EXHIBIT 99.1
DSI TOYS, INC.
AUDIT COMMITTEE OF THE BOARD OF DIRECTORS
CHARTER
I. PURPOSE
The primary function of the Audit Committee is to assist the Board of
Directors in fulfilling its oversight responsibilities by reviewing: (i)
the financial reports and other financial information provided by the
Corporation to any governmental body or the public; (ii) the Corporation's
systems of internal controls regarding finance, accounting and legal
compliance that management and the Board have established; and (iii) the
Corporation's auditing, accounting and financial reporting processes
generally. Consistent with this function the Audit Committee should
encourage continuous improvement of, and should foster adherence to, the
Corporation's policies, procedures and practices at all levels. The Audit
Committee's primary duties and responsibilities are to:
o Serve as an independent and objective entity to monitor the
Corporation's financial reporting processes and internal control
systems.
o Review and appraise the audit efforts of the Corporation's
independent accountants and internal accounting department.
o Provide an open avenue of communication among the independent
accountants, financial and senior management, the internal
accounting department, and the Board of Directors.
The Audit Committee will primarily fulfill these responsibilities by carrying
out the activities enumerated in Section IV of this Charter.
II. COMPOSITION
The Audit Committee shall be comprised of three or more directors, as
determined by the Board, each of whom shall be independent directors as
defined in Rule 4200 of the National Association of Securities Dealer's
listing standards, and free from any relationship that, in the opinion of
the Board, (as such opinion is informed by any applicable rules of the
Securities and Exchange Commission and the listing requirements of the
applicable securities market) would interfere with the exercise of his or
her independent judgment as a member of the
<PAGE>
Committee. All members of the Committee shall have a working familiarity
with basic finance and accounting practices.
The members of the Committee shall be elected annually by the Board.
Unless a Chair is elected by the full Board, the members of the Committee
shall designate a Chair by majority vote of the full Committee membership.
III. MEETINGS
The Committee shall meet at least four times annually, or more frequently
as circumstances dictate. Some of the meetings may be telephonic. As part
of its job to foster open communication, the Committee as a whole should
meet at least annually with management, the Corporation's Chief Financial
Officer, and the Corporation's independent accountants in separate
executive sessions to discuss any matters that the Committee or any of
these groups believe should be discussed privately. In addition, the
Committee or at least its Chair, should meet with the independent
accountants and management quarterly to review the Corporation's
financials consistent with IV.4. below
IV. RESPONSIBILITIES AND DUTIES
To fulfill its responsibilities and duties the Audit Committee shall:
DOCUMENTS/REPORTS REVIEW
1. At least annually, or as conditions dictate, review and update (if
deemed desirable) this Charter.
2. Review the Corporation's annual financial statements and any reports
or other financial information submitted to any governmental body, or
the public, including any certification, report, opinion, or review
rendered by the independent accountants.
3. Discuss with financial management and the independent accountants each
10-Q prior to its filing or prior to the release of earnings.
INDEPENDENT ACCOUNTANTS
4. Recommend to the Board of Directors the selection of the independent
accountants, considering independence and effectiveness and approve
the fees and other compensation to be paid to the independent
accountants. On an annual basis, the Committee should review and
discuss with the accountants all significant relationships the
accountants have with the Corporation to determine the accountants'
independence.
<PAGE>
5. Review the performance of the independent accountants and approve any
proposed discharge of the independent accountants when circumstances
warrant.
6. Periodically consult with the independent accountants out of the
presence of management about internal controls and the fullness and
accuracy of the Corporation's financial statements.
FINANCIAL REPORTING PROCESSES
7. In consultation with the independent accountants and the internal
auditors, review the integrity of the Corporation's financial
reporting processes, both internal and external.
8. Consider the independent accountants' judgements about the quality and
appropriateness of the Corporation's accounting principles as applied
in its financial reporting.
9. Consider and approve, if appropriate, major changes to the
Corporation's auditing and accounting principles and practices as
suggested by the independent accountants or management.
PROCESS IMPROVEMENT
10. Establish regular and separate systems of reporting to the Audit
Committee by management, the independent accountants and the internal
auditors regarding any significant judgements made in management's
preparation of the financial statements, and the view of each as to
appropriateness of such judgements.
11. Following completion of the annual audit, review separately with
management, the independent accountants and the internal accounting
department any significant difficulties encountered during the course
of the audit, including any restrictions on the scope of work or
access to required information.
12. Review any significant disagreement(s) among management and the
independent accountants or the internal accounting department in
connection with the preparation of the financial statements.
13. Review with the independent accountants and management the extent to
which changes or improvements in financial or accounting practices, as
approved by the Audit Committee, have been implemented.
<PAGE>
LEGAL COMPLIANCE
14. Review, with the Corporation's counsel, legal compliance matters
including corporate securities trading policies.
15. Review, with the Corporation's counsel, any legal matter that could
have a significant impact on the Corporation's financial statements.
16. Perform any other activities consistent with this Charter, the
Corporation's By-laws and governing law, as the Audit Committee deems
necessary or appropriate.
