SCHEDULE 14A INFORMATION

Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934

Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Under Rule14a-12

DSI TOYS, INC.
(Name of Registrant as Specified In Its Charter)

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(Name of Person(s) Filing Proxy Statement, if Other Than the Registrant)

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DSI TOYS, INC.
1100 WEST SAM HOUSTON PARKWAY (NORTH)
HOUSTON, TEXAS 77043

NOTICE OF ANNUAL MEETING OF SHAREHOLDERS

TO BE HELD ON JUNE 18, 2002

NOTICE IS HEREBY GIVEN that the Annual Meeting of Shareholders of DSI
Toys, Inc., a Texas corporation (the "Company"), will be held on Tuesday, June
18, 2002, at 1:30 p.m. Central Daylight Time, at the Company's corporate
offices, 1100 West Sam Houston Parkway (North), Houston, Texas 77043, for the
following purposes:

1. To elect two Class II directors to hold office until the next annual
election of Class II directors by shareholders or until their respective
successors are duly elected and qualified;

2. To ratify the appointment of PricewaterhouseCoopers LLP as the
Company's principal accountants for the fiscal year ending December 31, 2002;
and

3. To transact such other business as may properly come before the meeting
or any adjournments thereof.

The Board of Directors has fixed the close of business on May 13, 2002, as
the record date for the determination of shareholders entitled to vote at and to
receive notice of the annual meeting.

All shareholders are cordially invited to attend the meeting. Whether or
not you plan to attend the meeting in person, you are urged to complete, sign,
and date the enclosed form of proxy and return it promptly so that your shares
of stock may be represented and voted at the meeting. If you are present at the
meeting, your proxy will be returned to you if you so request.

By Order of the Board of Directors

/s/ THOMAS V. YARNELL
Thomas V. Yarnell
SECRETARY
Houston, Texas
May 20, 2002

DSI TOYS, INC.
1100 WEST SAM HOUSTON PARKWAY (NORTH)
HOUSTON, TEXAS 77043

PROXY STATEMENT
FOR
ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON JUNE 18, 2002
DATED: MAY 20, 2002

SOLICITATION AND REVOCABILITY OF PROXIES

This Proxy Statement is furnished to shareholders of DSI Toys, Inc. (the
"Company") in connection with the solicitation of proxies by the Board of
Directors of the Company for use at the 2002 Annual Meeting of Shareholders (the
"Annual Meeting") to be held on Tuesday, June 18, 2002, at 1:30 p.m. Central
Daylight Time, at the Company's corporate offices, 1100 West Sam Houston Parkway
(North), Houston, Texas 77043, and at any adjournment of such meeting. This
Proxy Statement and the accompanying proxy are first being sent or given to the
Company's shareholders on or about May 20, 2002.

When properly executed proxies in the accompanying form are received, the
shares represented thereby will be voted at the Annual Meeting in accordance
with the directions noted on the proxies; if no direction is indicated, then
such shares will be voted for the election of the directors and in favor of the
proposals set forth in the Notice of Annual Meeting attached to this Proxy
Statement.

The enclosed proxy confers discretionary authority to vote with respect to
any and all of the following matters that may come before the Annual Meeting:
(1) matters that the Company's Board of Directors does not know a reasonable
time before the Annual Meeting are to be presented at the Annual Meeting; and
(2) matters incidental to the conduct of the Annual Meeting. Management does not
intend to present any business for a vote at the Annual Meeting other than the
matters set forth in the accompanying Notice of Annual Meeting, and it has no
information that others will do so. If other matters requiring the vote of the
shareholders properly come before the Annual Meeting, then, subject to the
limitations set forth in the applicable regulations under the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), it is the intention of
the persons named in the attached form of proxy to vote the proxies held by them
in accordance with their judgment on such matters.

Any shareholder giving a proxy has the power to revoke that proxy at any
time before it is voted. A proxy may be revoked by filing with the Secretary of
the Company either a written revocation or a duly executed proxy bearing a date
subsequent to the date of the proxy being revoked. Any shareholder may attend
the Annual Meeting and vote in person, whether or not such shareholder has
previously submitted a proxy.

In addition to soliciting proxies by mail, officers and regular employees
of the Company may solicit the return of proxies. Brokerage houses and other
custodians, nominees, and fiduciaries may be requested to forward solicitation
material to the beneficial owners of stock.

The Company will bear the cost of preparing, printing, assembling and
mailing the Notice of Annual Meeting, this Proxy Statement, the enclosed proxy,
and any additional material, as well as the cost of forwarding solicitation
material to the beneficial owners of stock.

RECORD DATE; VOTING; QUORUM

The record date for determining shareholders entitled to notice of and to
vote at the Annual Meeting is the close of business on May 13, 2002. On that
date there were 9,066,365 shares issued and outstanding of the Company's common
stock, par value $.01 per share ("Common Stock"), which is the Company's only
class of voting securities outstanding. Each share of the Company's Common Stock
is entitled to one vote in the matter of election of directors and in any other
matter that may be acted upon at the Annual Meeting. The Company's articles of
incorporation prohibit cumulative voting for the election of directors. The
presence, in person or by proxy, of the holders of a majority of the outstanding
shares of Common Stock is necessary to constitute a quorum at the Annual
Meeting. The affirmative vote of a plurality of the shares of Common Stock
represented at the Annual Meeting and entitled to vote is required to elect
directors. All other matters to be voted on will be decided by a majority of the
shares of Common Stock represented at the meeting and entitled to vote.
Abstentions and broker nonvotes (shares held by brokers or nominees as to which
they have no discretionary authority to vote on a particular matter and have
received no instructions from the persons entitled to vote thereon), if any,
will be included in determining the number of shares present at the meeting for
purposes of determining a quorum. Abstentions and broker nonvotes have no effect
on determining plurality, except to the extent that they affect the total votes
received by any particular candidate.

ELECTION OF DIRECTORS

The Company's Board of Directors consists of eight positions (there is one
vacant position), divided into three classes: Class I (two directors, one vacant
position), Class II (two directors) and Class III (three directors). Only the
Class II positions are due for nomination and election at the Annual Meeting.
The Class I and Class III positions will be due for nomination and election at
the annual meetings of shareholders to be held in 2004 and 2003, respectively.

The intention of the persons named in the enclosed proxy, unless such
proxy specifies otherwise, is to vote the shares represented by such proxy for
the election of E. Thomas Martin and Joseph S. Whitaker, present directors of
the Company, as the Class II directors. Messrs. Martin and Whitaker have been
nominated to stand for re-election by the Board of Directors until their terms
expire or until their respective successors are duly elected and qualified.

Pursuant to the terms of a Shareholders' and Voting Agreement dated April
15, 1999 (the "Voting Agreement"), among the Company, MVII, LLC, a California
limited liability company ("MVII"), and M.D. Davis, Barry Conrad, Joseph
Matlock, Douglas Smith and Rust Capital, Ltd., a Texas limited partnership, (the
"DSI Group"), the DSI Group is entitled to nominate two of the directors of the
Company, and MVII is entitled to nominate the remaining directors of the
Company. Further, each member of the DSI Group has given MVII an irrevocable
proxy to vote his or its respective shares of Common Stock of the Company for
MVII's nominees for director, and MVII is obligated under the Voting Agreement
to vote its shares of Common Stock of the Company for the nominees of the DSI
Group.

In addition, pursuant to the terms of a Shareholders' and Voting Agreement
dated January 7, 2000 (the "Reiling Voting Agreement"), among the Company, MVII
and Susan and Walter Reiling (the "Reilings"), the number of directors of the
Company was increased by one to the then current number of seven directors, and
the Reilings were entitled to nominate Mr. Reiling to fill the newly-created
director position. Mr. Reiling was appointed to the Board of Directors on
February 1, 2000, and was subsequently elected to his current term as a Class
III director by the shareholders at the 2000 Annual Meeting of Shareholders. The
Reilings also have given MVII an irrevocable proxy to vote their shares of
Common Stock of the Company for MVII's nominees for director, and MVII is
obligated under the Reiling Voting Agreement to vote its shares of Common Stock
of the Company for the Reilings' nominee.

By action of the Board of Directors, pursuant to the Bylaws of the
Company, on September 12, 2000, the number of directors was increased to eight.
In accordance with the Voting Agreement, Michael J. Lyden was nominated by MVII
to fill the newly created directorship. Mr. Lyden resigned his position as
director, chief executive officer and president on October 12, 2001.

Messrs. Burke and McSorley were previously nominated by MVII pursuant to
the Voting Agreement, in addition to E. Thomas Martin and Joseph S. Whitaker.
Messrs. Davis and Matlock were previously nominated by the DSI Group pursuant to
the terms of the Voting Agreement.

CLASS I DIRECTORS

ROBERT L. BURKE, 58, has served as a director of the Company since June 1,
1999. After a successful career in the financial business arena, pursuant to
which Mr. Burke held various positions including as officer of Security Pacific
Bank, a Registered Representative with Bache & Company (now Prudential Bache),
Sales Manager of Beverly Sales, Inc., Vice President of Calmark Asset
Management, Inc., and President of Continental Western Securities, Inc., he
returned to school and earned a Masters Degree in Education in 1993. From 1993
until his retirement in 1999, he was an educator with the Lake Oswego School
District in Lake Oswego, Oregon. He is the Chairman of the Audit Committee and a
member of the Compensation Committee.

JOHN MCSORLEY, 56, has served as a director of the Company since June 1,
1999. From March 1997 to the present, he has served as President of Double
Bogey, LLC, a California limited liability company based in San Rafael,
California, that is engaged in the investment of private capital. From November
1989 to October 1996, Mr. McSorley served as Chief Operating Officer and General
Partner of BayCom Partners LP, a California limited partnership engaged in the
ownership of radio stations in California and Oregon. Double Bogey, LLC owns a
2.22% membership interest in MVII. Mr. McSorley is the Chairman of the
Compensation Committee and a member of the Audit Committee.

CLASS II DIRECTORS

E. THOMAS MARTIN, 59, has served as the Chairman of the Board of the
Company since June 1, 1999. He is the sole Manager and President of MVII. Mr.
Martin is President of Martin Resorts, Inc., a private California corporation
which owns and operates coastal hotels in California. Mr. Martin was the Chief
Executive Officer and a partner in Martin & MacFarlane, Inc. and Martin Media,
L.P., national outdoor advertising companies, until their sale to Chancellor
Media in September of 1998. Mr. Martin also manages various real estate
ventures. He is the Chairman of the Executive Committee.

JOSEPH S. WHITAKER, 61, has served as a director since June 1, 1999, and
President and Chief Executive Officer since December 1, 2001. He joined the
Company on June 1, 1999, as Senior Vice President, New Business Development. He
also serves as Vice President of, and owns less than a 1% membership interest
in, MVII. For the five years prior to joining the Company, Mr. Whitaker operated
a consulting business in La Jolla, California, providing services related to
marketing, licensing and product development to the toy industry.

CLASS III DIRECTORS

M. D. DAVIS, 67, has served as a director of the Company since December
11, 1995. He served as the Chairman of the Board and Chief Executive Officer of
the Company from December 1995 through June 1, 1999. Mr. Davis also provides
consulting services to the Company. He is a member of the Executive Committee.

JOSEPH N. MATLOCK, 54, has served as a director of the Company since
December 11, 1995. From January 1996 to March 1998, Mr. Matlock served as
Executive Vice President and Director of Business and Community Relations for
Bank of America. In September 1995, he founded Afford America, Inc., which
provides housing for low-income families, and has served as its President since
its inception. Mr. Matlock is a partner and director of the Privet Fund, a late
stage technology investment partnership. Since November 2001, he has been the
chief executive officer of Ensignia, a medical technology company. He is a
member of the Audit Committee and the Compensation Committee.

WALTER S. REILING, 67, has served as a director of the Company since
February 1, 2000. Mr. Reiling has 45 years of experience in the toy industry and
founded Meritus Industries, Inc. ("Meritus"), a toy company, in 1981. Mr.
Reiling served as the principal manager of Meritus from its formation until its
acquisition by the Company on January 7, 2000. He is a member of the Executive
Committee.

THE BOARD RECOMMENDS THAT SHAREHOLDERS VOTE "FOR" THE ELECTION OF ITS NOMINEES
FOR DIRECTOR.

RATIFICATION OF AUDITORS

On March 19, 2002, upon the recommendation of the Audit Committee, the
Board of Directors unanimously voted to propose to the shareholders a
recommendation to ratify the appointment of PricewaterhouseCoopers LLP as the
Company's independent public accounting firm for the fiscal year ending December
31, 2002, to perform audits, tax services, securities and exchange commission
reviews and such other accounting services as the Audit Committee and the Board
of Directors may deem necessary for the proper operation of the Company's
business from time to time. PricewaterhouseCoopers LLP has audited the Company's
financial statements since September 1, 1992. Representatives of
PricewaterhouseCoopers LLP are expected to attend the meeting to respond to
appropriate questions from the shareholders and will be given an opportunity to
make a statement should they desire to do so.

THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" APPROVAL OF PRICEWATERHOUSE-
COOPERS LLP AS THE COMPANY'S INDEPENDENT PUBLIC ACCOUNTING FIRM FOR THE FISCAL
YEAR ENDING DECEMBER 31, 2002.

MEETING ATTENDANCE AND COMMITTEES OF THE BOARD

The Company has audit, compensation, and executive committees of the
Board, whose members are noted above. During the last fiscal year, the Board of
Directors met on four (4) occasions, the Audit Committee met on five (5)
occasions, the Compensation Committee met on four (4) occasions, and the
Executive Committee met on four (4) occasions. The Company does not have a
standing nominating committee of the Board. Nominees to the Board are selected
by the entire Board, subject to the terms of the Voting Agreement and the
Reiling Voting Agreement.

The Audit Committee of the Board reviews the scope of the independent
accountants' examinations and the scope of activities of the Company's internal
accountants. Additionally, it receives and reviews reports of the Company's
independent accountants and internal accountants. The Board of Directors adopted
a written charter for the Audit Committee on May 23, 2000, and amended such
charter on March 13, 2001. Two of the members of the Audit Committee (Messrs.
Burke and McSorley) are independent directors as defined in Rule 4200(a)(14) of
the National Association of Securities' Dealer's ("NASD") listing standards. As
determined by the Nasdaq Stock Market, Inc., Mr. Matlock is not an independent
director, but serves 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." The Board of
Directors has determined that Mr. Matlock meets the criteria of Marketplace Rule
4350(d)(2)(B).

The Compensation Committee reviews and determines the compensation levels
of the officers of the Company, evaluates management performance, considers
management succession and related matters, and administers the Company's annual
compensation plans and the DSI Toys, Inc. 1997 Stock Option Plan (the "Stock
Option Plan").

The Executive Committee serves primarily as an advisory committee to the
full Board and the management of the Company.

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

Of the current members of the Compensation Committee, Mr. McSorley and Mr.
Burke have served on such committee since June 1, 1999, and Mr. Matlock has
served on such committee since January 23, 1996. At no time was an officer or
employee of the Company a member of the Company's Compensation Committee. No
member of the Board of Directors of the Company or the Compensation Committee
serves as a member of the Board of Directors or compensation committee of an
entity that has one or more executive officers serving as a member of the
Company's Board of Directors or the Company's Compensation Committee.

DIRECTOR COMPENSATION

ANNUAL RETAINER AND OTHER FEES AND EXPENSES. Directors are paid an annual
retainer of $15,000. The Company also reimburses directors for travel, lodging
and related expenses they incur in attending Board and committee meetings.

NON-EMPLOYEE DIRECTOR STOCK OPTIONS. Under the Stock Option Plan, which
was approved and ratified by shareholders on May 1, 1997, non-employee directors
may, from time to time at the discretion of the Compensation Committee, receive
a grant of an option to purchase shares of Common Stock of the Company. The
options are granted at an exercise price as determined by the Compensation
Committee and are exercisable, as determined by the committee, from time to time
over a period of ten years from grant date, unless sooner terminated as
described in the Stock Option Plan.

SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

Section 16(a) of the Exchange Act requires the Company's directors, certain
of its officers and persons who own more than 10 percent of the Company's Common
Stock, to file with the Commission reports of ownership and changes in ownership
of such stock. Such directors, officers and greater than 10% shareholders are
also required to furnish the Company with copies of all Section 16(a) forms they
file.

To the Company's knowledge, based solely on a review of the copies of such
reports furnished to the Company and written representations from the reporting
persons that no other reports were required, during the year ended December 31,
2001, all Section 16(a) filing requirements applicable to its directors,
officers, and greater than 10% shareholders were complied with.

REPORT OF AUDIT COMMITTEE

The following report of the Audit Committee shall not be deemed to be
"soliciting material" or to be "filed" with the Securities and Exchange
Commission (the "Commission") or subject to Regulations 14A or 14C of the
Exchange Act or to the liabilities of Section 18 of the Exchange Act, and such
information shall not be deemed to be incorporated by reference into any filing
made by the Company under the Securities Act of 1933, as amended (the
"Securities Act"), or the Exchange Act notwithstanding any general incorporation
by reference of this Proxy Statement into any other document.

The Audit Committee of the Board of Directors is currently made up of two
(2) outside, non-employee, independent directors (as independence is defined in
Rule 4200(a)(14) of the National Association of Securities Dealers' (NASD)
listing standards) and one outside, non-independent, non-employee director
serving pursuant to Marketplace Rule 4350(d)(2)(B). The Audit Committee has
reviewed and discussed the audited financial statements with management of the
Company. The Audit Committee has discussed with the independent auditors the
matters required to be discussed by SAS 61 (Codification of Statements on
Auditing Standards, AUss. 380). Further, the Audit Committee has received
written disclosures and the letter from the independent accountants required by
Independence Standards Board Standard No. 1 and has discussed with the
independent accountants, the independent accountant's independence.

Based on the referenced review and discussions, the Audit Committee has
recommended to the Board of Directors that the audited financial statements be
included in the Company's Annual Report on Form 10-K for the last fiscal year
for filing with the Commission.

Robert L. Burke, Chairman
Joseph N. Matlock
John McSorley

EXECUTIVE COMPENSATION

The following report of the Compensation Committee on executive compensation
and the performance graph that follows shall not be deemed to be "soliciting
material" or to be "filed" with the Commission or subject to Regulations 14A or
14C of the Exchange Act, or to the liabilities of Section 18 of the Exchange Act
and such information shall not be deemed to be incorporated by reference into
any filing made by the Company under the Securities Act or the Exchange Act,
notwithstanding any general incorporation by reference of this Proxy Statement
into any other document.

REPORT OF THE COMPENSATION COMMITTEE
ON EXECUTIVE COMPENSATION

The Compensation Committee (the "Compensation Committee") of the Board of
Directors is currently composed entirely of outside, non-employee directors. The
Compensation Committee reviews and sets the compensation levels of the Company's
Chief Executive Officer ("CEO") and other executive officers, evaluates the
performance of management, considers management succession and related matters,
and administers the Stock Option Plan. All decisions by the Compensation
Committee relating to the compensation of executive officers are reviewed by the
full Board.

The Compensation Committee considers information with respect to the
reasonableness of compensation paid to senior officers of the Company, as well
as all employees of the Company and its subsidiaries in managerial positions.
The Compensation Committee also takes into account how compensation compares to
compensation paid by competitors in the Company's industry as well as the
performance of the Company.

COMPENSATION POLICIES AND PROGRAMS

The compensation policies of the Company, set by management and supported by
the Compensation Committee, focus on enhancing shareholder value. Specific
policies are designed to attract, motivate and retain persons of high quality
who will have the skill, training and dedication to assist the Company in
achieving its corporate goals. The executive compensation program for fiscal
2001 consisted of two elements: base salary, and long-term incentive
compensation through the granting of stock options pursuant to the Stock Option
Plan.

BASE SALARY: Base salary for executive officers is determined principally by
competitive factors and the

marketplace. The policy of the Compensation Committee is generally to set base
salary levels for positions at approximately the median levels determined from
survey information for positions deemed comparable by the Compensation
Committee.

LONG-TERM INCENTIVE COMPENSATION: The Company uses stock options as a means
of furnishing longer-term incentives to officers and other employees of the
Company and its subsidiary. Under the Stock Option Plan, the Company has
flexibility in granting directors, officers and employees options to acquire
shares of the Company's Common Stock.

During fiscal year 2001, no named executive officers listed in the Summary
Compensation Table were granted stock options.

FISCAL 2001 COMPENSATION OF CEO

The 2001 base salary of the CEO and President, Mr. Joseph S. Whitaker, was
calculated at the rate of $99,744 per annum through May 31, 2001, at the rate of
$102,936 from June 1, 2001, through November 30, 2001, and at the rate of
$180,000 per annum from December 1, 2001, through year end. Mr. Whitaker was
Senior Vice President, New Business Development prior to becoming CEO and
President on December 1, 2001. The base salary is established pursuant to an
employment agreement between Mr. Whitaker and the Company that became effective
on June 1, 1999 and was amended effective December 1, 2001. The employment
agreement expires on November 30, 2004. The compensation provided for in the
employment agreement was based upon the duties and time commitment of the
offices assumed by Mr. Whitaker as set forth in the agreement.

TAX DEDUCTIBILITY OF EXECUTIVE COMPENSATION

Section 162(m) of the Internal Revenue Code contains provisions which could
limit the deductibility of certain compensation payments to the Company's
executive officers. The Company believes that any compensation realized in
connection with the exercise of stock options granted by the Company will
continue to be deductible as performance-based compensation. The policy of the
Company is to design its compensation programs generally to preserve the tax
deductibility of compensation paid to its executive officers. The Compensation
Committee could determine, however, taking into consideration the burdens of
compliance with Section 162(m) and other relevant facts and circumstances, to
pay compensation that is not fully deductible if the Compensation Committee
believes such payments are in the Company's best interests.

SUMMARY

The members of the Compensation Committee believe that linking executive
compensation to corporate performance results in a better alignment of
compensation with corporate goals and shareholder interests. As performance
goals are met or exceeded, resulting in increased value to shareholders,
executive officers are to be rewarded commensurately. The members of the
Compensation Committee believe that compensation levels during fiscal 2001
adequately reflect the compensation goals and policies of the Company. Certain
executive compensation increases were announced and became effective on January
1, 2002, and on April 1, 2002, and one other executive compensation increase
will take effect on December 1, 2002. No other executive compensation increases
are planned for fiscal 2002.

John McSorley, Chairman
Robert L. Burke
Joseph N. Matlock

COMPENSATION OF CERTAIN NAMED EXECUTIVE OFFICERS

The following table sets forth certain summary information concerning the
compensation awarded to, earned by or paid to the CEO of the Company and certain
other executive officers of the Company as of December 31, 2001, for the years
indicated.

LONG-TERM
ANNUAL COMPENSATION COMPENSATION
---------------------------------------- -------------
STOCK
OTHER OPTIONS
NAME AND FISCAL ANNUAL (NUMBER OF ALL OTHER
PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION SHARES)(1) COMPENSATION
- ------------------ -------- --------- ---------- ------------ ------------- -------------

Joseph Whitaker (2) 2001 108,020 15,000(3) $ 3,277(4)
CHIEF EXECUTIVE OFFICER 2000 98,184 15,000(3) 3,301(4)
AND PRESIDENT 1999 52,000 8,750(3) 125,000 414(4)

Yau Wing Kong 2001 180,000(5)
MANAGING DIRECTOR 2000 180,000(5)
1999 165,000(5) 60,000

Thomas W. Neville 2001 150,000 2,962(6)
SENIOR VICE PRESIDENT 2000 140,000 2,889(6)
1999 108,333 50,000 2,492(6)

Robert L. Weisgarber(7) 2001 142,800 2,962(8)
CHIEF FINANCIAL OFFICER 2000 133,250 2,889(8)
1999 91,385 50,000 2,526(8)

William J. Kerner(9) 2001 130,000 2,853(10)
VICE PRESIDENT 2000 125,000 23,392(10)
RESEARCH & DEVELOPMENT 1999 20,833 10,000 52(10)

Michael J. Lyden(11) 2001 150,052 12,500(3) 62,025(12)
FORMER CHIEF EXECUTIVE 2000 183,780 3,125(3) 3,165(12)
OFFICER AND PRESIDENT 1999 96,923 150,000 1,539(12)

(1) Options represent the right to purchase shares of Common Stock at a fixed
price per share.
(2) Mr. Whitaker became President and CEO on December 1, 2001. Previously,
since June 1, 1999, he had been Senior Vice President, New Business
Development.
(3) Director's fees.
(4) Includes Company contributions or other allocations to (i) a defined
contribution plan of $2,625 and $2,510 for fiscal 2001 and 2000,
respectively, and (ii) group term life insurance premiums of $652, $791,
and $414 for fiscal 2001, 2000 and 1999, respectively.
(5) Based on average exchange rates with Hong Kong. Yau Wing Kong retired from
the Company in January, 2002.
(6) Includes Company contributions or other allocations to (i) a defined
contribution plan of $2,625, $2,625, and $2,271 and (ii) group term life
insurance premiums of $337, $264, and $221 in fiscal 2001, 2000 and 1999,
respectively.
(7) Mr. Weisgarber was hired by the Company in March 1999.
(8) Includes Company contributions or other allocations to (i) a defined
contribution plan of $2,625, $2,625 and $2,338 and (ii) group term life
insurance premiums of $337, $264 and $188, for fiscal 2001, 2000 and 1999,
respectively.
(9) Mr. Kerner was hired by the Company in December 1999.
(10) Includes Company contributions to (i) a defined contribution plan of
$2,625 and $2,156 in fiscal 2001 and 2000 respectively, (ii) group term
life premiums of $228, $264 and $52 in fiscal 2001, 2000 and 1999,
respectively and (iii) reimbursed moving expenses of $20,972 in fiscal
2000.
(11) Mr. Lyden was hired by the Company in June 1999 and resigned in October
2001.
(12) Includes Company contributions or other allocations to (i) a defined
contribution plan of $1,987, $2,374 and

$1,125 and (ii) group term life insurance premiums of $652, $791 and
$414, for fiscal 2001, 2000 and 1999, respectively; (iii) severance
pay of $48,251in fiscal 2001 and (iv) accrued vacation and sick pay
of $11,135 in fiscal 2001.

There were no stock options granted during the year ended December 31, 2001,
to any of the named executive officers.

The following table sets forth certain information with respect to the
exercise of stock options during the year ended December 31, 2001, and the
unexercised stock options held at December 31, 2001, and the value thereof, by
each of the named executive officers.

AGGREGATED OPTION EXERCISES IN FISCAL 2001
AND 12/31/01 OPTION VALUES

VALUE OF EXERCISABLE AND
NUMBER OF SECURITIES UNEXERCISABLE IN-THE-MONEY
SHARES ACQUIRED UNDERLYING OPTIONS AT 12/31/01 OPTIONS
ON EXERCISE (SHARES) AT FISCAL YEAR END
(NUMBER VALUE --------------------------------- -------------------------------
NAME OF SHARES) REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- -------------------- ----------------- ---------- ------------- ---------------- -------------- ---------------

Joseph S. Whitaker 0 $0 50,000 75,000 $0 $0

Yau Wing Kong 0 0 12,000 48,000 0 0

Thomas W. Neville 0 0 20,000 30,000 0 0

Robert L. Weisgarber 0 0 20,000 30,000 0 0

Willliam J. Kerner 0 0 4,000 6,000 0 0

Michael J. Lyden 0 $0 0 0 $0 $0

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Information concerning certain transactions involving the Company and
certain directors and executive officers of the Company is set forth herein.

MANAGEMENT - EMPLOYMENT AND RELATED AGREEMENTS

Mr. M.D. Davis, a director, entered into a consulting agreement effective as
of June 1, 1999, pursuant to which he ceased to be an employee and officer of
the Company and agreed to provide consulting services to the Company through the
period ending June 1, 2002. For his services under the consulting agreement, Mr.
Davis shall receive total compensation in the amount of $450,000, payable in
equal monthly installments of $12,500 ($150,000 per annum). Mr. Davis shall be
entitled to such compensation irrespective of a termination of the consulting
agreement, unless such termination is by Mr. Davis for reasons other than a
breach by the Company of its obligations under the consulting agreement.

The Company entered into an employment agreement with Mr. Joseph S. Whitaker
on June 1, 1999, and amended the agreement effective December 1, 2001. Pursuant
to the amended agreement, Mr. Whitaker shall serve as President and Chief
Executive Officer of the Company for a term ending November 30, 2004, and will
be paid an annual salary of $180,000, which salary shall be raised on an annual
basis in accordance with the Consumer Price Index, and may be additionally
raised at the discretion of the Board of Directors. The agreement contains
non-disclosure, non-competition and non-solicitation provisions applicable
during the term of employment and for one year thereafter.

The Company entered into an employment agreement with Gregory A. Barth on
April 1, 2001. Pursuant to the agreement, Mr. Barth shall serve as Senior Vice
President of Worldwide Operations, Business Planning and Logistics of the
Company for a term ending March 31, 2003, and will be paid an annual salary of
$150,000, which salary shall be raised on an annual basis in accordance with the
Consumer Price Index, and may be additionally raised at the discretion of the
Board of Directors. The agreement contains non-disclosure, non-competition and
non-solicitation provisions applicable during the term of employment and for one
year thereafter.

DSI (HK) Limited, the Company's wholly-owned subsidiary, entered into an
employment agreement effective January 1, 2000, with Mr. Yau, pursuant to which
he was employed as Managing Director of DSI (HK) Limited for a

monthly salary of HK $116,000 (approximately US $15,000 based on currency
exchange rates). The employment agreement was to expire December 31, 2002. Mr.
Yau is entitled to a fiscal year-end performance bonus equal to 1% of the
Company's annual consolidated after-tax profits in excess of US $2.0 million, up
to a maximum of US $8.0 million. In the event the non-competition provisions are
enforced, the Company will be obligated to pay an additional one-year salary
during the non-compete period. Mr. Yau retired from the Company on January 31,
2002.

On January 7, 2000, the Company acquired Meritus by way of merger. Pursuant
to the terms of the merger, the Company acquired all of the issued and
outstanding stock of Meritus in exchange for (i) 533,208 unregistered shares of
the Company's Common Stock; (ii) $884,033.82 in cash; and (iii) the Company's
Subordinated Secured Promissory Note for $1,690,000 payable to the Reilings, who
were the sole shareholders of Meritus. Contemporaneously with the merger, the
Company satisfied approximately $4.4 million of Meritus' debt. The Reiling
Voting Agreement was entered into in connection with the merger.

In connection with the Meritus acquisition, the Company borrowed
$5,000,000 from MVII. That debt is evidenced by a promissory note dated January
7, 2000 (the "MVII Note"). The MVII Note bears interest at a rate of prime plus
2%, matures on July 1, 2004, and is subordinated to senior debt of the Company.
The proceeds from the MVII Note were used primarily to facilitate the Company's
merger with Meritus, including the satisfaction of the Meritus debt discussed
above. On March 6, 2002, the Company reborrowed $500,000 of the original
principal that the Company had paid on the MVII Note. The proceeds were used to
finance the normal business operations of the Company.

The irrevocable proxy executed by the Reilings in connection with the
Reiling Voting Agreement not only authorizes MVII to vote the shares of Common
Stock of the Company held by the Reilings for directors of the Company on the
terms set forth in the Reiling Voting Agreement, it also designates MVII as
proxy to vote the shares of Common Stock of the Company held by the Reilings
with respect to (i) any matter relating to the creation or composition of any
committee of the Board, (ii) any matter affecting the size or composition of the
Board, and (iii) any proposal to amend the Company's bylaws or articles of
incorporation for the sole purpose of affecting the matters described in clauses
(i) and (ii) above. The Reiling Voting Agreement continues until the earlier of
January 7, 2005, termination by mutual agreement of the parties, or the
dissolution of the Company.

INVESTMENT WARRANT

On March 19, 2001, the Company issued to MVII an Investment Warrant to
acquire 1.8 million shares of the Company's Common Stock at 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 3,
2002. As issued, the Investment Warrant was subject to certain anti-dilution
adjustments, including adjustments in the event the Company issues securities
for a purchase price that is equivalent to less than $1.50 per share of the
Company's Common Stock. In connection with the issuance of the Investment
Warrant, the Company and MVII entered into a Registration Rights Agreement (the
"MVII Registration Rights Agreement"), pursuant to which MVII was granted
piggyback registration rights with respect to the shares of the Company Common
Stock underlying the Warrant, under certain circumstances. Shares of Common
Stock acquired by MVII upon exercise of the Warrant are subject to the terms of
the Voting Agreement. Proceeds from the sale of the Investment Warrant were used
by the Company for current working capital.

The Investment Warrant was issued by the Company to MVII in reliance on
the exemption from registration set forth in Section 4(2) of the Securities Act
of 1933, as amended. The Company believes the Section 4(2) exemption from
registration was available based upon the established criteria for effecting a
private offering by virtue of the following facts, among others: (i) MVII had
access to the type of information that would be included in a registration
statement, (ii) MVII's principals have adequate financial means to bear the risk
of MVII's additional investment in the Company and can be described as
sophisticated, (iii) MVII was the only offeree in the transaction, (iv) MVII
acquired the Investment Warrant for investment and not with a view toward
distribution, (v) the Investment Warrant contains restrictions on resale of the
Investment Warrant and the Common Stock issued upon exercise of the Investment
Warrant, and (vi) no underwriters were involved nor were any underwriters'
commissions paid in connection with the transactions.

On January 31, 2002, at the request of NASDAQ and with the agreement of
MVII, the Company issued an amended and restated Investment Warrant, which
amended and restated in its entirety the Investment Warrant by removing all
anti-dilution provisions. In addition, the Company and MVII entered into an
Amended and Restated Registration Rights Agreement, which amended and restated
in its entirety the MVII Registration Rights Agreement, by removing all of the
provisions regarding the anti-dilution provisions of the original Investment
Warrant.

SECURITY OWNERSHIP OF PRINCIPAL SHAREHOLDERS AND MANAGEMENT

The following table sets forth certain information regarding the
beneficial ownership of the Company's Common Stock as of April 30, 2002, by: (i)
persons known to management to beneficially own more than 5% of the Company's
Common Stock; (ii) each director and nominee for director of the Company; (iii)
each named executive officer listed in the Summary Compensation Table; and (iv)
all directors and executive officers as a group. Unless otherwise indicated, the
beneficial owner has sole voting and investment power with respect to all shares
listed:

COMMON STOCK
NAME OF BENEFICIAL OWNER BENEFICIALLY OWNED
- ------------------------ -------------------------------------------
NUMBER PERCENT OF
OF SHARES CLASS
------------------- ---------------

Robert L. Burke.............................................. 10,000(1)(3) *
M.D. Davis................................................... 339,951(2)(3) 3.05%
William J. Kerner............................................ 4,000(3) *
Yau Wing Kong................................................ 54,584 *
E. Thomas Martin............................................. 6,643,623(4) 58.24%
Martin Group(5).............................................. 7,253,568(6) 65.06%
Joseph N. Matlock............................................ 112,000(2)(3) 1.01%
John McSorley................................................ 10,000(1)(3) *
MVII, LLC.................................................... 5,994,238(7) 53.76%
Thomas W. Neville............................................ 39,929(3) *
Walter S. Reiling............................................ 546,208(2)(3)(8) 4.90%
Walter S. and Susan Reiling, joint tenants................... 546,208(2)(3)(8) 4.90%
Robert L. Weisgarber......................................... 30,000(3) *
Joseph S. Whitaker........................................... 72,000(1)(3) *
Michael J. Lyden............................................. 0 *
All current directors and executive officers
as a group (17 persons)...................................... 7,903,704(3) 70.89%

* Represents less than 1%.

(1) Excludes shares owned of record by MVII. Messrs. Burke and McSorley each
own a 2.22% membership interest in MVII; Mr. Whitaker owns less than a 1%
membership interest in MVII.
(2) Excludes shares owned of record by other members of the Martin Group that
are to be voted in accordance with the Voting Agreement. For a discussion
of the Martin Group, see footnote number 5 to this table.
(3) Includes shares of Common Stock not outstanding but subject to options
currently exercisable, or exercisable within 60 days, as follows: Mr.
Burke - 10,000 shares; Mr. Davis - 10,000 shares; Mr. Matlock - 12,000
shares; Mr. McSorley - 10,000 shares; Mr. Neville - 26,000 shares; Mr.
Reiling - 10,000 shares; Mr. Weisgarber - 30,000 shares; Mr. Whitaker -
70,000 shares; Mr. Kerner - 4,000 shares; and group - 220,000 shares and
1,800,000 shares not outstanding but subject to an Investment Warrant
exerciseable within 60 days.
(4) Includes 639,385 shares owned of record by E. Thomas Martin; 10,000 shares
of Common Stock not outstanding but subject to options currently
exerciseable, or exercisable within 60 days; 4,194,238 shares owned of
record by MVII, a company of which E. Thomas Martin serves as Sole Manager
and President; and 1,800,000 shares of Common Stock not outstanding but
subject to an Investment Warrant exerciseable within 60 days, but excludes
shares owned of record by the other members of the Martin Group. The
address for E. Thomas Martin is 654 Osos Street, San Luis Obispo,
California 93401.
(5) The Martin Group is comprised of MVII, M.D. Davis, Joseph N. Matlock,
Douglas A. Smith, Rust Capital, Ltd. , a Texas limited partnership, Barry
B. Conrad and Walter S. and Susan Reiling. Pursuant to the Voting
Agreement, each member of the DSI Group has given MVII an irrevocable
proxy to vote its respective shares of Common Stock of the Company for,
among other things, MVII's nominees for director, and MVII is obligated
under the Voting Agreement to vote its shares of Common Stock of the
Company for the nominees of the DSI Group. Pursuant to the Reiling Voting
Agreement, the Reilings have given MVII an irrevocable proxy to vote their
shares of Common Stock of the Company for, among other things, MVII's
nominees for director, and MVII is obligated under the Reiling Voting
Agreement to vote its shares of Common Stock of the Company for the
Reilings' nominee.
(6) Includes 5,994,238 shares (including 1,800,000 shares not outstanding but
subject to an Investment Warrant exerciseable within 60 days) owned of
record by MVII; 339,951 shares owned of record (including 10,000 shares
not outstanding but subject to options currently exercisable) by M.D.
Davis, 112,000 shares owned of

record (including 12,000 shares not outstanding but subject to options
currently exercisable) by Joseph N. Matlock, 261,171 shares owned of
record (including 2,000 shares not outstanding but subject to options
currently exercisable) by Douglas A. Smith, 2,000 shares not outstanding
but subject to options currently exercisable owned of record by
Barry B. Conrad and 546,208 shares owned of record (including 10,000
shares not outstanding but subject to options currently exercisable)
by the Reilings.
(7) Includes 1,800,000 shares of Common Stock not outstanding but subject to
an Investment Warrant exerciseable within 60 days, but excludes shares
owned of record by other members of the Martin Group that are to be voted
in accordance with the Voting Agreement as the Reiling Voting Agreement.
The address for MVII, LLC is 654 Osos Street, San Luis Obispo, California
93401.
(8) Excludes shares owned of record by other members of the Martin Group that
are to be voted in accordance with the Reiling Voting Agreement. The
address for Walter S. Reiling is 15 Woodcrest Drive, Morristown, New
Jersey 07960.

PERFORMANCE GRAPH

The following graph compares the cumulative total shareholder return on
the Common Stock of the Company to the cumulative total return of each of the
following indices: the Standard & Poor's 500 Index, the Standard and Poor's 600
Index and a Peer Group Index since May 29, 1997, the date on which the Company's
Common Stock was first traded on the Nasdaq Market.

COMPARISON OF CUMULATIVE TOTAL RETURNS (1)
AMONG DSI TOYS, INC., STANDARD & POOR'S 500 INDEX, STANDARD & POOR'S 600 INDEX,
AND PEER GROUP INDEX (2)

[GRAPH HERE]

5/29/97 1/31/98 1/31/99 12/31/99 12/31/00 12/31/01
------- ------- ------- -------- -------- --------

DSI Toys, Inc.................................... $ 100 $ 30 $ 21 $ 36 $ 15 $ 11
Peer Group (2)................................... $ 100 $ 163 $ 193 $ 100 $ 38 $ 128
Standard & Poor's 500 Index...................... $ 100 $ 124 $ 164 $ 191 $ 173 $ 153
Standard & Poor's SmallCap 600 Index............. $ 100 $ 129 $ 128 $ 146 $ 163 $ 174

(1) Total return assuming reinvestment of dividends. Assumes $100 invested on
May 29, 1997, in Common Stock of the Company, the Standard & Poor's 500
Index, the Standard & Poor's 600 Index and a Company constructed peer
group index.
(2) In accordance with the rules of the Securities and Exchange Commission,
the Company has elected to select a group of peer companies on an industry
basis for comparison purposes. The peer group for fiscal 2002 is composed
of 8 industry participants: Action Performance Inc.; Equity Marketing,
Inc.; Grand Toys International Inc.; Jakks Pacific Inc.; Marvel
Enterprises Inc. (formerly named ToyBiz, Inc.); Ohio Art Company; Racing
Champions Corp. and Radica Games, Ltd. Cumulative total return
calculations were weighted according to the respective company's market
capitalization.

SELECTION OF PRINCIPAL ACCOUNTANTS

The Board of Directors has appointed PricewaterhouseCoopers LLP to
continue to be the principal accountants of the Company, subject to shareholder
ratification at the Annual Meeting. A representative of that firm is expected to
be present at the Annual Meeting and will have an opportunity to make a
statement if the representative desires to do so and to respond to appropriate
questions.

AUDIT FEES. The aggregate fees billed by the principal accountants for
services rendered for the audit of the Company's annual financial statement and
the reviews of the Company's Forms 10-Q for fiscal year 2001 total $221,703.

FINANCIAL INFORMATION SYSTEMS DESIGN AND IMPLEMENTATION FEES. The principal
accountants did not render services nor bill any fees for professional services
rendered in regard to the Company's financial information systems design and
implementation in fiscal year 2001.

ALL OTHER FEES. The aggregate fees billed for services rendered by the
principal accountants other than those set forth above for fiscal year 2001
total $60,987.

The Audit Committee of the Board of Directors has reviewed the services
rendered by the principal accountants as set forth above and has determined that
the principal accountants have maintained their independence.

SHAREHOLDER PROPOSALS

Shareholder proposals for inclusion in the Company's proxy materials in
connection with the 2003 Annual Meeting of Shareholders must be received by the
Company at its office in Houston, Texas, addressed to the Secretary of the
Company, no later than January 20, 2003, in accordance with Rule 14a-8 under the
Exchange Act.

With respect to shareholder proposals which are not intended to be included
in the Company's proxy statement, the bylaws of the Company provide that notice
of any such shareholder proposal must be received at the Company's principal
executive office not less than 80 days prior to the annual meeting or, in the
event that the date of the meeting has not been publicly announced by the
Company in the manner specified in the bylaws more than 90 days prior to the
meeting, not later than the close of business on the tenth day following the day
on which the date of the meeting is publicly announced.

ANNUAL REPORT

The Annual Report for the year ended December 31, 2001, is being mailed to
shareholders with this Proxy Statement. The Annual Report is not to be regarded
as proxy soliciting material. The information contained in the annual report on
Form 10-K for the fiscal year ended December 31, 2001 (the "Form 10-K") under
the heading "Executive Officers of the Company" is hereby incorporated by
reference. The Company will provide without charge to each shareholder to whom
this Proxy Statement and the accompanying form of proxy are sent, on the written
request of such shareholder, within one business day of receipt of such request
by first class mail or equally prompt means, a copy of the Form 10-K, including
all amendments thereto, and including the financial statements and the financial
statement schedules, required to be filed with the Commission. Requests should
be directed to the Company, Attention: Secretary, 1100 West Sam Houston Parkway
(North), Houston, Texas 77043; telephone number: (713) 365-9900.

DSI TOYS, INC.

/s/ E. THOMAS MARTIN
E. Thomas Martin
Chairman

Houston, Texas
Dated: May 20, 2002

DSI TOYS,INC.

1100 WEST SAM HOUSTON PARKWAY (NORTH)
HOUSTON,TX 77043

THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS

The undersigned hereby appoints E.Thomas Martin and Thomas V.Yarnell and
each of them,as the undersigned's attorneys and proxies,each with the power to
appoint his substitute,and hereby authorizes them to represent and to vote,as
directed on the reverse side hereof,all the shares of common stock of DSI
TOYS,INC.(the "Company ")held of record by the undersigned on May 13,2002,at the
annual meeting of shareholders to be held on June 18,2002,or any adjournment
thereof.

It is understood that when properly executed,this proxy will be voted in the
manner directed herein by the undersigned shareholder.WHERE NO CHOICE IS
SPECIFIED BY THE SHAREHOLDER,THE PROXY WILL BE VOTED FOR THE ELECTION OF
DIRECTORS PROPOSED IN ITEM 1 AND IN FAVOR OF THE PROPOSAL IN ITEM 2.

The undersigned hereby revokes all previous proxies relating to the shares
covered hereby and confirms all that said proxy or his substitutes may do by
virtue hereof.

(TO BE SIGNED ON REVERSE SIDE)

PLEASE DATE,SIGN AND MAIL YOUR
PROXY CARD BACK AS SOON AS POSSIBLE!

ANNUAL MEETING OF SHAREHOLDERS
DSI TOYS,INC.

JUNE 18,2002

Please Detach and Mail in the Envelope Provided

[X] PLEASE MARK YOUR
VOTES AS IN THIS
EXAMPLE.

FOR all nominees WITHHOLD
listed at right AUTHORITY
(except as marked to vote for all nominees
to the contrary below) listed at right
FOR AGAINST ABSTAIN
1.ELECTION NOMINEES: E.Thomas Martin 2. Ratification of the
OF [ ] [ ] appointment of [ ] [ ] [ ]
DIRECTORS: Joseph S.Whitaker PricewaterhouseCoopers LLP
as the independent public
accounting firm for the
fiscal year ending
December 31,2002, to perform
INSTRUCTION:TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL NOMINEE(S),STRIKE A audits,tax services,securities
LINE THROUGH THE NOMINEE 'S NAME OR WRITE A ZERO ("0 ")IN THE SPACE FOLLOWING and exchange commission reviews,
HIS OR HER NAME AT RIGHT. and such other accounting
services as the Board of
Directors may deem necessary for
the proper operation of the
Company's business from time to time.

3. In his or her discretion,the Proxy is
authorized to vote upon any matters
which may properly come before the
Meeting or any adjournment or
postponement thereof.

PLEASE MARK,SIGN,DATE AND RETURN THE PROXY
CARD PROMPTLY, USING THE ENCLOSED ENVELOPE.

Signature:____________________________________________ Printed Name: __________________________________ Dated ______________, 2002
Signature if held jointly:____________________________ Printed Name:____________________________________ Dated:_______________,2002

(Note that you should sign exactly as your name appears above.)