================================================================================

                UNITED STATES SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549


                                   FORM 10-QSB


              (X) QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
                         SECURITIES EXCHANGE ACT OF 1934

                For the quarterly period ended September 30, 2004

              ( ) TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE
                             SECURITIES EXCHANGE ACT

         For the transition period from ______________ to ______________

                          COMMISSION FILE NUMBER 0-2749
                          _____________________________

                            DISTINCTIVE DEVICES, INC.
                 (Name of small business issuer in its charter)

               DELAWARE                                        13-1999951
(State of incorporation or organization)                (IRS Identification No.)

                           One Bridge Plaza, Ste. 100
                               Fort Lee, NJ 07024
                    (Address of principal executive offices)

                                 (201) 363-9922
                           (Issuer's telephone number)

                                       N/A
                            (Issuer's former address)


Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the 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
                                                               ---    ---

20,616,402 shares of issuer's common stock, $.001 par value, were outstanding at
November 15, 2004. Issuer has no other class of common equity.

================================================================================


<PAGE>


                                    CONTENTS

                                                                            PAGE

PART I FINANCIAL INFORMATION...................................................3

Item 1.  Financial Statements..................................................3

         Condensed consolidated balance sheet (unaudited)......................3
         Condensed consolidated statements of operations (unaudited)...........4
         Condensed consolidated statements of cash flows (unaudited)...........5
         Notes to unaudited condensed consolidated financial statements........6

Item 2.  Management's Discussion and Analysis or Plan of Operation............17

Item 3.  Controls and Procedures..............................................19

PART II OTHER INFORMATION.....................................................21

Item 2.  Changes in Securities and Small Business Issuer Purchases of
         Equity Securities....................................................21

Item 6.  Exhibits and Reports on Form 8-K.....................................21

SIGNATURES....................................................................22


                                       2
<PAGE>


                          PART I FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

                   DISTINCTIVE DEVICES, INC. AND SUBSIDIARIES
                      CONDENSED CONSOLIDATED BALANCE SHEET
                               SEPTEMBER 30, 2004
                                   (UNAUDITED)

<TABLE>
<S>                                                            <C>
                                     ASSETS

CURRENT ASSETS
   Cash and Cash Equivalents                                   $  2,027,426
   Short-Term Investments                                            44,568
   Accounts Receivable, Net                                       2,612,074
   Inventories                                                    4,380,295
   Prepaid Expenses and Other Current Assets                      2,315,292
                                                               ------------
      Total Current Assets                                       11,379,655

PROPERTY AND EQUIPMENT, Net                                       1,020,222

INTANGIBLE ASSETS, Net                                           55,845,039

OTHER ASSETS                                                         63,465
                                                               ------------
      Total Assets                                             $ 68,308,381
                                                               ============

                      LIABILITIES AND STOCKHOLDERS' EQUITY

CURRENT LIABILITIES
   Term Loans Due Banks                                        $ 22,191,155
   Other Loans Payable                                            8,078,308
   Accounts Payable and Accrued Liabilities                      29,870,244
   Accrued Professional Fees                                        324,864
                                                               ------------
      Total Current Liabilities                                  60,464,571
                                                               ------------
UNSECURED PROMISSORY NOTES                                          643,412
                                                               ------------
MINORITY INTEREST                                                   165,403
                                                               ------------
REDEEMABLE COMMON STOCK                                             200,000
                                                               ------------
COMMITMENTS AND CONTINGENCIES

STOCKHOLDERS' EQUITY:
   Preferred Stock, $.001 Par; 5,000,000 Shares Authorized;               -
     None Issued and Outstanding
   Common Stock, $.001 Par; 50,000,000 Shares Authorized;            20,309
     20,508,902 Shares Issued and Outstanding
   Additional Paid-In Capital                                    24,520,511
   Accumulated Deficit                                          (17,455,475)
   Accumulated Other Comprehensive Loss                            (250,350)
                                                               ------------
      Total Stockholders' Equity                                  6,834,995
                                                               ------------
      Total Liabilities and Stockholders' Equity               $ 68,308,381
                                                               ============
</TABLE>


                     The Accompanying Notes are an Integral
       Part of These Unaudited Condensed Consolidated Financial Statements


                                       3
<PAGE>


                   DISTINCTIVE DEVICES, INC. AND SUBSIDIARIES
                 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
                                   (UNAUDITED)

<TABLE>
<CAPTION>
                                           THREE MONTHS ENDED SEPTEMBER 30,   NINE MONTHS ENDED SEPTEMBER 30,
                                           --------------------------------   -------------------------------
                                                 2004             2003             2004             2003
                                            -------------    -------------    -------------    -------------
<S>                                         <C>              <C>              <C>              <C>
Revenue, Net                                $  2,681,797     $    137,862     $ 10,182,161     $    913,952

Cost of Goods Sold                             1,981,525           71,515        8,205,148          548,718
                                            -------------    -------------    -------------    -------------
      Gross Profit                               700,272           66,347        1,977,013          365,234

Operating Expenses                             4,262,650          287,991       15,042,422          951,577
                                            -------------    -------------    -------------    -------------
      Operating (Loss)                        (3,562,378)        (221,644)     (13,065,409)        (586,343)
                                            -------------    -------------    -------------    -------------

Other Income (Expense):

   Other Income (Expense)                       (283,848)          28,619        3,945,359           37,823

   Interest Expense                             (884,783)         (34,655)      (2,469,870)        (141,840)
                                            -------------    -------------    -------------    -------------
      Total Other Income (Expense)            (1,168,631)          (6,036)       1,475,489         (104,017)
                                            -------------    -------------    -------------    -------------
      Net (Loss)                            $ (4,731,009)    $   (227,680)    $(11,589,920)    $   (690,360)
                                            =============    =============    =============    =============
Weighted Average Shares of Common
   Stock Outstanding (1)                      20,487,163        7,654,736       19,187,476        7,257,103
                                            =============    =============    =============    =============
Net (Loss) Per Share - Basic and Diluted    $      (0.23)    $      (0.03)    $      (0.60)    $      (0.10)
                                            =============    =============    =============    =============

<FN>
(1) The weighted average shares of common stock outstanding are not adjusted for
potential effects of the Company's common stock equivalents because of their
antidilutive effect.
</FN>
</TABLE>


                     The Accompanying Notes are an Integral
       Part of These Unaudited Condensed Consolidated Financial Statements


                                       4
<PAGE>


                   DISTINCTIVE DEVICES, INC. AND SUBSIDIARIES
                 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                                   (UNAUDITED)

<TABLE>
<CAPTION>
                                                                   NINE MONTHS ENDED SEPTEMBER 30,
                                                                   -------------------------------
                                                                        2004              2003
                                                                   ------------      ------------
<S>                                                                <C>               <C>
CASH FLOWS FROM OPERATING ACTIVITIES:                              $ (9,681,623)     $   (126,599)
                                                                   ------------      ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
   Acquisition of Business, Net of Cash Paid                             70,004                 -
   Acquisition of Property and Equipment                               (100,125)          (35,262)
   Acquisition of Intangible Assets                                  (2,348,029)                -
   Proceeds from Short-Term Investments                                  44,397                 -
                                                                   ------------      ------------
         Net Cash (Used In) Investing Activities                     (2,333,753)          (35,262)
                                                                   ------------      ------------

CASH FLOWS FROM FINANCING ACTIVITIES:
   Proceeds from Issuance of Loans                                    2,718,790           857,500
   Repayments of Loans                                                6,555,758          (851,197)
   Proceeds from Minority Interest                                            -           169,290
   Proceeds from the Exercise of Warrants                               827,501                 -
   Proceeds from the Issuance of Common Stock                         3,023,230                 -
                                                                   ------------      ------------
         Net Cash Provided By Financing Activities                   13,125,279           175,593
                                                                   ------------      ------------

EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS           (250,350)                -
                                                                   -------------     ------------
         Increase in Cash and Cash Equivalents                          859,553            13,732

   Cash and Cash Equivalents:
      Beginning of Period                                             1,167,873           331,036
                                                                   ------------      ------------
      End of Period                                                $  2,027,426      $    344,768
                                                                   ============      ============

SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING
   AND FINANCING ACTIVITIES:
   Business Acquisition (Note 8)
      Working Capital Deficit Assumed, Other than Cash             $ 56,630,836
      Fair Value of Long-Lived Assets Acquired                      (69,506,832)
      Issuance of Common Stock                                       10,816,000
      Issuance of Stock Options                                       2,060,000
      Other Acquisition Costs                                           105,000
                                                                   ------------
      Net Cash Provided by Business Acquisition                    $    105,004
                                                                   ============
      Application of Deferred Acquisition Costs                    $     70,000
                                                                   ============
</TABLE>


                     The Accompanying Notes are an Integral
       Part of These Unaudited Condensed Consolidated Financial Statements


                                       5
<PAGE>


                   DISTINCTIVE DEVICES, INC. AND SUBSIDIARIES
       NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


NOTE 1:  BASIS OF PRESENTATION

BASIS OF CONSOLIDATION
----------------------

The accompanying unaudited condensed consolidated financial statements include
the accounts of Distinctive Devices, Inc. ("DDI") and its subsidiaries
(collectively known as the "Company"): galaxis technology AG ("galaxis"),
OmniScience Multimedia Lab Gmbh ("OnmiScience"), Convergence GmbH
("Convergence"), galaxis Hispania SL ("Hispania") (98% owned), galaxis sales
GmbH ("galaxis Sales"), Distinctive Devices (India), PLC ("DDI-India") (98.67%
owned), RealTime Systems, Ltd ("RTS") (99.97% owned), International Gemsource,
Inc. ("Gemsource") and Webpulse Consulting, Inc. ("Webpulse").

INTERIM FINANCIAL DATA
----------------------

In the opinion of management, the accompanying unaudited condensed consolidated
financial statements have been prepared by the Company pursuant to the rules and
regulations of the Securities and Exchange Commission and accounting principles
generally accepted in the United States of America for interim financial
information. These unaudited condensed consolidated financial statements 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. The annual consolidated financial statements of the Company as of
December 31, 2003 should be read in conjunction with these statements. The
financial information included herein has not been audited. However, management
believes the accompanying unaudited condensed consolidated financial statements
contain all adjustments, consisting of only normal recurring adjustments,
necessary to present fairly the consolidated financial position of the Company
as of September 30, 2004 and the results of their consolidated operations for
the three and nine months ended September 30, 2004 and 2003 and of their
consolidated cash flows for the nine months ended September 30, 2004 and 2003.
The results of their consolidated operations and cash flows for the period are
not necessarily indicative of the results of consolidated operations or cash
flows for the year ending December 31, 2004.

INVENTORIES
-----------

Inventories consist primarily of set-top boxes and telephone equipment materials
held by galaxis and RTS, respectively. Inventories are stated at the lower of
cost (first-in, first-out basis) or market.

INTANGIBLE ASSETS
-----------------

Intangible assets, consisting of intellectual property and trademarks (Note 8),
are being amortized straight-line over their respective useful lives, ranging
from 10 to 40 years.

STOCK-BASED COMPENSATION
------------------------

The Company granted stock options to directors and employees under the stock
option plan that is more fully described in Note 7. The Company accounts for
this plan using the intrinsic value method under Accounting Principles Board
Opinion ("APB") No. 25, "Accounting for Stock Issued to Employees."


                                       6
<PAGE>


                   DISTINCTIVE DEVICES, INC. AND SUBSIDIARIES
       NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


NOTE 1:  BASIS OF PRESENTATION (CONTINUED)

STOCK-BASED COMPENSATION (CONTINUED)
------------------------------------

The pro-forma effect of the compensation expense would not be material in
computing the net loss and loss per share if the Company had applied the fair
value recognition provisions of Statement on Financial Accounting Standards
("SFAS") No. 123, "Accounting for Stock-Based Compensation" and SFAS No. 148,
"Accounting for Stock-Based Compensation - Transition and Disclosure."

REVENUE RECOGNITION
-------------------

Product sales are recognized when an agreement of sale exists, product delivery
has occurred, pricing is final or determinable, and collection is reasonably
assured.

USE OF ESTIMATES
----------------

The preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosures of contingent assets and liabilities at the date of
the financial statements and reported amounts of revenue and expenses during the
reporting period. Actual results could differ from those estimates.


NOTE 2:  INVENTORIES

As of September 30, 2004, inventories consisted of the following:

<TABLE>
<S>                                                  <C>
     Raw Materials                                   $  1,338,898
     Work-in Process                                      194,974
     Finished Goods                                     2,744,973
     Gemstones                                            101,450
                                                     ------------
                                                     $  4,380,295
                                                     ============
</TABLE>


NOTE 3:  TERM LOANS DUE BANKS

As of September 30, 2004, term loans due banks consisted of the following:

<TABLE>
<S>                                                  <C>
     Lloyds Bank TSB - Netherlands - galaxis         $ 21,996,681
     Bank of India - RTS                                  194,474
                                                     ------------
                                                     $ 22,191,155
                                                     ============
</TABLE>


                                       7
<PAGE>


                   DISTINCTIVE DEVICES, INC. AND SUBSIDIARIES
       NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


NOTE 3:  TERM LOANS DUE BANKS (CONTINUED)

The loan payable to Lloyds Bank TSB - Netherlands, originally due on October 31,
2004 (see Note 11), bears interest at the financial institution's Libor rate
plus 2.5% per annum. This loan is cancelable in whole or in part by the
financial institution at any time upon the giving of 14 days written notice to
galaxis. The loan is collateralized by substantially all of the assets of
galaxis. Additionally, galaxis pledged 3,000,000 shares of DDI's common stock as
collateral (Note 8).

RTS has two revolving credit facilities (the "Facilities") with a local bank
which enable RTS to borrow up to $330,000 (in local currency equivalent) for
working capital purposes. In addition, the Facilities provide for issuance of
Letters of Credit and Performance Bonds, on RTS' behalf, up to maximum amounts
of $520,000 and $145,000, respectively ($173,213 was outstanding as of September
30, 2004).

Borrowings and commitments under the Facilities bear interest at various rates,
depending upon the type of credit or loan and the facility lending rates at the
time the funds are advanced or the commitment is issued. Provisions of the
Facilities do not include mandatory repayment terms. However, the lender may, at
any time, declare any outstanding balances due and payable.

The Facilities are collateralized by substantially all of RTS' assets and are
guaranteed personally by two RTS officers.


NOTE 4:  OTHER LOANS PAYABLE

As of September 30, 2004, Other Loans Payable consisted of the following:

     Twinkle International Ltd.                      $  4,000,000
     Solectron                                          1,154,144
     GXV                                                1,102,124
     Combine International, Inc.                          840,000
     Omnivest                                             577,447
     Others                                               553,021
                                                     ------------
                                                        8,226,736
     Less: Unamortized Discount                          (148,428)
                                                     -------------
                                                     $  8,078,308
                                                     ============


                                       8
<PAGE>


                   DISTINCTIVE DEVICES, INC. AND SUBSIDIARIES
       NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


NOTE 4:  OTHER LOANS PAYABLE (CONTINUED)

On April 20, 2004, the Company entered into a note purchase agreement (the
"Agreement") with Twinkle International Ltd., whereby the Company may borrow
$4,000,000, repayable on April 18, 2005, together with accrued interest at 8%
per annum. Under the terms of the Agreement, the Company issued warrants to the
lender, expiring on April 20, 2009, to purchase 800,000 shares of DDI's common
stock at an exercise price of $1 per share (Note 6). The warrants were valued,
utilizing the Black-Scholes option pricing model, at $1,608,000. Accordingly,
the note proceeds were allocated to the note balance and the warrants on a pro
rata basis. The allocated value of the warrants, $1,146,933, effectively
discounted the note balance which is being amortized straight-line over the life
of the note, resulting in an effective interest rate of 88%. The allocated value
of the warrants has been recorded as additional paid-in-capital. As collateral
for the note, three of the Company's officers and directors pledged
personally-held stock options previously issued to them to purchase 2,500,000
shares of DDI's common stock.

A director of DDI, who is also the controlling shareholder of DDI, is a
principal of Combine International, Inc.

The amounts due to Solectron are various, non-interest-bearing, short-term loans
currently due on demand.

Omnivest and GXV are entities based in Germany controlled by a principal officer
of galaxis.


NOTE 5:  MINORITY INTEREST

The Company directly holds a 98.67% equity interest in DDI-India and a 99.97%
indirect interest (through DDI-India) in RTS, with minority interests of 1.33%
and .03%, respectively. Additionally, the Company holds a 98% indirect interest
(through galaxis) in Hispania, with a minority interest of 2%.

During 2002, a third party advanced $166,771 to RTS for the issuance of RTS
preferred shares (issued in 2003). For financial statement presentation, the
preferred stock has been included in minority interest, as these shares are not
owned by the Company.


NOTE 6:  CAPITAL STRUCTURE

The Company has 5,000,000 shares of preferred stock, par value $.001,
authorized. The Board has the authority to issue the shares in one or more
series and to fix the designation preferences, powers and other rights as it
deems appropriate.

The Company has 50,000,000 shares of common stock, par value $.001, authorized.
Common stock has one vote per share for election of directors and all other
matters submitted to a vote of stockholders. Shares of common stock do not have
cumulative voting, preemptive, redemption or conversion rights.


                                       9
<PAGE>


                   DISTINCTIVE DEVICES, INC. AND SUBSIDIARIES
       NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


NOTE 6:  CAPITAL STRUCTURE (CONTINUED)

During the nine-month period ended September 30, 2004, the Company issued
unregistered shares of DDI's common stock ("Shares"), and other securities, as
follows:

On January 14, 2004, the Company issued 6,400,000 Shares for the acquisition of
galaxis. Additionally, the Company granted 1,000,000 and 250,000 stock options
to a member of management and a board member, respectively, to acquire Shares
for their services attributed to the acquisition (Notes 7 and 8).

Also on January 14, 2004, the Company granted stock options to the CEO of
galaxis to acquire 1,250,000 Shares (Notes 7 and 8).

During January 2004, the Company issued 1,000,000 Shares at $1 per share, to an
unaffiliated investor and granted the investor stock warrants to acquire
2,000,000 Shares at the same price, exercisable for a term of 10 years. The
Shares proceeds became part of the Company's capital contribution to galaxis
(Notes 7 and 8). During March 2004, a portion of the stock warrants were
exercised to acquire 112,500 Shares.

On February 2, 2004, all of the stock warrants issued to Combine International,
Inc., in December 2002, were exercised for the purchase of 2,766,666 Shares at
$0.15 per share, or $415,000. Prior to the purchase, the stock warrants had been
assigned to three unaffiliated investors.

On February 13, 2004, the Company granted 308,500 stock options to galaxis
employees to acquire Shares at a price of $1.25 per share, exercisable for a
term of 5 years. The Shares vest 1/3rd on December 31, 2004, 2005 and 2006.

On February 15, 2004, the Company granted 200,000 stock warrants to a third
party consultant to acquire Shares at a price of $1.65, exercisable for a term
of 10 years. The Shares vest 1/3rd on December 15, 2004, 2005 and 2006. These
stock warrants have been valued, utilizing the Black-Scholes option pricing
model, at approximately $409,000 and are to be amortized as compensation expense
over the vesting period.

On March 8, 2004, two unaffiliated investors acquired 250,000 Shares plus stock
warrants to purchase 37,500 additional Shares at a price of $1 per share
expiring in 5 years, for an aggregate purchase price of $250,000.

On March 10, 2004, two unaffiliated investors acquired a total of 2,000,000
Shares at a price of $1 per share.

On April 20, 2004, warrants to purchase 800,000 Shares were issued to Twinkle
International, Ltd., exercisable at $1 per share for five years, as part of a
debt financing (Note 4).

On May 14, 2004, warrants for 50,000 Shares were exercised by an individual
holder at $1 per share.


                                       10
<PAGE>


                   DISTINCTIVE DEVICES, INC. AND SUBSIDIARIES
       NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


NOTE 6:  CAPITAL STRUCTURE (CONTINUED)

On September 20, 2004, the Company issued 25,000 Shares at no cost and warrants
to purchase 50,000 Shares at $1.00 for up to five years as incentives to a
creditor for granting a six-month term loan of $400,000 at 8% per annum to the
Company. This resulted in a discount of approximately $59,000.


NOTE 7:  STOCK OPTIONS

In 2002, the Board of Directors approved the establishment of the 2002 Stock
Option Plan (the "Plan"), to provide incentives to attract future employees and
retain existing key employees with the Company. The Plan allows the Company to
grant options for up to 2,000,000 shares of common stock to employees, officers
and directors. The option price is the market price at the date of the grant.
The Plan was approved by the shareholders on September 30, 2002.

During 2003 and 2004, the Company granted options to purchase 712,050 and
308,500 shares of common stock, respectively, to directors and employees,
including employees of its subsidiary companies under the Plan. The stock
options, expiring at dates ranging from June 8, 2007 to February 13, 2009, have
an exercise price ranging from $.25 to $1.25 per share and vest over a four year
period.

On January 14, 2004, the Company granted nonqualified options to purchase
2,500,000 shares of common stock to directors and officers including an officer
of one of its subsidiary companies (Notes 6 and 8). The stock options, which
expire on January 13, 2009, have an exercise price of $.70 per share and vest
over a three year period.

The following represents the stock option activity during the current quarter
ended September 30, 2004:

<TABLE>
<CAPTION>
                                                                 Weighted
                                                                 Average
                                                   Shares         Price
                                                -----------    -----------
<S>                                              <C>            <C>
     Beginning Balance, July 1, 2004             3,520,550      $     .66
     Options granted                                    -            -
     Options exercised                                  -            -
     Options cancelled                                  -            -
                                                 ---------
     Ending Balance, September 30, 2004          3,520,550      $     .66
                                                 =========
</TABLE>

The pro-forma compensation expense of the stock options would not be material to
the accompanying financial statements for the current period, if the Company
would have elected SFAS No. 123. The Company used the Black-Scholes option
pricing model to determine the fair value of the grants. The assumptions were
applied as follows:

<TABLE>
<S>                                                      <C>
     Risk Free Interest Rate                              3.36%
     Expected Dividend Yield                                0%
     Expected Option Life                                5 years
     Expected Stock Price Volatility                     159.56%
</TABLE>


                                       11
<PAGE>


                   DISTINCTIVE DEVICES, INC. AND SUBSIDIARIES
       NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


NOTE 8:  BUSINESS ACQUISITION

On January 14, 2004, the Company completed its acquisition of all of the
outstanding capital stock of galaxis from Media Hill Communication Beratungs -
und Vertriebs GmbH ("Media Hill"), a German corporation, the sole shareholder of
galaxis, in exchange for 6,400,000 shares of DDI's common stock.

The Company used the estimated value of its common stock of approximately $1.69
per share based upon the average closing price of DDI's common stock for the
three trading days before and after the acquisition date. Based on these
factors, the estimated value of the shares issued amounted to approximately
$10,816,000.

In addition, the Company granted non-qualified stock options to a member of
management and a board member for 1,000,000 shares and 250,000 shares (Notes 6
and 7), respectively, of DDI's common stock, exercisable at $.70 per share for
five years for their services attributed to the acquisition.

The Company used the Black-Scholes option pricing model to determine the
estimated fair value of the granted stock options. The assumptions were applied
as follows: risk free interest rate 3.12%; expected option life 5 years;
expected stock price volatility 184%; expected dividend yield 0%. Based on these
assumptions, the estimated value of the options amounted to approximately
$2,060,000.

The total estimated purchase price is summarized below:

<TABLE>
<S>                                                  <C>
     Estimated value of common stock issued          $ 10,816,000
     Estimated value of stock options                   2,060,000
     Estimated acquisition transaction costs              105,000
                                                     ------------
     Total estimated purchase price                  $ 12,981,000
                                                     ============
</TABLE>

In conjunction with the acquisition, the Company issued to galaxis 3,000,000
shares of its common stock which were pledged by galaxis as collateral for
galaxis' debt to Lloyds Bank TSB - Netherlands (Note 3). The Company agreed to
register and sell these shares and to apply the proceeds to satisfy this debt.
In the event the net proceeds exceed the debt, the excess will be paid to Media
Hill as additional consideration for the purchase price. Any excess amounts paid
will be allocated to the intangible assets acquired.

As currently estimated, the purchase price is less than the estimated fair value
of the net assets acquired. As a result, the excess of the estimated fair value
over the purchase price, $3,935,830, is allocated through a reduction of long
lived assets for purchase accounting purposes.


                                       12
<PAGE>


                   DISTINCTIVE DEVICES, INC. AND SUBSIDIARIES
       NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


NOTE 8:  BUSINESS ACQUISITION (CONTINUED)

The preliminary allocation of the aggregate purchase price to the tangible and
intangible assets acquired and liabilities assumed in connection with this
acquisition was based upon estimated fair values as determined by management.
The preliminary purchase price allocation is summarized below:

<TABLE>
<S>                                                  <C>
     Tangible assets acquired                        $  11,525,890
     Intangible assets acquired                         57,980,942
     Liabilities assumed                               (56,525,832)
                                                     -------------
     Total estimated purchase price                  $  12,981,000
                                                     =============
</TABLE>

The allocation of the intangible assets acquired are as follows: intellectual
property of $44,277,770, with an estimated useful life of 10 years and
trademarks of $13,703,172, with an estimated useful life of 40 years.

The allocation of the purchase price is preliminary. The purchase price
allocation will remain preliminary until the Company completes a third party
valuation of identifiable intangible assets acquired and determines the fair
values of other assets and liabilities acquired. The final determination of the
purchase price allocation is expected to be completed as soon as practicable.
The final amounts allocated to assets and liabilities acquired could differ from
the amounts presented above.

Upon closing, the Company entered into an employment agreement with an
individual, the CEO of galaxis, for a period of three years. The employment
agreement provides for granted options (among other items), exercisable for five
years, to purchase 1,250,000 shares of DDI's common stock at an exercise price
of $.70 per share, 25% of the options vesting 6 months after grant, and 25% of
the options to vest on each of the three anniversary dates of the closing (Notes
6 and 7).

The Company made a $3,000,000 capital contribution to galaxis, including
contributing a prior loan to the capital of galaxis in the principal amount of
$1,000,000.

The following information sets forth the unaudited pro-forma consolidated
results of operations for the nine months ended September 30, 2003 giving effect
to the acquisition of galaxis, as if the acquisition had occurred as of the
beginning of the period presented:

<TABLE>
<S>                                                  <C>
     Revenue                                         $ 32,049,367
                                                     ============
     Net loss                                        $ (1,977,764)
                                                     ============
     Net loss per share                              $       (.14)
                                                     ============
</TABLE>

For the nine months ended September 30, 2004, amounts relating to the operations
of galaxis are included in the accompanying unaudited condensed consolidated
financial statements.


                                       13
<PAGE>


                   DISTINCTIVE DEVICES, INC. AND SUBSIDIARIES
       NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


NOTE 9:  GOING CONCERN

As shown in the accompanying unaudited condensed consolidated financial
statements, the Company incurred losses of $11,589,920 and $690,360 during the
nine months ended September 30, 2004 and 2003, respectively, and had a working
capital deficit of $49,084,916 at September 30, 2004. These factors raise
substantial doubt about the Company's ability to continue as a going concern.
Management is seeking to obtain financing through the issuance of debt and
equity.

The ability of the Company to continue as a going concern is dependent upon
management's ability to continue to obtain financing, to successfully implement
its business plan and to establish profitable operations. The accompanying
unaudited condensed consolidated financial statements do not include any
adjustments that might be necessary if the Company is unable to continue as a
going concern.


NOTE 10: SEGMENT INFORMATION

The Company reports segments based upon the management approach, which
designates the internal reporting that is used by management for making
operating decisions and assessing performance. The Company operates three
segments, Telephone Equipment, Gemstone Trading and Software and Set-Top Box
("STB") Production and Sales.

For the three months ended September 30, 2004:

<TABLE>
<CAPTION>
                                                              SOFTWARE AND
                          TELEPHONE                          STB PRODUCTION
                          EQUIPMENT      GEMSTONE TRADING      AND SALES*          CORPORATE       CONSOLIDATED
                       ---------------   ----------------    ---------------    ---------------   ---------------
<S>                     <C>                <C>                <C>                <C>               <C>
Revenue, Net            $    197,273       $          -       $  2,484,524       $          -      $  2,681,797
Operating (Loss)             (84,267)                 -         (3,311,583)          (166,528)       (3,562,378)
Net (Loss)                   (71,777)                 -         (3,723,779)          (935,453)       (4,731,009)
Total Assets                 971,994            128,446         66,916,057            291,884        68,308,381
</TABLE>

For the nine months ended September 30, 2004:

<TABLE>
<CAPTION>
                                                              SOFTWARE AND
                          TELEPHONE                          STB PRODUCTION
                          EQUIPMENT      GEMSTONE TRADING      AND SALES*          CORPORATE       CONSOLIDATED
                       ---------------   ----------------    ---------------    ---------------   ---------------
<S>                     <C>                <C>                <C>                <C>               <C>
Revenue, Net            $    564,750       $          -       $   9,550,857      $     66,554      $ 10,182,161
Operating (Loss)            (232,967)              (461)        (11,978,193)         (853,788)      (13,065,409)
Net (Loss)                  (249,071)              (461)         (8,971,685)       (2,368,703)      (11,589,920)
Total Assets                 971,994            128,446          66,916,057           291,884        68,308,381
</TABLE>


                                       14
<PAGE>


                   DISTINCTIVE DEVICES, INC. AND SUBSIDIARIES
       NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


NOTE 10: SEGMENT INFORMATION (CONTINUED)

For the three months ended September 30, 2003:

<TABLE>
<CAPTION>
                                                                SOFTWARE
                          TELEPHONE                          PRODUCTION AND
                          EQUIPMENT      GEMSTONE TRADING         SALES*           CORPORATE       CONSOLIDATED
                       ---------------   ----------------    ---------------    ---------------   ---------------
<S>                     <C>                <C>                <C>                <C>               <C>
Revenue, Net            $       (500)      $          -       $    138,362       $          -      $    137,862
Operating (Loss)             (89,582)               (53)            (1,273)          (130,736)         (221,644)
Net (Loss)                   (68,902)               (53)            (1,273)          (157,452)         (227,680)
Total Assets                 825,071            114,994            706,929            425,937         2,072,931
</TABLE>

For the nine months ended September 30, 2003:

<TABLE>
<CAPTION>
                                                                SOFTWARE
                          TELEPHONE                          PRODUCTION AND
                          EQUIPMENT      GEMSTONE TRADING         SALES*           CORPORATE       CONSOLIDATED
                       ---------------   ----------------    ---------------    ---------------   ---------------
<S>                     <C>                <C>                <C>                <C>               <C>
Revenue, Net            $    548,035       $          -       $    365,917       $          -      $    913,952
Operating (Loss)            (225,720)            (1,415)            44,424           (403,632)         (586,343)
Net (Loss)                  (251,391)            (1,415)            56,362           (493,916)         (690,360)
Total Assets                 825,071            114,994            706,929            425,937         2,072,931

<FN>
* In January 2004, the characteristics of the segment information changed to
include the operations of galaxis (Note 8). The segment information for the
three and nine months ended September 30, 2003 does not include such operations.
</FN>
</TABLE>


NOTE 11:  SUBSEQUENT EVENTS

The Company negotiated with Lloyds Bank TSB - Netherlands for a settlement of
the amount originally owed of $21,996,681 to a reduced amount of $6,175,000. In
October 2004, the bank agreed to accept this amount as full settlement of the
entire loan subject to the receipt of this amount within 45 days of the
settlement agreement. Additionally, the bank must receive payment from Gemini
Consulting GmbH ("Gemini"), a company owned and controlled by a director of the
Company, within 45 days of the settlement agreement, the amount owed the bank
by Gemini, along with other items.

On October 4, 2004, the Company issued 50,000 Shares at no cost to a creditor as
incentive for granting a six-month term loan of $300,000 with interest at 8% per
annum to the Company.

On October 6, 2004, the Company obtained a $10 million letter of credit facility
from Trade-Fin International Holdings Ltd.


                                       15
<PAGE>


                   DISTINCTIVE DEVICES, INC. AND SUBSIDIARIES
       NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


NOTE 11: SUBSEQUENT EVENTS (CONTINUED)

On October 25, 2004, the Company signed an agreement with Flextronics for the
manufacturing of galaxis' digital set-top boxes ("STD's") for cable, satellite
and terrestrial platforms. Production of this product is to take place at
Flextronic's facility in Check Spring Bangalore, India for the Indian and
European markets.

On November 12, 2004, the Company issued 50,000 shares at no cost to a creditor
as incentive for granting a six-month term loan of $250,000 with interest at 8%
per annum to the Company.


                                       16
<PAGE>


ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION

Coordination of subsidiary operations in Germany and India are continuing, but
at a slower rate than planned due to funding constraints. Issuance of purchase
orders to our contract manufacturers for production of galaxis' set-top boxes
("STB") would also proceed more rapidly if additional working funds were
available, to cover payment for goods as received. Nonetheless, the availability
of a recently-obtained $10 million letter of credit facility has enabled galaxis
to issue purchase orders to its contract manufacturers for early delivery of
STBs to begin satisfying customer back orders. Consequently, we anticipate STB
sales in excess of $30 million during the next six months.

When operational integration is accomplished, between Germany and India, cost
savings up to 65% can be realized by the transfer of certain R&D, production and
marketing activities to our facilities in India.

Despite working capital limitations, galaxis and its subsidiary, Convergence,
continue to develop innovative technologies, modular hardware and software
architecture for STB devices which provide flexible solutions at low cost for
quick product updates which adapt to new market conditions. This has enabled our
German subsidiaries to maintain their reputations in STB technology and their
relationships with major OEMs and B2B customers in the growing digital markets,
including cable network operators, program providers and leading European
retailers.

Our R&D focus continues to be on strengthening our position in the STB
marketplace by adding features in next-growth technologies, such as Multimedia
Home Platforms ("MHP"); mandated TV and STB standards for Europe, with ultimate
links to U.S. standards; LinuxTV to exploit the growth market for interactive
applications utilizing legacy networks in concert with our own proprietary
technology and IP solutions; and high expertise knowledge based upon several
operating systems.

Convergence developed Linux powered middleware for MHP following extensive field
testing. Currently, we are the only company offering such middleware and have
succeeded in introducing it in European markets.

An outgrowth of these development efforts is the Convergence Linux-based
software which will be embedded by Toshiba in a next-generation chip-set
("Donau"). Production of Donau by Toshiba will begin in early 2005, with
expectations of royalty income to Convergence. Donau will be available to STB
manufacturers worldwide, as well as producers of integrated TV sets, personal
video recorders and combination hard disk/DVD recording systems.

Donau offers high performance at affordable cost, with dramatically reduced
component counts. Donau won the Product of the Year Award sponsored by Cable and
Satellite Magazine at the recent Media-Cast Show in London. Galaxis' STB
products were also featured at the recent IBC Exhibition in Amsterdam.

Donau provides MHP solutions for multi-source broadcasting, including
terrestrial, cable, satellite and IP. In addition to furnishing the software,
Convergence serves as a marketer for Toshiba's Donau chip-set and discussions
are currently underway with a major Asian electronic producer to license
Convergence's MHP, employing the Donau chip-set. If concluded, this agreement
would constitute another milestone in the growing acceptance of the Linux-based
software developed by Convergence.

During the September quarter, we received approval from the leading cable
network operator in India for use of galaxis' STB devices throughout its system.
The approval recognizes the Company as the sole domestic STB supplier for
direct-to-home ("DTH") platforms. Over time, this approval should lead to sales
of more than a million STBs in India and we plan to begin product deliveries
early next year. Tooling for the product housings for the India and SAARC
markets has been completed.


                                       17
<PAGE>


Production of galaxis' STBs is handled by contract manufacturers in Europe,
Taiwan and China and most recently, Flextronics International's facility in
Bangalore, India. STBs made by Flextronics for the Indian market will be free
from Indian import duties, a valuable competitive advantage over non-Indian
producers. User of contract manufacturers eliminates the need, and the costly
and time-consuming effort involved, to build and equip our own manufacturing
facilities and stock them with necessary components. It also enables us to make
deliveries to our customers in a far more timely manner, beginning in the fourth
quarter of 2004 and early 2005.

A year ago, galaxis had only a few STB models available for shipment to
customers. By the end of 2004, 25 to 30 models should be available.

Aside from STB activity, our subsidiaries in India are making progress,
especially in providing software, hardware and systems solutions to call
centers, and other customers.

Results of Operations
---------------------

The acquisition of galaxis and its subsidiaries on January 14, 2004, changed our
principal business and transformed our financial statements. Assets and
liabilities increased more than twenty-fold as the result of this transaction.
Consequently, operating and financial condition comparisons between the three-
and nine-month periods ended September 30, 2004 and the same periods in 2003
would not be meaningful.

For the three months and nine months ended September 30, 2004, operating
revenues amounted to $2,681,7976 and $10,182,161 and operating losses were
$3,562,378 and $13,065,409, respectively. Sales of galaxis' STBs represented
more than 90% of operating revenues in both periods.

Operating costs were reduced by more than $1 million between the second and
third quarters of 2004. This trend continues, reflecting reductions in German
employees. Meanwhile, several STB software engineers have been added to the
staff at our subsidiary in New Delhi, as the plan evolves to shift more STB
activities to India, to take advantage of far lower costs in that country.

After accounting for non-operating income and expenses, including interest
expense, net losses for the three- and nine-month periods ended September 30,
2004, were $4,731,009 and $11,589,920, or $0.23 and $0.60 per share,
respectively.

Based upon orders in hand from our customers, and corresponding purchase orders
issued to galaxis' contract manufacturers, we anticipate STB sales of
approximately $5 million in the fourth quarter of 2004 and $15 million in the
first quarter of 2005.

The declining value of the U.S. Dollar against the Euro, in recent months, has
effectively exaggerated galaxis' costs, expenses and losses, when compared to
earlier periods. Based upon the sharp increase projected for STB sales in 2005,
and resultant profitably, the exchange rate situation is expected to serve us
beneficiallly, in as much as STB sales and other galaxis income is realized in
Euros.

Liquidity
---------

Despite substantial losses during 2004, and a working capital deficit that
approximated $49 million at September 30, 2004, operations have continued due to
unsecured loans received from Company directors and their friends and
associates. Also, as mentioned earlier, the availability of a $10 million letter
of credit facility has enabled galaxis to issue purchase orders to its contract
manufacturers. Nevertheless, additional working funds are sorely needed.


                                       18
<PAGE>


In October 2004, we reached an agreement with galaxis' banker to settle
approximately $22 million in loans outstanding upon receipt of a one-time
payment of $6,175,000. The required payment is due in December 2004, in order
for the settlement to become effective. Funds are not yet available for this
purpose, but every effort is being extended to obtain them. No assurance can be
given that management will succeed in this effort.

Similar settlement negotiations are underway with past vendors and unsecured
creditors of galaxis with respect to approximately $38 million in obligations.
If successful, payment would be made partly in cash and the remainder in the
Company's common stock. Again, no assurance can be given that our settlement
proposals, to these parties, will be accepted.

To raise funds needed for working capital, to effect the bank settlement and to
reach agreement with other galaxis creditors, will entail the issuance of a
substantial number of the Company's common shares, or equivalents, with
consequential resultant dilution in the value of shares held by current
stockholders.

If management's current fund raising efforts are not successful, the Company's
ability to continue as a going concern remains in doubt. Conversely, if these
efforts succeed, we can look forward to profitable operations in 2005.

Risks and Uncertainties
-----------------------

Our businesses include activities which could be adversely affected by a number
of factors including, among others: limited resources and a substantial working
capital deficit; technology changes and extremely competitive pricing
environments in the industries we serve; competitors who, in most instances,
have far greater financial, management and personnel resources; reliance upon
suppliers of components and sub-assemblies who have factories in the Far East
which could be subject to production interruptions; market acceptance of our
products and services; difficulties in effectively managing disparate research,
development, production, marketing and administrative functions in Germany,
India and the U.S.; currency risks associated with the sale of virtually all of
our products and services in either Euros or Indian Rupees; our ability to
protect our intellectual property; undetected technical problems in products we
market; changes in government regulations which affect our products or services;
and general economic conditions in markets we serve.

THIS QUARTERLY REPORT ON FORM 10-QSB CONTAINS FORWARD-LOOKING STATEMENTS, WITHIN
THE MEANING OF THE FEDERAL SECURITIES LAWS, REGARDING OUR BUSINESS AND
PROSPECTS. SUCH STATEMENTS DO NOT INCLUDE THE POTENTIAL IMPACT OF ANY
TRANSACTIONS THAT MAY BE COMPLETED AFTER THE DATE HEREOF. ANY STATEMENTS
CONTAINED HEREIN THAT ARE NOT STATEMENTS OF HISTORICAL FACT MAY BE DEEMED TO BE
FORWARD-LOOKING STATEMENTS. OUR FUTURE RESULTS MAY DIFFER MATERIALLY FROM OUR
PAST RESULTS AND FROM THOSE PROJECTED IN THE FORWARD-LOOKING STATEMENTS DUE TO
UNCERTAINTIES AND RISKS, INCLUDING THOSE IDENTIFIED IN THE PRECEDING PARAGRAPH.
FURTHER, WE DISCLAIM ANY OBLIGATION TO UPDATE ANY FORWARD-LOOKING STATEMENTS
CONTAINED HEREIN AFTER THE DATE OF THIS QUARTERLY REPORT.

ITEM 3. CONTROLS AND PROCEDURES

Our management has conducted an evaluation of the effectiveness of our
disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e)
promulgated under the Securities Exchange Act of 1934, as amended) as of the end
of the fiscal quarter covered by this report. Based upon that evaluation, our
management has concluded that our disclosure controls and procedures are


                                       19
<PAGE>


effective for timely gathering, analyzing and disclosing the information we are
required to disclose in our reports filed under the Securities Exchange Act of
1934, as amended. There have been no significant changes in our internal
controls or in other factors that could significantly affect our internal
controls during the fiscal quarter covered by this report.


                                       20
<PAGE>


                           PART II OTHER INFORMATION

ITEM 2. CHANGES IN SECURITIES AND SMALL BUSINESS ISSUER PURCHASES OF
        EQUITY SECURITIES

During the three-month period ended September 30, 2004, as of September 20,
2004, we issued 25,000 shares of Common Stock to one person in connection with a
$400,000 loan from such person. The foregoing issuance of securities was exempt
from the registration provisions of the Securities Act of 1933, as amended, by
reason of Regulation D or Regulation S thereunder, and the acquired securities
are restricted on resale or other transfer.

ITEM 6. EXHIBITS

(a) Exhibits
    --------

      31.1     Certification pursuant to Section 302 of the Sarbanes-Oxley Act
               of 2002.

      31.2     Certification pursuant to Section 302 of the Sarbanes-Oxley Act
               of 2002.

      32.1     Certificate pursuant to Section 906 of the Sarbanes-Oxley Act
               of 2002.


                                       21
<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.

                                         DISTINCTIVE DEVICES, INC.
                                              (Registrant)


                                         By: /s/ SANJAY MODY
                                             -------------------------------
Dated: November 30, 2004                     Sanjay Mody
                                             President and CEO
                                             Treasurer and CFO


                                       22