and other discontinued lines, and was partially offset by increases in
sales of preschool toys as compared to the third quarter of 2000.

      International net sales for the three months ended September 30, 2001,
decreased $200,000, or 2.6%, to $6.8 million, from $7.0 million in the third
quarter of 2000. The decrease was due to reduced sales of musical instruments,
general doll product lines and the discontinued BLOCKMEN(R) line, and was
partially offset by increased sales of INSECTOR(TM), AIR NAILS SALON(TM) and
KITTY, KITTY, KITTENS(R).

      GROSS PROFIT. Gross profit decreased $700,000, or 7.5%, to $8.7 million
for the third quarter ended September 30, 2001, from $9.4 million in the third
quarter of 2000. Gross profit as a percentage of net sales decreased to 29.2% in
the third quarter ended September 30, 2001, from 31.5% in the third quarter of
fiscal 2000. The gross profit dollar decline is a direct result of the decline
in gross profit as a percentage of sales. This decline is a result of downward
sales price pressure from customers on some newer products and maturation of
several older product lines.

      SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses decreased to $5.2 million in the third quarter ended
September 30, 2001, compared with $6.8 million for the third quarter of 2000, a
decrease of $1.6 million. Television and other advertising costs in 2001
declined $900,000 from fiscal 2000, reflecting a reduced, more targeted approach
to promoting AIR NAILS SALON(TM) and TOO CUTE TWINS(TM) from the 2000 TV items.
Additionally, other general and operating expenses declined $700,000, consisting
primarily of a $200,000 professional fee decline as a result of non-recurring
2000 expense related to the Meritus merger, and a $600,000 decrease in
commission expense, due to a higher concentration of sales to customers which do
not require payment of commissions, and was partially offset by increases in
other operating costs.

      INTEREST EXPENSE. Interest expense during the third quarter ended
September 30, 2001, decreased $46,000 from the third quarter of 2000.
Significantly lower interest rates resulted in the decrease, despite higher
average revolving credit borrowing during the 2001 fiscal quarter versus the
2000 fiscal quarter.

NINE MONTHS ENDED SEPTEMBER 30, 2001, COMPARED TO THE NINE MONTHS ENDED
SEPTEMBER 30, 2000

      NET SALES. Sales were down in all product categories except Girls Toys,
reflecting cautious retailer purchases except in television promoted items. This
cautious retail environment is due in part to the slowing U.S. economy. In
addition, there are uncertainties about the affect the events of September 11,
2001, and thereafter, will have on consumers' buying patterns in the holiday
season.

      Net sales of Juvenile Audio Products during the first nine months ended
September 30, 2001, declined $1.6 million, or 7.7%, to $19.9 million from $21.5
million in the comparable period of 2000. The major product groups in this
category are Youth Communications and Musical Instruments, providing $10.5
million and $9.4 million, respectively, in sales during the first nine months
ending September 30, 2001. Youth Communication products increased during the
period, due to increased shipments of MICRO-LINK(TM) Walkie Talkies. Sales of
Musical Instruments decreased as a result of reduced warehouse club business
with one, non-primary customer.

      Net sales of Girls Toys increased $700,000, or 3.3%, to $20.2 million
during the nine months ended September 30, 2001, from $19.5 million during the
comparable period in 2000. The increase reflects increases in sales of
television promoted items and KITTY, KITTY, KITTENS(R) introduced in the fourth
quarter of 2000, partially offset by declines in sales of dolls in the PRIDE &
JOY(R), ELITE(R) and other general doll lines.

      Net sales of Boys Toys decreased $2.4 million, or 32.6%, to $4.8 million
in the nine months ended September 30, 2001, from $7.2 million in the first nine
months of 2000. The decrease is due primarily to the discontinuation of the
BLOCKMEN(R) line of products sold in 2000, and was partially offset by an
increase in other Boys items.

      Net sales of products in other categories during the first nine months
ended September 30, 2001, decreased $1.1 million, or 46.5%, to $1.1 million from
$2.2 million in the first nine months of 2000. The decrease is

                                       10

<PAGE>

attributable to lower sales of games, video phones, doorbells and other
discontinued lines, as compared to the same period in fiscal 2000.

      International net sales for the nine months ended September 30, 2001,
declined $900,000, or 8.9%, to $9.6 million, from $10.5 million in the first
nine months of 2000. The decrease was due to reduced sales of musical
instruments, general doll product lines and the discontinued BLOCKMEN(R) line,
and was partially offset by increased sales of INSECTOR(TM), AIR NAILS SALON(TM)
and KITTY, KITTY, KITTENS(R).

      GROSS PROFIT. Gross profit decreased $2.6 million, or 17.2%, to $12.4
million for the first nine months ended September 30, 2001, from $15.0 million
in the first nine months of 2000. Gross profit as a percentage of sales
decreased to 27.0% in the first nine months ended September 30, 2001, from 29.8%
in the first nine months of fiscal 2000. The gross profit dollar decrease
reflects the decreased sales volume for the period and the decline in gross
profit as a percentage of sales. The gross profit percentage decrease reflects
the downward sales price pressure from customers on some newer products and
maturation of several older product lines.

      SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses decreased to $13.2 million in the first nine months
ended September 30, 2001, compared with $13.8 million for the first nine months
of fiscal 2000, a decrease of $600,000. The decrease was due to reduced
television advertising costs and sales commission expenses of $500,000 and
$600,000, respectively, due to a more targeted approach to television
advertising and a higher concentration of non-commission sales. These decreases
were offset in part by additional employee costs and bad debt expenses totaling
$460,000, and other operating expenses.

      INTEREST EXPENSE. Interest expense during the first nine months ended
September 30, 2001, decreased to $860,000 from $1.0 million in the first nine
months of 2000, due primarily to lower interest borrowing rates in 2001 as
compared to the same period in 2000.

LIQUIDITY AND CAPITAL RESOURCES

      The Company historically has funded its operations and capital
requirements by cash generated from operations and borrowings. The Company's
primary capital needs have consisted of acquisitions of inventory, financing
accounts receivable, capital expenditures for product development and funding
operating losses.

      The Company's operating activities used net cash of $5.4 million during
the first nine months of fiscal 2001, consisting primarily of increased accounts
receivable, inventories, accounts payable, and prepaid expenses. Net cash used
in investing activities during the first nine months of fiscal 2001 was
$435,000, which was a result of capital expenditures and an increase in other
assets. Net cash provided by financing activities was $5.9 million in the first
nine months of fiscal 2001 and was a result of proceeds from the issuance of
common stock warrants and borrowing under revolving lines of credit, net of
payments on long-term debt. The Company's working capital at September 30, 2001,
was $8.0 million and unrestricted cash was $150,000, and the Company's working
capital at September 30, 2000, was $7.2 million and unrestricted cash was
$407,000.

      The seasonal nature of the toy business results in complex working capital
needs. The Company's working capital needs, which the Company generally
satisfies through short-term borrowings, are greatest in the last two fiscal
quarters. To manage these working capital requirements, the Company maintains
credit facilities secured principally by accounts receivable and inventory. The
Company currently maintains a line of credit facility with State Street Bank and
Trust - Hong Kong Branch (the "Hong Kong Credit Facility") and a revolving
credit facility with Sunrock Capital Corp. (the "Revolver"). At October 31,
2001, the Company had additional eligible borrowing capacity of $3.7 million in
the aggregate under the Hong Kong Credit Facility and the Revolver.

      The Company and Sunrock Capital Corp. ("Sunrock") amended the Revolver on
March 30, 2001, resulting in an increase in the maximum loan amount from $10.0
million to $17.5 million, subject to the availability of sufficient, eligible
inventory and accounts receivable. The terms include interest at Sunrock's prime
rate plus three quarters of one percent (.75%) and maturity on March 31, 2004.

      On March 19, 2001, the Company issued to MVII an Investment Warrant to
acquire 1.8 million shares of the Company's Common Stock, in exchange for a cash
purchase price of $2.7 million. The Investment Warrant is exercisable for no
additional consideration, in whole or in part, for a ten-year period beginning
June 4, 2002.


                                       11
<PAGE>

Proceeds from the sale of the Investment Warrant were used by the Company for
current working capital. The Investment Warrant is subject to anti-dilution
provisions.

      The Company budgeted approximately $2.0 million for capital expenditures
during fiscal 2001 consisting primarily of purchases of tools and molds and
information technology systems. As of September 30, 2001, the actual capital
expenditures represent the majority of those which will be purchased in 2001.
The Company's ability to meet its maturing debt and other cash requirements is
dependent on the continuation of sufficient lending arrangements, additional
cash infusions, and/or cash from operations. In connection with any future cash
needs or acquisition opportunities, the Company may incur additional debt or
issue additional equity or debt securities depending on market conditions, as
well as other factors. However, there can be no assurance the Company will meet
its projected operating results.

      The Hong Kong Credit Facility will terminate on November 30, 2001. The
Company is currently negotiating an agreement with a different Hong Kong bank to
provide similarly structured seasonal financing as has been provided by State
Street Bank and Trust. The Company believes the negotiations will be successful.
In the event the negotiations are not successful, the Company believes it will
be able to replace the Hong Kong Credit Facility in a manner such that there
will be no material adverse effect on the Company meeting its cash requirements
and capital expenditures in the foreseeable future.

      The Company is obligated to make future minimum royalty payments under
certain of its license agreements. As of September 30, 2001, the Company was
required to make an aggregate of approximately $125,000 in payments of
guaranteed royalties under certain licenses in fiscal 2001 and $450,000
thereafter through fiscal 2003.

NEW ACCOUNTING PRONOUNCEMENTS

      In June 2001, the Financial Accounting Standards Board ("FASB") issued
Financial Accounting Standard ("SFAS") No. 141, "Business Combinations." SFAS
No. 141 is applicable to all business combinations completed after June 30,
2001, prohibits the use of pooling-of-interests method of accounting for
business combinations and provides a new definition of intangible assets. The
Company entered into the merger with Meritus prior to the issuance of SFAS No.
141.

      Also in June 2001, the FASB issued SFAS No. 142, "Goodwill and Other
Intangible Assets." SFAS No. 142 eliminates the amortization of goodwill and
requires that goodwill be reviewed annually for impairment. SFAS No. 142 also
requires that the useful lives of previously recognized intangible assets be
reassessed and the remaining amortization periods be adjusted accordingly. SFAS
No. 142 is effective for fiscal years beginning after December 15, 2001, and
affects all goodwill and other intangible assets recognized on the Company's
balance sheet at that date, regardless of when the assets were initially
recognized. At September 30, 2001, the Company's balance sheet contains $9.3
million in goodwill. The Company has not yet determined the effect of SFAS No.
142 on its financial statements.

SEASONALITY

      Retail sales of toy products are seasonal, with a majority of retail sales
occurring during the Christmas holiday period: September through December. As a
result, shipments of toy products to retailers are typically greater in each of
the third and fourth quarters than in the first and second quarters combined.
This seasonality is increasing as the large toy retailers are becoming more
efficient in their inventory control systems. The seasonality effect has been
even more pronounced in 2001 due to the cautiousness of the toy retailers in a
slowing U.S. and international economy. SEE "CAUTIONARY STATEMENT - MARKETPLACE
RISKS".

      In anticipation of this seasonal increase in retail sales, the Company
significantly increases its production in advance of the peak selling period
during the second quarter, with a corresponding build-up of inventory levels.
This seasonal phenomenon results in significant peaks in the second and third
quarters in the respective levels of inventories and accounts receivable, which
result in seasonal working capital financing requirements.
SEE "SEASONAL FINANCING."



                                       12
<PAGE>

SEASONAL FINANCING

      The Company's financing of seasonal working capital typically peaks in the
third quarter of the year, when accounts receivable are at their highest due to
increased sales volume and sales programs, and when inventories are at their
highest in anticipation of expected second half sales volume. SEE "SEASONALITY."

      The Company finances its seasonal working capital requirements by using
internally generated cash and borrowings under its line of credit with the Hong
Kong Credit Facility and the Revolver. The Company entered into an amendment to
the Revolver on March 30, 2001, increasing the line of credit from $10.0 million
to $17.5 million. SEE "LIQUIDITY AND CAPITAL RESOURCES."

CAUTIONARY STATEMENT

      Certain written and oral statements made or incorporated by reference from
time to time by the Company or its representatives in this Form 10-Q, other
filings or reports with the Securities and Exchange Commission, press releases,
conferences, or otherwise, are "forward-looking statements" within the meaning
of the Private Securities Litigation Reform Act of 1995. The Company is
including this Cautionary Statement to make applicable and take advantage of the
safe harbor provisions of the Private Securities Litigation Reform Act of 1995
for any such forward-looking statements. Forward-looking statements can be
identified by the use of terminology such as "believe," "anticipate," "expect,"
"estimate," "may," "will," "should," "project," "continue," "plans," "aims,"
"intends," "likely," or other words or phrases of similar terminology.
Management cautions that forward-looking statements involve risks and
uncertainties that may cause actual results to differ materially from the
forward-looking statements. For a discussion of some of the factors that may
cause actual results to differ materially from those suggested by
forward-looking statements, please read carefully the information under Item 1,
"Risk Factors," in the Company's 2000 Annual Report on Form 10-K. In addition to
the Risk Factors and other important factors detailed herein and from time to
time in other reports filed by the Company with the Securities and Exchange
Commission, including Forms 8-K, 10-Q, and 10-K, the following important factors
could cause actual results to differ materially from those suggested by any
forward-looking statements.

      MARKETPLACE RISKS

      o     Increased competitive pressure, both domestically and
            internationally, which may negatively affect the sales of the
            Company's products;

      o     Changes in public and consumer taste, which may negatively affect
            the sales of the Company's products;

      o     Significant changes in the play patterns of children, whereby they
            are increasingly attracted to more developmentally advanced products
            at younger ages, which may affect brand loyalty and the perceived
            value of and demand for the Company's products; and

      o     Possible weaknesses in economic conditions, both domestically and
            internationally, which may negatively affect the sales of the
            Company's products and the costs associated with manufacturing and
            distributing these products.

      FINANCING CONSIDERATIONS

      o     Currency fluctuations, which may affect the Company's reportable
            income;

      o     Significant changes in interest rates, both domestically and
            internationally, which may negatively affect the Company's cost of
            financing both its operations and investments.



                                       13
<PAGE>

      OTHER RISKS

      o     Changes in laws or regulations, both domestically and
            internationally, including those affecting consumer products or
            trade restrictions, which may lead to increased costs or
            interruption in normal business operations of the Company;

      o     Future litigation or governmental proceedings, which may lead to
            increased costs or interruption in normal business operations of the
            Company;

      o     Labor disputes, which may lead to increased costs or disruption of
            any of the Company's operations; and

      o     The terrorist events of September 11, 2001, and thereafter, the
            continued threat of further terrorist activity, and the responses to
            and results of such activity which may impact the Company, its
            personnel, its customers and suppliers, financial markets, and the
            economy in general.

      The risks included herein are not exhaustive. Other sections of this Form
10-Q may include additional factors which could materially and adversely impact
the Company's business, financial condition, and results of operations.
Moreover, the Company operates in a very competitive and rapidly changing
environment. New risk factors emerge from time to time and it is not possible
for management to predict all such risk factors on the Company's business,
financial condition or results of operations or the extent to which any factor,
or combination of factors, may cause actual results to differ materially from
those contained in any forward-looking statements. Given these risks and
uncertainties, investors should not place undue reliance on forward-looking
statements as a prediction of actual results.



                                       14
<PAGE>

                           PART II - OTHER INFORMATION

ITEM 1.  LEGAL PROCEEDINGS

      The Company is involved in various legal proceedings and claims incident
to the normal conduct of its business. The Company believes that such legal
proceedings and claims, individually and in the aggregate, are not likely to
have a material adverse effect on its financial position or results of
operations. The Company maintains product liability and general liability
insurance in amounts it believes to be reasonable.

ITEM 5.  OTHER INFORMATION

      On September 24, 2001, the Nasdaq Stock Market, Inc. advised the Company
that it had determined that Joseph N. Matlock, one of the Company's audit
committee members, was not an independent director pursuant to the Marketplace
Rule 4200(a)14. The board of directors has determined to retain Mr. Matlock as
an audit committee member pursuant to Marketplace Rule 4350(d)(2)(B) which
permits one director who is not independent, and is not an employee, nor an
immediate family member of an employee, to serve on the audit committee if it is
"required by the best interests of the corporation and its shareholders." Mr.
Matlock is not a current employee or an immediate family member of a current
employee. Mr. Matlock has held various upper-level and executive positions in a
variety of industries, and has an extensive background in accounting and
financial analysis. It has been determined by the board of directors that it is
required by the best interests of the Company and its shareholders that Mr.
Matlock serve on the audit committee pursuant to Marketplace Rule 4350(d)(2)(B).

      After voluntarily filing a Full Section 15 (b) report pursuant to 16 CFR
1115 (d), and in cooperation with the U.S. Consumer Product Safety Commission,
on May 30, 2001, the Company launched a voluntary recall of its KITTY, KITTY,
KITTENS(R) due to testing reports indicating contaminated water in an internal,
sealed, rubber bladder. The Company has revamped the manufacturing process to
eliminate the problem. The Company does not believe the recall will have a
material adverse effect on the financial operations of the Company.


ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K

(a)      Exhibits

         The information required by this Item 6(a) is set forth in the Index to
         Exhibits accompanying this quarterly report and is incorporated herein
         by reference.

(b)      Reports Submitted on Form 8-K. The Company filed a Form 8-K dated
         October 12, 2001, (filed on October 24, 2001) for the purpose of
         reporting the resignation of Michael J. Lyden from his positions as
         President and Chief Executive Officer, and member of the Board of
         Directors of the Company.



                                       15
<PAGE>


                                   SIGNATURES


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


                               DSI Toys, Inc.



Dated: November 14, 2001       /s/ JOSEPH S. WHITAKER
                               ---------------------------------------------
                               Joseph S. Whitaker
                               Interim President and Senior Vice President,
                               New Business Development



Dated: November 14, 2001   By: /s/ ROBERT L. WEISGARBER
                               ---------------------------------------------
                               Robert L. Weisgarber
                               Chief Financial Officer
                               (Principal Financial and Accounting Officer)



                                       16
<PAGE>

                                INDEX TO EXHIBITS

2.1     Articles/Certificate of Merger of Meritus Industries, Inc. into the
        Company, dated January 7, 2000 (filed as Exhibit 2.2 to the Company's
        Form 8-K dated January 7, 2000), incorporated herein by reference.

3.1     Amended and Restated Articles of Incorporation of the Company. (1)

3.1.1   Amendment to Amended and Restated Articles of Incorporation of the
        Company (filed as Exhibit 3.1.1 to the Company's Form 10-Q for the
        quarterly period ended April 30, 1999), incorporated herein by
        reference.

3.2     Amended and Restated Bylaws of the Company. (1)

3.3     Amendment to Amended and Restated Bylaws of the Company. (1)

4.1     Form of Investment Warrant by and between the Company and MVII, LLC,
        dated March 19, 2001 (filed as Exhibit 4.6 to the Company's Form 10-K
        for the fiscal year ended December 31, 2000), incorporated herein by
        reference.

4.2     Registration Rights Agreement by and between the Company and MVII, LLC,
        dated March 19, 2001 (filed as Exhibit 4.7 to the Company's Form 10-K
        for the fiscal year ended December 31, 2000), incorporated herein by
        reference.

10.1    Amendment No. 4 dated March 30, 2001, to the Loan and Security
        Agreement, by and between Sunrock Capital Corp. and the Company (filed
        as Exhibit 10.57 to the Company's Form 10-K for the fiscal year ended
        December 31, 2000), incorporated herein by reference.

10.2    Employment Agreement dated April 1, 2001, but executed April 23, 2001,
        by and between the Company and Gregory A. Barth (filed as Exhibit 10.2
        to the Company's Form 10-Q for the quarterly period ended March 31,
        2001), incorporated herein by reference.

10.3    Amendment No. 5 to Loan and Security Agreement, dated July 2001, by and
        between Sunrock Capital Corp. and the Company (filed as Exhibit 10.3 to
        the Company's Form 10-Q for the quarterly period ended June 30, 2001),
        incorporated herein by reference.

10.4    Amendment No. 6 to Loan and Security Agreement, dated August 13, 2001,
        by and between Sunrock Capital Corp. and the Company (filed as Exhibit
        10.4 to the Company's Form 10-Q for the quarterly period ended June 30,
        2001), incorporated herein by reference.

99.1    Amendment No. 1 to the Audit Committee of the Board of Directors
        Charter, adopted by the Board of Directors on March 31, 2001 (filed as
        Exhibit 99.2 to the Company's Form 10-K for the fiscal year ended
        December 31, 2000), incorporated herein by reference.

(1)     Filed as a part of the Registrant's Registration Statement on Form S-1
        (No. 333-23961) and incorporated herein by reference.

                                      17