U.S. 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, 2001

[ ]  TRANSITION  REPORT UNDER SECTION 13 OR 15(d) OF THE  SECURITIES  EXCHANGE
     ACT OF 1934 for the transition period from _______ to _______

                         COMMISSION FILE NUMBER 0-28348

                              DBS INDUSTRIES, INC.
        (Exact name of small business issuer as specified in its charter)

               Delaware                               84-1124675
   (State or other jurisdiction of          (I.R.S. Employer Identification No.)
    incorporation or organization)

                        100 Shoreline Highway, Suite 190A
                              Mill Valley, CA 94941
                    (Address of principal executive offices)

                                 (415) 380-8055
                           (Issuer's telephone number)



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 |_|


Indicate the number of shares  outstanding  of each of the  issuer's  classes of
common stock, as of the latest practicable date.


Class of Securities: Common Stock, $.0004 Par Value


Shares Outstanding as of October 31, 2001: 23,828,963


Transitional Small Business Disclosure Format:   Yes:    No   X




<PAGE>ii

<TABLE>
<S>                                                                                                          <C>
                              DBS INDUSTRIES, INC.

                                      INDEX

                                                                                                               PAGE
                                                                                                               -----
                         PART I - FINANCIAL INFORMATION

ITEM 1. Financial Statements:

             Condensed Consolidated Balance Sheets (unaudited):
             As of September 30, 2001 and December 31, 2000.......................................................1

             Condensed Consolidated Statements of Operations (unaudited):
             For the Three and Nine Months Ended September 30, 2001 and  September 30, 2000
             and for the period from April 25, 1990 (Inception)  to September 30, 2001............................2

             Condensed Consolidated Statements of Cash Flows (unaudited):
             For the Nine Months Ended September 30, 2001 and September 30, 2000
             and for the period from April 25, 1990 (Inception) to September 30, 2001 ............................3

             Notes to Condensed Consolidated Financial Statements.................................................4

ITEM 2. Management's  Discussion and Analysis of Financial Condition and Results
        of Operations............................................................................................14



                           PART II - OTHER INFORMATION

ITEM  1. Legal Proceedings.......................................................................................20

ITEM  2. Changes in Securities...................................................................................20

ITEM  6. Exhibits and Reports on Form 8-K........................................................................22


</TABLE>


<PAGE>1

PART I
                              FINANCIAL INFORMATION
TEM 1.                        FINANCIAL STATEMENTS

                      DBS INDUSTRIES, INC. AND SUBSIDIARIES
                          (A Development Stage Company)
                      CONDENSED CONSOLIDATED BALANCE SHEETS
                                   (Unaudited)

                                     ASSETS
<TABLE>
<S>                                                                              <C>                <C>
                                                                                   September 30,       December 31,
                                                                                       2001                2000
                                                                                  --------------     ---------------
Current assets:
     Cash and cash equivalents                                                     $    136,484        $    389,319
     Prepaid and other current assets                                                    63,128              57,378
                                                                                  --------------     ---------------
       Total current assets                                                             199,612             446,697
                                                                                  --------------     ---------------

Furniture and equipment (net)                                                            29,559              32,393
Investments, license acquisition costs, and other                                     2,894,690           2,369,088
Satellite construction costs                                                         12,229,907          12,229,907
                                                                                  --------------     ---------------
       Total other assets                                                            15,154,156          14,631,388
                                                                                  --------------     ---------------

              Total assets                                                         $ 15,353,768        $ 15,078,085
                                                                                  ==============      ==============
              LIABILITIES, MANDATORILY REDEEMABLE PREFERRED STOCK,
                            AND STOCKHOLDERS' EQUITY

Current liabilities:
     Accounts payable                                                              $  1,259,537        $  1,482,476
     Customer advances                                                                  400,000             400,000
     Accrued compensation                                                               257,083             601,132
     Related party loans                                                                 55,000                  --
     Other accrued liabilities                                                          128,132             179,410
                                                                                  --------------     ---------------
       Total current liabilities                                                      2,099,752           2,663,018
                                                                                  --------------     ---------------
Non-current liabilities:
     Convertible debentures                                                             148,560                  --
                                                                                  --------------     ---------------
              Total liabilities                                                    $  2,248,312        $  2,663,018
                                                                                  ---------------     ---------------

Series B Mandatorily Redeemable Convertible Preferred Stock, $0.0004 par value;
       550 Shares authorized; 440 issued and outstanding at September 30,
       2001 and December 31, 2000 (liquidation preference $481,878)                     481,878             347,971
                                                                                  --------------     ---------------
Stockholders' equity:
     Series A Convertible Preferred Stock, $0.0004 par value; 35,897 shares
       authorized; 25,899 issued and outstanding at September 30, 2001 and
       December 31, 2000;(liquidation preference $ 776,970)                                  11                  11
     Common stock, $0.0004 par value; 100,000,000 shares authorized;
       23,753,665 and 15,601,143 issued and outstanding at
       September 30, 2001 and December 31, 2000, respectively                             9,521               6,260
     Capital in excess of par value                                                  31,034,555          29,204,964
     Warrants                                                                         3,986,836           2,911,654
     Deferred stock-based compensation                                                 (112,532)           (450,129)
     Deficit accumulated during the development stage                               (22,294,812)        (19,605,664)
                                                                                  --------------     ---------------
         Total stockholders' equity                                                  12,623,579          12,067,096
                                                                                  --------------     ---------------
              Total liabilities, mandatorily redeemable preferred stock,
              and stockholders' equity                                             $ 15,353,768        $ 15,078,085
                                                                                  ==============     ===============
</TABLE>


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

<PAGE>2
                      DBS INDUSTRIES, INC. AND SUBSIDIARIES
                          (A Development Stage Company)
                 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
                                   (Unaudited)

<TABLE>
<S>                                            <C>               <C>               <C>               <C>              <C>

                                                                                                                      April 25, 1990
                                                   Three Months Ended                    Nine Months Ended            (Inception) to
                                                      September 30,                         September 30,              September 30,
                                                   2001              2000              2001               2000             2001
                                               -------------     -------------     -------------     -------------    --------------

Revenue                                        $         --      $         --      $         --      $         --      $    161,420
                                               -------------     -------------     -------------     -------------    --------------

Cost and operating expenses:
   Cost of revenue                                       --                --                --                --           127,580
   Marketing and sales                               79,463           235,288           166,224           902,260         2,810,572
   General and administrative                     1,126,586         2,383,578         2,422,746         5,033,771        19,181,255
   Research and development                              --           181,554             1,132           419,357         4,749,921
                                               -------------     -------------     -------------     -------------    --------------
                                                  1,206,049         2,800,420         2,590,102         6,355,388        26,869,328
                                               -------------     -------------     -------------     -------------    --------------
     Loss from operations                        (1,206,049)       (2,800,420)       (2,590,102)       (6,355,388)      (26,707,908)
                                               -------------     -------------     -------------     -------------    --------------

Other income (expense):
   Interest, net                                    (73,692)              270           (97,845)            2,197          (753,908)
   Equity in loss of
    investees, net                                       --                --                --                --          (512,920)
   Gain on sales of
    investments                                          --                --                --                --         5,829,218
   Other, net                                            --                --                --            (1,721)          (56,634)
                                               -------------     -------------     -------------     -------------    --------------
                                                    (73,692)              270           (97,845)              476         4,505,756
                                               -------------     -------------     -------------     -------------    --------------
     Loss before provision
      for income taxes and
      minority interest                          (1,279,741)       (2,800,150)       (2,687,947)       (6,354,912)      (22,202,152)

Provision for income taxes                             (400)               --            (1,200)               --          (101,235)
                                               -------------     -------------     -------------     -------------    --------------
     Loss before minority
      interest                                   (1,280,141)       (2,800,150)       (2,689,147)       (6,354,912)      (22,303,387)

Minority interest in loss of
   consolidated subsidiaries                             --                --                --                --             8,575
                                               -------------     -------------     -------------     -------------    --------------

     Net loss                                  $ (1,280,141)     $ (2,800,150)     $ (2,689,147)     $ (6,354,912)     $(22,294,812)
                                               =============     =============     =============     =============    ==============
Series B Preferrred Stock
   dividends associated
   with issued warrants
   and accretions                                   (81,878)               --          (276,878)               --          (276,878)
                                               -------------     -------------     -------------     -------------    --------------
     Net loss attributable
     to Common Stockholders                    $ (1,362,019)     $ (2,800,150)     $ (2,966,025)     $ (6,354,912)     $(22,571,690)
                                               -------------     -------------     -------------     -------------    --------------
Basic and diluted net loss
 per share                                     $      (0.06)     $      (0.19)     $      (0.15)     $      (0.44)
                                               =============     =============     =============     =============
Weighted average number of
   shares of common stock,
   basic and diluted                             22,345,583        14,946,553        20,081,222        14,615,607
                                               =============     =============     =============     =============

</TABLE>

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

<PAGE>3




                      DBS INDUSTRIES, INC. AND SUBSIDIARIES
                          (A Development Stage Company)
                 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                                   (Unaudited)

<TABLE>
<S>                                                            <C>               <C>                 <C>

                                                                                                     April 25, 1990
                                                                        Nine Months Ended            (Inception) to
                                                                          September 30,               September 30,
                                                                    2001               2000                2001
                                                               -------------       -------------      ---------------

Reconciliation of net loss to net cash
   used in operating activities
   Net loss                                                    $ (2,689,147)       $ (6,354,912)       $(22,294,812)
   Adjustments to reconcile net loss to net cash
     used in operating activities:
     Depreciation and amortization                                    7,110              11,320             470,951
     Minority interest's share of net loss                               --                  --              (8,575)
     Noncash charges                                                460,000             (60,000)          2,218,045
     Amortization of stock-based compensation                       337,596             690,345           2,374,208
     Issuance of options and warrants
       for services rendered                                        351,658           1,776,325           2,147,174
     Issuance of common stock in connection
       with litigation settlement                                        --                  --             324,391
     Equity in loss of investees, net                                    --                  --             529,972
     Loss (gain) on sales of investments                               (125)              1,721          (5,829,343)
     Allowance for losses on advances                                    --                  --             216,932
     Common stock issued as payment for interest                         --                  --               7,000
     Decrease (increase) in accounts receivable and
       other assets                                                 (30,627)              5,500             (68,801)
     Increase (decrease) in accounts payable
       and accrued liabilities                                     (618,266)          2,242,496           1,315,756
     Increase in customer advances                                       --                  --             400,000
                                                               -------------       -------------      ---------------
       Net cash used in operating activities                     (2,181,801)         (1,687,205)        (18,197,102)
                                                               -------------       -------------      ---------------

Cash flows from investing activities:
   Proceeds from sale of investment                                   2,546                  --           1,102,486
   Proceeds from Loral settlement                                        --                  --           3,573,677
   Purchase of furniture and equipment                               (6,698)             (2,704)           (152,139)
   Satellite construction costs                                          --            (154,144)        (12,229,907)
   Organization costs                                                    --                  --             (28,526)
   Repayment (issuance) of note receivable from stockholder              --                  --             (31,187)
   Purchase of interest in Continental                                   --                  --          (2,292,409)
   Investments, license acquisition costs and other                (500,723)                 --          (3,227,048)
   Net assets of purchased subsidiaries                                  --                  --            (147,500)
   Cash transferred from Fi-Tek IV, Inc.
     pursuant to the merger and reorganization                           --                  --             156,648
   Cash of divested subsidiary                                           --                  --                (277)
   Purchase of patents                                                   --                  --             (18,251)
   Proceeds from repayment of advances to affiliate                      --                  --             152,500
   Restricted cash on credit line                                        --                  --             300,000
                                                               -------------       -------------      ---------------
       Net cash used in investing activities                       (504,876)           (156,848)        (12,841,933)
                                                               -------------       -------------      ---------------

Cash flows from financing activities:
   Repayment of borrowing under credit line                              --                  --            (300,000)
   Issuance of debentures                                           500,000                  --           5,317,501
   Issuance of Common and Preferred Stock                         1,967,042           1,688,710          28,583,781
   Redemption of common stock warrants                                   --                  --             (19,490)
   Stock issue costs                                                (88,200)           (103,315)         (1,378,611)
   Purchase of shares                                                    --                  --              (5,000)
   Payment of debentures                                                 --                  --          (1,168,445)
   Proceeds from stockholders' loans                                 55,000                  --             497,750
   Payment of stockholders' loans                                        --                  --            (351,967)
                                                               -------------       -------------      ---------------
       Net cash provided by  financing activities                 2,433,842           1,585,395          31,175,519
                                                               -------------       -------------      ---------------

Net increase (decrease) in cash and cash equivalents               (252,835)           (258,658)            136,484
Cash and cash equivalents, beginning of period                      389,319             282,945                  --
                                                               -------------       -------------      ---------------
Cash and cash equivalents, end of period                       $    136,484        $     24,287        $    136,484
                                                               =============       =============      ===============
</TABLE>

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

<PAGE>4

                      DBS INDUSTRIES, INC. AND SUBSIDIARIES
                          (A Development Stage Company)
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


NOTE 1 UNAUDITED INTERIM FINANCIAL STATEMENTS

     The  information  presented  in  these  condensed   consolidated  financial
statements  of DBS  Industries,  Inc.  (DBSI or the  Company),  its wholly owned
subsidiaries, Global Energy Metering Services, Inc. and Newstar Limited, and its
majority owned subsidiary, E-SAT, Inc. (the subsidiaries), is unaudited.

     The financial statements include all adjustments  consisting of only normal
recurring  adjustments  which are, in the opinion of  management,  necessary  to
present  fairly  the  condensed  consolidated  financial  position  of  DBSI  at
September 30, 2001 and  condensed  consolidated  results of operations  and cash
flows for the interim periods  reported.  The results of operations for the 2001
interim period presented are not necessarily  indicative of expected results for
the full 2001 fiscal year.

     These  condensed  consolidated  financial  statements  have  been  prepared
assuming the Company will  continue as a going  concern.  Since  inception,  the
Company has devoted substantially all of its efforts to developing its business.
The Company has therefore  incurred  substantial  losses and negative cash flows
from operating  activities.  To address financing needs, the Company is pursuing
various financing alternatives.  These factors raise substantial doubt about the
Company's ability to continue as a going concern.  These financial statements do
not  reflect  any  adjustments  that  might  result  from  the  outcome  of this
uncertainty.

     Certain  information  and  footnote   disclosures   normally  contained  in
financial  statements  prepared in accordance with generally accepted accounting
principles have been condensed or omitted. The condensed  consolidated financial
statements  should  be read  in  conjunction  with  the  consolidated  financial
statements and notes contained in DBSI's 2000 Annual Report on Form 10-KSB.

     Certain  reclassifications  have been made to the 2000 financial statements
to conform  to the 2001  presentation  with no effect on net loss as  previously
reported.

NOTE 2 INVESTMENTS, LICENSE ACQUISITION COSTS AND OTHER ASSETS

     In October 1994,  the Company and EchoStar  formed E-SAT for the purpose of
filing with the FCC for a license to operate a low earth orbit satellite system.
E-SAT filed with the FCC on November  16,  1994.  The Company now holds an 80.1%
interest in E-SAT. The Company's total investments in, and advances to, E-SAT as
of September  30, 2001 and December 31, 2000 were  $851,490.  The  investment is
accounted for using the equity method.  The Company's  equity in losses of E-SAT
for the nine months ended September 30, 2001 and 2000, were $0.

     On March 31, 1998, the Federal  Communications  Commission approved E-SAT's
application for a low earth orbit satellite  license.  E-SAT is required to meet
certain  milestones  and other  covenants in order to maintain  its license.  On
April  8,  1999,  the  Company  notified  the  FCC  that it had  entered  into a
construction  contract for the first two satellites of the E-SAT system on March
31, 1999.

<PAGE>5

                      DBS INDUSTRIES, INC. AND SUBSIDIARIES
                          (A Development Stage Company)
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


     On July 30, 1999, the Company entered into an agreement with EchoStar under
which it received 60.1% of E-SAT's shares,  bringing the Company's  ownership in
E-SAT to 80.1%  from its  initial  20%,  in  exchange  for  consideration  which
primarily  included  the  grant  of  rights  to use  up to 20% of the  satellite
capacity of the E-SAT system by EchoStar. The Federal Communications  Commission
subsequently  approved the  transaction.  In connection with the negotiations of
the share purchase  agreement with  EchoStar,  the Company paid  $1,517,187 to a
consultant  during  1999 and  capitalized  such  costs in the  E-SAT  investment
account.

     During the three months ended  September  30, 2001 the Company  capitalized
approximately  $500,000 in costs  associated with the development of a satellite
based  energy  control  system to curtail  energy  consumption  of electric  air
conditioning units.

NOTE 3 SATELLITE CONSTRUCTION COSTS

     During  the   construction  of  its  satellite   system,   the  Company  is
capitalizing all design, engineering,  launch and construction costs. Such costs
amounted to  approximately  $12.2 million as of September 30, 2001.  The Company
reviews capitalized satellite  construction and FCC license costs for impairment
whenever events or changes in circumstances indicate that their carrying amounts
may not be  recoverable.  The Company is required under its FCC license to build
two satellites by March 2002 and launch them by September  2002. Lack of receipt
of  extensions  from the FCC of the above  deadlines,  the inability to meet the
construction  and  launch  requirements  or  to  raise  adequate  financing  may
represent an impairment  event and result in the write down of such  capitalized
costs to their recoverable value.

     On December 15, 1998, the Company and Alcatel Space Industries  ("Alcatel")
entered into a Memorandum of Understanding  and authorization to proceed ("MOU")
pursuant to which  Alcatel would become the General  Contractor  for the design,
construction  and launch  services  for the  Company's  planned  low earth orbit
satellites.  Upon  signing of the MOU,  the  Company  made a $1 million  advance
payment to Alcatel.  In January and February 1999,  the Company made  additional
payments to Alcatel totaling an additional $1 million.

     On March 31, 1999, the Company  signed  construction  and launch  contracts
with Surrey Satellite Technology Limited ("Surrey") and Eurockot,  respectively,
and made advance payments of $7.8 million in April 1999 and $2.0 million in July
1999.   Total  payments  under  these   cancelable   contracts  will  amount  to
approximately  $47  million.  In July 1999,  the  Company,  Surrey and  Eurockot
reached  agreements under which $3.2 million of the required  milestone payments
due in July 1999  totaling  $4.8 million were  deferred to yet to be agreed upon
dates.

     On October 8, 1999,  the  Company  signed a  contract  with  Alcatel  Space
Industries for the final design, construction and delivery to the launch site of
six Little LEO  satellites.  This  agreement  also  includes  the final  design,
construction  and delivery of the ground  infrastructure,  including the gateway
earth station,  mission center,  satellite control center, ground communications
network and ground-based transceivers to be installed into devices, like utility
meters.  Alcatel  is also  responsible  for  providing  in-orbit  testing of the
Company's  satellite system.  The total contract price for the end-to-end system
is $88.5 million.  Either party has the right to terminate this agreement  under
certain  circumstances.  The Company paid $2 million in construction payments to
Alcatel,  pursuant to which Alcatel completed the preliminary engineering design

<PAGE>6

                      DBS INDUSTRIES, INC. AND SUBSIDIARIES
                          (A Development Stage Company)
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


review for the Company's  system,  including the payload  design and designs for
the gateway  earth  station and tracking  facilities,  as well as the  satellite
orbital  analysis  and  communications  link  margins  to and  from  space.  The
Agreement  with Alcatel  required a payment at the end of 1999 of  approximately
$9.1  million in cash and the  equivalent  of $5 million in Common  Stock.  This
payment was  necessary  for Alcatel to continue work and to trigger an effective
date for our full system  development  schedule.  As of October 31,  2001,  this
payment has not been made, and Alcatel  therefore has the right to consider this
contract  void as to  further  work,  and that the  contract  is  therefore  not
currently in effect.

NOTE 4 CUSTOMER ADVANCES

     The Company's  wholly-owned  subsidiary,  Global Energy Metering  Services,
Inc. (GEMS), is party to a contract to deliver 10,000 satellite radio units. The
purchase  order is for $1.2 million and under the terms of the  purchase  order,
GEMS would  receive a total of  $500,000 in advance  payments  on the  contract,
based on certain milestone achievements.  As of December 31, 1998, this purchase
order  had  been  suspended  by  both  parties  when  the  Argos  System  became
unavailable.  The  $400,000  in  milestone  payments  received  are  reported as
customer advances on the accompanying  balance sheet.  These milestone  payments
could be subject to refund in whole or in part.

NOTE 5 CONVERTIBLE DEBENTURES

     On August 31, 2001, the Company sold to an accredited investor an aggregate
of $500,000  principal  amount of  convertible  debentures  due August 31, 2006,
together  with  warrants  to purchase up to an  aggregate  of 250,000  shares of
Common Stock of the Company at an exercise price of $1.06 per share. The Company
shall accrue simple  interest on the $500,000 at the rate of 6% per annum. As of
September 30, 2001, the Company has accrued $2,500 in interest  expense relating
to these  debentures.  The principal and accrued  interest are convertible  into
shares of Common  Stock of the  Company  at the lower of (i) a fixed  conversion
price equal to $.98  (maximum  conversion  price) or (ii) a variable  conversion
price  equal to 85% of the  market  price,  but in no event  lower than $.21 per
share (minimum conversion price).

     Emerging  Issues  Task  Force  (EITF)  Issue  No.  98-5,   "Accounting  for
Convertible  Securities  with  Beneficial  Conversion  Features or  Contingently
Adjustable Conversion Ratios" as clarified by EITF 00-27,  "Application of Issue
No. 98-5 to Certain  Convertible  Instruments",  requires the Company to compute
the Beneficial Conversion Feature (BCF) of the convertible debt. Therefore a BCF
of  approximately  $223,000  was  recorded as debt  discount and is amortized as
interest  expense over the five-year  life of the debenture.  Additionally,  the
Company  estimated the value of the warrant,  using the Black Scholes model,  at
approximately  $134,000 and recorded it as debt discount.  This amount will also
be amortized over the five-year life of the debenture. As of September 30, 2001,
the Company has recorded  approximately  $6,000 as interest  expense relating to
the amortization of the value of the warrants and BCF.

<PAGE>7

                      DBS INDUSTRIES, INC. AND SUBSIDIARIES
                          (A Development Stage Company)
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


NOTE 6 NET LOSS PER SHARE

     Basic net loss per share is computed  based on the weighted  average number
of common shares outstanding and excludes any potentially  dilutive  securities.
Options and warrants to purchase 14,184,688 shares of common stock with exercise
prices ranging from $.17 to $5.60 were  outstanding as of September 30, 2001 and
were excluded from the loss per share  calculation  for the three and nine month
periods then ended as they have the effect of decreasing loss per share. Options
and warrants to purchase  6,666,737  shares of common stock with exercise prices
ranging from $.39 to $5.60 were  outstanding  as of September  30, 2000 and were
excluded  from the loss per  share  calculation  for the  three  and nine  month
periods then ended as they have the effect of decreasing loss per share.

NOTE 7 EQUITY TRANSACTIONS

     Preferred Stock

     The Company's Certificate of Incorporation,  as amended in 2001, authorizes
the issuance of 10,000,000  shares of preferred  stock with par value of $0.0004
per  share.  The  Board of  Directors  of the  Company  is  authorized  to issue
preferred stock from time to time in series.  The Board is further authorized to
establish  such series,  to fix and  determine  the  variations  in the relative
rights and preferences,  and to allow for the conversion of preferred stock into
common stock.

     Common Stock

     The Company's Certificate of Incorporation,  as amended in 2001, authorizes
the issuance of  100,000,000  shares of common stock with a par value of $0.0004
per share.  Each record  holder of common stock is entitled to one vote for each
share held on all matters properly submitted to the stockholders for their vote.
Cumulative  voting  for  the  election  of  directors  is not  permitted  by the
Certificate of Incorporation.

     Equity Transactions with Non-Employees

     Preferred Stock Transactions

     During fiscal 2000,  the Company sold to accredited  investors an aggregate
of 35,897 shares of its Series A Convertible  Preferred  Stock at $30 per share,
for an aggregate  placement of $1,076,910.  The shares of preferred stock have a
liquidation  preference of $30.00 per share and were initially  convertible,  at
the option of the holder,  into ten shares of our common stock,  or at a rate of
$3.00 per common  share.  Per the  conversion  terms,  the  conversion  rate was
adjusted to a range  between  $1.6438 and $1.8625,  based upon the 5-day average
closing price of the  Company's  common stock three months after the shares were
issued,  because the  Company's  common stock was trading below $3.00 per share.
Commissions  were  paid  to one  placement  agent  in the  aggregate  amount  of
approximately  $7,000,  plus a warrant was issued in July 2000 to the  placement
agent to purchase  57,586 shares of common stock at the exercise  price of $3.00
per share. As of September 30, 2001,  25,899 shares of Series A Preferred Shares
remain  outstanding.  Accreted  dividends totaled $60,970 based on a 5% dividend
rate per annum.

<PAGE>8

                      DBS INDUSTRIES, INC. AND SUBSIDIARIES
                          (A Development Stage Company)
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


     On October 6, 2000, the Company received from accredited investors proceeds
of $400,000  from the sale in a private  placement of (1) 400 shares of Series B
Convertible  Preferred  Stock,  (2) warrants to purchase 83,660 shares of Common
Stock with an  exercise  price of $1.052 per share and (3)  warrants to purchase
83,660 shares of Common Stock with an exercise price of $1.434 per share. During
the first 180 days following October 6, 2000, the Series B Preferred Stock could
not be  converted;  and the Company had the right to redeem  these shares if the
Company repaid the purchase price plus an additional 5-7% depending on repayment
date,  plus  dividends  at a rate of 10% per  annum.  After  180 days  following
October 6, 2000, the Series B Preferred Stock are convertible  into Common Stock
at the lesser of (1)  approximately  $.96 per share  which was the  closing  bid
price at the time of the  purchase or (2) 80% of the average of the three lowest
closing bid prices of the Common  Stock for the 20-day  trading  period prior to
the conversion  date. The Company also has the obligation to register the Common
Stock  underlying the warrants and, after 180 days,  Common Stock underlying any
redeemed Series B Preferred Stock. For this transaction, an agent received a fee
of 40 shares of Series B Preferred Stock and warrants to purchase 120,000 shares
of Common Stock of the Company with an exercise price of $1.052 per share. As of
September 30, 2001, 440 shares of Series B Preferred Shares remain  outstanding.
Accreted dividends totaled $43,878 based on a 10% dividend rate per annum.

     On June 26, 2001, the Company's Series B preferred  stockholders  agreed to
modify their  preferred  stock  agreement  with the Company.  As a result of the
modification, the Company's requirement to file a registration statement for the
Series B equity was delayed  four months to August 4, 2001.  The Company has not
filed such  registration  statement as of September  30, 2001 and  therefore has
recorded  accretions of 5% monthly of the Series B preferred stock's liquidation
amount of  $400,000.  These  accretions  totaled  $38,000 in the  quarter  ended
September 30, 2001.

     The  preferred  stockholders  have the right to require  redemption  of the
Series B preferred stock amounts,  including  accretions,  90 days subsequent to
August 4, 2001 in the event  that the  registration  statement  is not  declared
effective at that time.

     In conjunction  with this  modification,  the Company agreed to reprice the
existing  287,322  warrants  issued on October 6, 2000 to the Series B preferred
stockholders  ranging  in price from  $1.0126  to $1.1342 to $.17 per share.  In
addition,  the Company issued to the Series B preferred stockholders warrants to
purchase  500,000  shares of the Company's  common stock at an exercise price of
$.17 per share. The fair value of $195,000 of such warrants was calculated using
the Black Scholes option model with the following  variables:  exercise price of
$.17, closing stock price on June 26, 2001 of $.44, life of warrants of 3 years,
volatility  of 150% and risk  free  interest  rate of  5.5%.  The  value of such
warrants was deemed to be analogous to a dividend to the preferred  stockholders
as prescribed  under the provisions of EITF 98-5,  "Accounting  for  Convertible
Securities  with  Beneficial  Conversion  Features  on  Contingently  Adjustable
Conversion  Ratios",  and was recognized at the date of issuance as the warrants
were immediately exercisable.


         Common Stock Transactions

     In January  2001, we received  proceeds in a private  placement of $100,000
from an accredited investor in exchange for 290,000 shares of Common Stock and a
warrant to  purchase  36,250  shares of Common  Stock  exercisable  at $0.70 per
share. No commissions were paid. The transaction was exempt from registration in

<PAGE>9

                      DBS INDUSTRIES, INC. AND SUBSIDIARIES
                          (A Development Stage Company)
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


reliance upon Section 4(2) of the Securities Act.

     In January  2001, we received  proceeds in a private  placement of $200,000
from an accredited investor in exchange for 400,000 shares of Common Stock and a
warrant to purchase  100,000  shares of Common  Stock  exercisable  at $1.00 per
share. In connection with this  transaction,  a finder's fee of $14,000 was paid
and a warrant was issued for 40,000 shares of Common Stock  exercisable at $1.00
per share.  The fair value of such  warrants  of $16,120  was  recorded as stock
issuance  costs and was  estimated on the date of grant using the Black  Scholes
model.  The  transaction  was exempt from  registration in reliance upon Section
4(2) of the Securities Act.

     In January  2001,  we received  proceeds in a private  placement of $50,000
from three  accredited  investors in exchange for 100,000 shares of Common Stock
and warrants to purchase 12,500 shares of Common Stock  exercisable at $1.00 per
share.  In connection with this  transaction,  a finder's fee of $3,500 was paid
and a warrant was issued for 5,000 shares of Common Stock  exercisable  at $1.00
per share.  The fair value of such  warrants  of $2,155  was  recorded  as stock
issuance  cost and was  estimated  on the date of grant using the Black  Scholes
model.  The  transaction  was exempt from  registration in reliance upon Section
4(2) of the Securities Act.

     In March 2001, we received proceeds in a private placement of $250,000 from
an  accredited  investor in exchange  for 568,000  shares of Common  Stock and a
warrant to purchase  113,636  shares of Common  Stock  exercisable  at $0.90 per
share.  An  additional  warrant  to  purchase  450,000  shares of  Common  Stock
exercisable  at $0.50  per share was  issued  to the same  accredited  investor,
relative  to the same  transaction,  in April  2001.  In  connection  with  this
transaction,  a finder's  fee of $17,500  was paid and a warrant  was issued for
56,818 shares of Common Stock  exercisable at $.90 per share.  The fair value of
such  warrants of $19,034 was recorded as stock  issuance cost and was estimated
on the date of grant using the Black Scholes model.  The  transaction was exempt
from registration in reliance upon Section 4(2) of the Securities Act.

     In March 2001, we issued 488,136 shares of Common Stock of the Company to a
consultant for services rendered for a total fair value of $216,000. This amount
was recorded as consulting expense. The transaction was exempt from registration
in reliance upon Section 4(2) of the Securities Act.

     On April 18, 2001, the Company granted to an accredited  investor a warrant
to purchase  5,000 shares of Common Stock of the Company at an exercise price of
$.50 per share in exchange for extending the period during which the Company was
required to file a registration statement with regard to securities purchased by
the investor on December 27, 2000. The  transaction was performed by the Company
in reliance upon the exemption from registration provided by Section 4(2) of the
Securities Act.

     In May 2001,  the  Company  received  six-month  loans from  three  current
stockholders  and a  director  of the  Company  in the  amount  of  $30,000.  In
consideration  for the loans,  the Company will pay interest at the rate of 6.5%
per annum, and has issued warrants to said stockholders and director to purchase
a total of 150,000  shares of restricted  Common Stock  exercisable at $0.25 per
share.  In June 2001,  the Company  received a six-month loan from a director of
the Company in the amount of $25,000. In consideration for the loan, the Company
will pay interest at the rate of 6.5% per annum, and has issued a warrant to the
director  to  purchase  a total of 125,000  shares of  restricted  Common  Stock
exercisable at $0.45 per share. The fair value of such warrants of approximately
$41,000 is being amortized as interest expense over the term of the loans.

<PAGE>10

                      DBS INDUSTRIES, INC. AND SUBSIDIARIES
                          (A Development Stage Company)
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


     In July 2001, the Company received approximately $375,000 from the Torneaux
Fund and accredited investors in connection with the sale of 1,909,458 shares of
Common Stock and 600,000  warrants to purchase  shares of the  Company's  Common
Stock at an exercise price of $.17 per share. In addition, the Company agreed to
reprice 73,791 existing  Torneaux Fund warrants ranging in price from $1.0126 to
$1.1342 to $.17 per share.  The sales were made to the  accredited  investors in
reliance by the Company upon the exemption from registration under Regulation S.
In connection  with this  drawdown,  on July 12, 2001,  450,000 shares of Common
Stock of the Company  were  issued to an  accredited  investor  in exchange  for
$10,000.  The  transaction  was  performed  by the Company in reliance  upon the
exemption from registration provided by Section 4(2) of the Securities Act.

     On July 9, 2001, the Company  granted a warrant to purchase an aggregate of
500,000 shares of its Common Stock to two  consultants as part of two agreements
dated July 9, 2001.  The warrants have an exercise  price of $.38 per share.  Of
these 500,000  warrants,  175,000 vested upon  performance of service during the
quarter  ended  September  30,  2001,  while the  vesting  of the  remainder  is
contingent upon the occurrence of future events.  The Company valued the 175,000
vested  warrants  using the Black  Scholes  model and  recorded the related fair
value of $54,250 as consulting expense.

     On July 27, 2001,  the Company  sold an aggregate of 600,000  shares of its
Common  Stock to three  accredited  investors.  The  stock was sold for $.60 per
share resulting in gross proceeds to the Company of $360,000.  In addition,  the
Company issued  warrants to purchase an aggregate of 59,999 shares of its Common
Stock at $.60 per share.  These  transactions  were  performed by the Company in
reliance upon the exemption  from  registration  provided by Section 4(2) of the
Securities Act.

     On August 1, 2001, the Company  granted a warrant to purchase 62,000 shares
of its Common  Stock to a  consultant  as part of an  agreement  dated August 1,
2001.  The  warrant  has an exercise  price of $.77 per share.  Of these  62,000
warrants,  25,000 vested upon  performance  of service  during the quarter ended
September 30, 2001,  while the vesting of the  remainder is contingent  upon the
occurrence of a future  event.  The Company  valued the 25,000  vested  warrants
using the Black  Scholes model and recorded the related fair value of $17,000 as
consulting expense.

     On August 9, 2001,  warrants to purchase  100,000 shares of Common Stock of
the Company  exercisable  at $.62 per share were issued to two  consultants  for
services  rendered.  The Company  valued the 100,000  vested  warrants using the
Black Scholes model and recorded the related fair value of $55,000 as consulting
expense.

     On August 10, 2001, warrants to purchase a total of 50,000 shares of Common
Stock  of  the  Company  exercisable  at  $.67  per  share  were  issued  to two
consultants for services rendered. The Company valued the 50,000 vested warrants
using the Black  Scholes model and recorded the related fair value of $29,500 as
consulting expense.

     On August 16, 2001,  the Company sold an aggregate of 425,531 shares of its
Common Stock to two accredited investors.  The stock was sold for $.47 per share
resulting in gross proceeds to the Company of $200,000. In addition, the Company
issued warrants to purchase 69,148 shares of its Common Stock at $.47 per share.
These  transactions were performed by the Company in reliance upon the exemption
from registration provided by Section 4(2) of the Securities Act.

<PAGE>11

                      DBS INDUSTRIES, INC. AND SUBSIDIARIES
                          (A Development Stage Company)
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


     On August 19, 2001,  a warrant to purchase  9,722 shares of Common Stock of
the  Company  exercisable  at $.59 per share  was  issued  to a  consultant  for
services rendered.  The Company valued the 9,722 vested warrants using the Black
Scholes  model and  recorded  the  related  fair  value of $4,958 as  consulting
expense.

     On August 20,  2001,  the  Company  granted a warrant to  purchase  250,000
shares of its Common Stock to a consultant  for services  rendered.  The warrant
has an exercise  price of $.50 per share.  The Company valued the 250,000 vested
warrants  using the Black  Scholes  model and recorded the related fair value of
$150,000 as consulting expense.

     Also on August 20,  2001,  the Company  sold  500,000  shares of its Common
Stock to an accredited investor. The stock was sold for $.50 per share resulting
in gross proceeds to the Company of $250,000. In addition,  the Company issued a
warrant to purchase  300,000  shares of its Common Stock at $.50 per share.  The
transaction  was performed by the Company in reliance  upon the  exemption  from
registration provided by Section 4(2) of the Securities Act.

     On August 29, 2001,  the Company sold 94,203  shares of its Common Stock to
an accredited investor. The stock was sold for $.69 per share resulting in gross
proceeds to the Company of $65,000. In addition, the Company issued a warrant to
purchase 9,420 shares of its Common Stock at $.69 per share. The transaction was
performed  by the  Company in  reliance  upon the  exemption  from  registration
provided by Section 4(2) of the Securities Act.

     On September 7, 2001,  the Company issued 333,333 shares of Common Stock to
a  consultant  for services  rendered  for a total fair value of  $216,000.  The
Company recorded this amount as consulting expense.

Equity Transactions with Employees

     In January  2001,  6,375 shares of Common  Stock of the Company,  valued at
$10,000, were issued to a Director for service on the Board.

     In January 2001, the Company received approximately $3,150 from the sale of
stock to an employee pursuant to the 1999 Employee Stock Purchase Plan.

     In February 2001, stock options to purchase 750,000 shares of the Company's
Common Stock were granted to seven  employees in  accordance  with the Company's
2000 Stock Option Plan.

     In March 2001, the Company  received  proceeds of $47,700 from a terminated
employee for the exercise of options to purchase  90,000 shares of the Company's
Common Stock.

     On July 9, 2001, the Company issued 43,411 shares of Common Stock valued at
$18,000 to two Directors as payment for service on the Board of Directors.  This
amount was recorded as compensation expense.

     On July 17, 2001, the Company received  approximately  $4,350 from the sale
of 12,083  shares of Common  Stock to  employees  pursuant to the 1999  Employee
Stock Purchase Plan for the period ended June 30, 2001.

<PAGE>12

                      DBS INDUSTRIES, INC. AND SUBSIDIARIES
                          (A Development Stage Company)
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


     On July 27,  2001,  the  Company  received  proceeds  of  $16,500  from the
exercise of options by a Director  under the 1996 Stock  Option Plan to purchase
27,500 shares of the Company's Common Stock.

     On  August  7,  2001,  in order to  continue  to retain  and  motivate  the
employees of the Company, non-plan,  non-qualified stock options were granted to
employees to purchase a total of 2,362,505 shares of Common Stock of the Company
at current market value of $.77 per share.

     On August 16, 2001, the Company sold 53,191 shares of its Common Stock to a
Director.  The stock was sold for $.47 per share  resulting in gross proceeds to
the Company of $25,000.  In addition,  the Company  issued a warrant to purchase
5,319 shares of its Common Stock at $.47 per share.

NOTE 8  RECENT ACCOUNTING PRONOUNCEMENTS

     In July 2001 the Financial  Accounting  Standards  Board (FASB) issued SFAS
No. 141 "Business  Combinations" and SFAS No. 142 "Goodwill and Other Intangible
Assets." SFAS No. 141 requires  business  combinations  initiated after June 30,
2001 to be accounted for using the purchase  method of accounting,  and broadens
the criteria for recording  intangible  assets separate from goodwill.  Recorded
goodwill and  intangibles  will be  evaluated  against this new criteria and may
result in certain  intangibles  being subsumed into goodwill,  or alternatively,
amounts  initially  recorded  as  goodwill  may  be  separately  identified  and
recognized   apart  from   goodwill.   SFAS  No.  142  requires  the  use  of  a
nonamortization   approach  to  account  for  purchased   goodwill  and  certain
intangibles.  Under a nonamortization approach, goodwill and certain intangibles
will not be amortized into results of operations,  but instead would be reviewed
annually for  impairment  and written down and charged to results of  operations
only in the  periods  in which  the  recorded  value  of  goodwill  and  certain
intangibles is more than its fair value. The provisions of each statement, which
apply to goodwill and intangible assets acquired prior to June 30, 2001, will be
adopted by the  Company on January  1,  2002.  The  Company  does not expect the
adoption of these  accounting  standards  will have a significant  impact on its
financial position, results of operations or cash flows.

     In  October  2001,  the FASB  issued  SFAS  No.  144,  "Accounting  for the
Impairment or Disposal of Long-Lived  Assets".  SFAS No. 144 supersedes SFAS No.
121,  "Accounting  for the  Impairment of Long-Lived  Assets and for  Long-Lived
Assets to Be  Disposed  Of" and  applies  to all  long-lived  assets  (including
discontinued  operations) and consequently  amends  Accounting  Principles Board
Opinion  No. 30 (APB 30),  "Reporting  Results of  Operations  -  Reporting  the
Effects of Disposal of a Segment of a Business".

     SFAS No. 144 develops one accounting  model (based on the model in SFAS No.
121) for  long-lived  assets  that  are to be  disposed  of by sale,  as well as
addresses  the  principal  implementation  issues.  SFAS No. 144  requires  that
long-lived assets that are to be disposed of by sale be measured at the lower of
book value or fair value less cost to sell. That requirement eliminates APB 30's
requirement that discontinued  operations be measured at net realizable value or
that  entities  include  under   "discontinued   operations"  in  the  financial
statements   amounts  for   operating   losses  that  have  not  yet   occurred.
Additionally,  SFAS No. 144  expands  the scope of  discontinued  operations  to

<PAGE>13

                      DBS INDUSTRIES, INC. AND SUBSIDIARIES
                          (A Development Stage Company)
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


include  all  components  of  an  entity  with   operations   that  (1)  can  be
distinguished  from the rest of the entity and (2) will be  eliminated  from the
ongoing  operations  of the  entity in a disposal  transaction.  SFAS No. 144 is
effective  for  financial  statements  issued for fiscal years  beginning  after
December 15, 2001.  The Company is in the process of  evaluating  the  potential
impact  the  adoption  of SFAS No. 144 will have on its  consolidated  financial
position, results of operations or cash flows.

NOTE 9 SUBSEQUENT EVENTS

     On October 2, 2001,  the Company  issued 75,298 shares of Common Stock to a
terminated  employee in accordance with his  termination  settlement for a total
fair value of $37,649.

<PAGE>14


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

     This  discussion,  other than the  historical  financial  information,  may
consist of  forward-looking  statements  that involve  risks and  uncertainties,
including quarterly and yearly fluctuations in results,  the timely availability
of new communication  products, the impact of competitive products and services,
and the other risks  described  in the  Company's  SEC reports,  including  this
report.  These  forward-looking  statements speak only as of the date hereof and
should not be given undue reliance.  Actual results may vary  significantly from
those projected.

     The Company undertakes no obligation to publicly update or revise any
forward-looking statements, whether as a result of new information, future
events, or otherwise.

General

     We were formed in Delaware in 1989 and our principal  executive offices are
located in Mill Valley, California. We completed a share exchange reorganization
with DBS  Network in 1992.  Since  1994,  our focus has been to pursue  business
opportunities in satellite telecommunications.  We began this pursuit originally
by purchasing interests in direct broadcast satellite licensees. During 1997, we
sold our last indirect interest in a direct broadcast satellite license.

     We formed E-SAT, Inc., a Colorado corporation, in partnership with EchoStar
Communications  Corp. in November 1994 for purposes of applying for a Little LEO
FCC license.  On March 31, 1998, the FCC issued a license to E-SAT to launch and
operate a Little LEO satellite  system.  Pursuant to the agreement  entered into
with  EchoStar in July 1999, we now hold 80.1% of the capital stock of E-SAT and
EchoStar holds the remaining 19.9%.

     On June 2, 2001 we signed a seven year operator-to-operator  agreement with
Iridium  Satellite LLC to provide remote  monitoring and control services to the
energy industry.  Through this agreement, we hope to begin providing specialized
satellite-based data services using Iridium's  commercially  available satellite
network by late 2001,  significantly  ahead of our planned  satellite  launch in
late 2002.

     On June 14,  2001 we  demonstrated  to  California  state  officials  how a
satellite-based  energy control system could curtail electricity  consumption by
temporarily  deactivating  air  conditioning  units  located on the  rooftops of
California shopping malls.  Shortly thereafter,  we commenced  negotiations with
the State of California to provide satellite-based energy management services.

     If we are successful in our  discussions  with the State of California,  we
hope to begin generating  revenues as early as the final quarter of fiscal 2001.
Until then, and on a continuing basis if we are not successful,  we will seek to
satisfy our short term cash requirements by raising new equity and debt capital,
as well as by seeking the exercise of previously issued third-party warrants and
stock options.

Plan of Operations

     Bankruptcies   in   the   satellite    sector   and   sharp   declines   in
telecommunications and technology sectors have impeded our financing efforts and
required us to modify our  business  strategy.  Our current  strategy is to take
advantage  of the  telecommunications  downturn to secure  low-cost  capacity on
existing  satellite  systems  and  combine  it with  the  energy  communications
technologies  we  developed  over the  past  ten  years,  with an  objective  of
achieving profitability and proving our market potential in fiscal 2002.

<PAGE>15

     Throughout the year, we have focused on this strategy,  reducing  operating
expenses  and  concentrating  our efforts on raising  short-term  and  strategic
financing,  while  establishing  a  current  operating  business  utilizing  the
existing satellite capacity held by Iridium.

     At the same time, we have  continued our efforts to reduce the overall cost
of the E-SAT  system and to identify and commence  negotiations  with  strategic
partners who may serve as both customers and financial partners for our proposed
satellite-based energy management systems. We continue our plan to construct and
deploy  a  low-cost  global   satellite  system  utilizing  our  E-Sat  FCC  and
international licenses.

     The current circumstances in the satellite and telecommunications industry,
as well as in the  financial  markets,  particularly  in relation to  technology
stocks, have led to delays in our ability to raise short-term operating capital.
Our right to raise  capital by selling  common  shares to the Torneaux  Fund has
been  limited by our stock  price,  which,  during the first  three  quarters of
fiscal 2001, has been below the contractual minimum threshold price of $1.00 per
share.  Any sale of shares to the Torneaux  Fund at prices below that  threshold
price requires  Torneaux's  approval.  As a result of deficiencies in short-term
capital raising, we have delayed payment to many of our vendors,  and certain of
our employees.  As of September 30, 2001, our cash and cash equivalents amounted
to $136,484 while our current liabilities,  including amounts owed to employees,
amounted to  $2,099,753.  Throughout  the year,  we have  continued  to focus on
reducing  operating   expenses  while   concentrating  our  efforts  on  raising
short-term and strategic financing and establishing a current operating business
utilizing the existing satellite capacity held by Iridium.

     Until we have begun to generate  positive cash flow through our operations,
we will continue to seek to satisfy our cash  requirements by raising new equity
and debt  capital,  as well as by seeking  the  exercise  of  previously  issued
third-party  warrants  and stock  options.  The  issuance of  additional  equity
securities by us will result in significant  dilution of the equity interests of
the current stockholders.

Results of Operations

Revenues

     The Company remains in the development  stage and did not generate revenues
in the three and nine-month  periods ended  September 30, 2001 and September 30,
2000.

Operating Expenses

     Total  operating  expenses for the quarters  ended  September  30, 2001 and
2000, were $1,206,049 and $2,800,420, respectively. Total operating expenses for
the nine  months  ended  September  30,  2001 were  $2,590,102  as  compared  to
$6,355,388  for the nine  months  ended  September  30,  2000.  The  decrease is
attributable to the cost reduction plan put into effect by management in October
2000 and continued through October 2001. This plan included the reduction of our
Marketing and our Research and  Development  staff in November 2000 as well as a
significant reduction in General and Administration expenses.

<PAGE>16

Marketing and Sales Expenses

     Marketing and sales expenses for the three months ended  September 30, 2001
and 2000  were  $79,463  (6.6% of  operating  expenses)  and  $235,288  (8.4% of
operating  expenses),  respectively.  Marketing and sales  expenses for the nine
months  ended  September  30,  2001 and 2000 were  $166,224  (6.4% of  operating
expenses) and $902,260 (14.2% of operating expenses), respectively. The decrease
of $736,036  was due to the  reduction of our  marketing  and sales group in the
fourth quarter of fiscal 2000 in order to reduce our cash expenditures.

General and Administrative Expenses

     General and  administrative  expenses include the costs of finance,  legal,
administrative   and  general   management   functions  of  DBSI.   General  and
administrative  expenses for the three months ended  September 30, 2001 and 2000
were $1,126,586 (93.4% of operating expenses) and $2,383,578 (85.1% of operating
expenses), respectively. General and administrative expenses for the nine months
ended September 30, 2001 and 2000 were $2,422,746 (93.5% of operating  expenses)
and  $5,033,771  (79.2% of operating  expenses),  respectively.  The decrease of
$2,611,025  was  primarily  due the  cost  reduction  plan  put in place by DBSI
management in October 2000.  The  cost-savings  measures  adopted by the Company
resulted in a decrease in personnel and travel costs of $602,000,  a decrease in
legal fees of $184,000,  and a decrease in consulting fees of $1,850,000  during
the nine months ended September 30, 2001.

Research and Development Expenses

     Research and  development  expenses  represent  the  non-capitalized  costs
incurred  to develop our  system.  Research  and  development  expenses  for the
quarters ended  September 30, 2001 and 2000 were $0 and $181,554,  respectively.
Research and  development  expenses for the nine months ended September 30, 2001
and 2000 were $1,132 and $419,357,  respectively. The decrease of $418,225 was a
result of the cost  reduction  plan put in place by DBSI  management  in October
2000.

Non-Cash Employee Stock Compensation

     Prior to January 1, 2000,  in order to attract  and retain  personnel,  the
Company granted options to purchase 2,033,106 shares of Common Stock at exercise
prices  ranging from $0.39 to $2.81 to several  employees.  Some of the exercise
prices  were  below the fair  market  value of the  Common  Stock at the time of
grant,  resulting in deferred stock  compensation of $2,490,337.  This amount is
being  amortized  over the  vesting  periods of the  granted  options,  and as a
result,  $112,532  and  $195,790  were  recognized  as non-cash  employee  stock
compensation  expense  in the  quarters  ended  September  30,  2001  and  2000,
respectively. For the nine months ended September 30, 2001 and 2000, the Company
recognized   non-cash  stock   compensation  costs  of  $337,596  and  $690,345,
respectively.

     In August 2001,  in order to continue to retain and motivate the  employees
of the Company, non-plan,  non-qualified stock options were granted to employees
to purchase a total of  2,362,505  shares of Common Stock of the Company at $.77
per share. Because these shares were issued at current market value, no non-cash
stock compensation costs were recognized by the Company.

<PAGE>17

Net Loss

     Our net  loss  for the  quarters  ended  September  30,  2001  and 2000 was
$1,280,141  and  $2,800,150,  respectively.  Net loss for the nine months  ended
September 30, 2001 was  $2,689,147  compared to a net loss of $6,354,912 for the
nine months ended  September 30, 2000.  The decrease in net loss was due to cost
reductions  made  by  DBSI's   management  while  we  continue  to  seek  system
construction financing.

Liquidity and Capital Resources

     The Company has been in the  development  stage since its inception and has
not  recognized  any  significant   revenues.   Our  monthly  expenses  averaged
approximately  $402,000  per month  during  the third  quarter  of fiscal  2001,
compared to $933,000  during the third  quarter of fiscal 2000.  However,  if we
succeed in raising  sufficient  financing to implement  our  long-term  business
strategies,  expenses  will  increase  in the final  quarter of fiscal  2001 and
continue to increase during fiscal 2002 with the demands of increased efforts in
both systems and business  development.  Additional capital will be necessary to
expand operations or continue current  operations,  which will result in further
dilution to our stockholders

     During the nine months ended September 30, 2001, we received  proceeds from
the sale of common stock totaling approximately $1,967,000 before stock issuance
costs of approximately $88,200. These transactions include private placements of
3,481,107  shares  of the  Company's  common  stock for an  aggregate  amount of
$1,510,000,  draw down of the equity line  facility  with the  Torneaux  Fund of
1,459,458  shares of the  Company's  common stock for a total of  $365,000,  and
proceeds in the amount of  approximately  $64,000  from the  exercise of 117,500
options and warrants.  The proceeds from these  transactions were used primarily
to fund our ongoing operations and investing activities.

     Also during the nine months ended September 30, 2001, we received  proceeds
from the issuance of convertible  debentures in the amount of $500,000 (see Note
5 to the financial statements).

     We had cash and cash  equivalents  of $136,484 as of September 30, 2001 and
$389,319  as of  December  31,  2000.  We  had a  negative  working  capital  of
$1,900,141 as of September 30, 2001,  compared to a negative  working capital of
$2,216,321 as of December 31, 2000.

     Net cash used in operating  activities for the nine months ended  September
30, 2001 was  $2,181,801  as compared to  $1,687,205  for the nine months  ended
September 30, 2000. This resulted from a net loss of $2,689,148 offset primarily
by common  stock  issued for  consulting  services  in the  amount of  $460,000,
non-cash stock  compensation of $337,596,  warrants issued for services rendered
in the amount of $351,658,  and increased by a reduction in accounts  receivable
and other  assets of $30,627  and a reduction  in  accounts  payable and accrued
liabilities of $618,266.

     Net cash used in investing  activities for the nine months ended  September
30, 2001,  was $504,876 as compared to $156,848 for the quarter ended  September
30,  2000.  This  resulted  primarily  from costs  incurred  to develop the load
curtailment system amounting to approximately $500,000.

     Net  cash  provided  by  financing  activities  for the nine  months  ended
September 30, 2001,  was  $2,433,842  compared to $1,585,395 for the nine months
ended September 30, 2000. Net cash provided by financing  activities  during the
nine months ended  September  30, 2001 was related to the net proceeds  from the
sale of units of the  Company's  common  stock,  the  exercise  of  options  and
warrants by our stockholders,  and to the issuance of convertible  debentures in
the amount of $500,000.

<PAGE>18


     In 1996, we received  milestone  payments under the terms of a $1.2 million
purchase order for 10,000  satellite radio units from ABB. Under this agreement,
the Company was  eligible to receive up to $500,000  towards  development  costs
upon meeting the milestone  requirements of the contract.  We met the first four
milestones  of the  contract  and have  received  $400,000 in cash.  The parties
agreed to suspend all development  under this agreement due to the expiration of
the  Company's  agreement  for the use of the Argos System on December 31, 1997,
and the subsequent  limits placed on future  commercial use of the Argos System.
Therefore,  such milestone  payments could be subject to refund,  in whole or in
part.

Risks and Uncertainties Affecting Future Operating Results

     A number of factors could cause future  results to differ  materially  from
historic  results.  We are a  development  stage company and as of September 30,
2001,  we had no  customers.  Given our  limited  operating  history and lack of
revenues,  no  assurances  can be given  that we will be able to  construct  and
implement our systems,  and, if  implemented,  to develop a  sufficiently  large
customer base to be profitable.

     While  we  continue  the  strategic  fund-raising  efforts  (see  "Plan  of
Operations") that are necessary to our ultimate  success,  our continued cost of
operations  significantly  exceeds our short-term capital. We currently estimate
that we may require up to approximately  $18 million to complete the engineering
and  deployment  of the  system  currently  under  discussion  with the State of
California.  Given the risks and  uncertainties in this  undertaking,  we cannot
assure you that actual cash requirements will not exceed our estimates. Further,
the current state of capital  markets is uncertain,  and is even more  difficult
for telecommunications  companies, and we cannot assure you that we will be able
to raise the funds required to complete the development and  installation of the
system,  or that the timing and terms of any such financing will be favorable to
us. If we are unable to obtain a  sufficient  amount of  financing  necessary to
complete the system on commercially  acceptable  terms,  our business and future
success will be severely and  adversely  affected.  Unless and until we begin to
generate  revenues,  we will continue to generate  further  operating losses and
negative  net cash  flow  both for  engineering  the  system  and for our  daily
operations.

     The proposed  contract with the State of California  for energy  management
services  is subject to a number of risks.  Some of these  risks are that we may
not receive this contract,  that we may receive the contract from one agency but
another agency could challenge it, that the state may not pay in a timely manner
or at all,  that the state may not grant a blackout  exemption  which we believe
will be  required  by shopping  malls to  participate  in agreeing to have their
electricity  usage  curtailed,   that  even  with  such  a  blackout   exemption
participants  may not sign up, that we may be unable to install  our  equipment,
that our system design may be more costly than anticipated or may be flawed, and
that the system may not work correctly.

     In order to comply  with  development  milestones  required  by E-SAT's FCC
license, we have entered into various development  contracts including satellite
construction  contracts with Alcatel Space Industries and Surrey Satellite and a
satellite  launch  contract  with  Eurockot.   Entering  into  these  and  other
development and service contracts are critical to the overall development of the
E-SAT System.  The Alcatel  satellite  construction and launch contract requires
progress  payments of approximately  $60.0 million over a 12 month period. We do
not,  at this  time,  anticipate  making  these  progress  payments.  Failure to
maintain these contracts would ultimately render them void and, if we are unable
to arrange  acceptable  alternatives,  would  adversely  affect  our  ability to
construct the E-SAT System.

<PAGE>19

     Any  cancellation  or termination of these  contracts  could cause delay in
construction  of the  E-SAT  system  that  could  result  in the loss of the FCC
license for failure to meet the FCC  milestones  of March 2002 for  building two
satellites  and  September  2002 for  launching  two  satellites.  Even if these
contracts are brought into effect,  there may be insufficient  time available to
meet these  milestones,  and there can be no assurance  that the FCC will extend
these milestone dates.

     Other factors, in addition to those identified in this filing,  which could
affect future results would include the  dependence  and  uncertainty of utility
companies or other commercial  customers to utilize our data messaging  service,
the reliance on third parties for the  advancement of the design,  manufacturing
and  marketing  of our  systems,  the  fulfillment  of contract  obligations  by
suppliers and other third parties,  the availability of qualified  personnel and
equipment, delays in the receipt of or failure to receive necessary governmental
approvals,  obtaining  permits  and  licenses  or  renewals  thereof,  risks and
uncertainties  relating  to  general  economic  and  political  conditions  both
domestically and internationally,  changes in the law and regulations  governing
our activities in LEO satellite technology,  unscheduled delays or technological
difficulties,  satellite launch risks, potential satellite malfunction,  limited
availability of insurance,  marketing  conditions,  competition,  and other risk
factors related to our business. Readers of this filing are cautioned not to put
undue  reliance  on "forward  looking"  statements  that are,  by their  nature,
uncertain as reliable indicators of future performance.

     Successfully  addressing the factors  discussed above is subject to various
risks described in this report,  as well as other factors that generally  affect
the market for stocks of development  stage,  high technology  companies.  These
factors could affect the price of our stock and could cause such stock prices to
fluctuate significantly over relatively short periods of time.

<PAGE>20

PART II

OTHER INFORMATION

ITEM 1.  LEGAL PROCEEDINGS

         None.

ITEM 2.   CHANGES IN SECURITIES

          In July 2001,  the Company  received  approximately  $375,000 from the
     Torneaux  Fund and  accredited  investors  in  connection  with the sale of
     1,909,458 shares of Common Stock and 600,000 warrants to purchase shares of
     the  Company's  Common  Stock at an  exercise  price of $.17 per share.  In
     addition,  the Company  agreed to reprice  73,791  existing  Torneaux  Fund
     warrants  ranging in price from  $1.0126 to $1.1342 to $.17 per share.  The
     sales were made to the accredited investors in reliance by the Company upon
     the exemption from registration under Regulation S. In connection with this
     drawdown,  on July 12, 2001,  450,000 shares of Common Stock of the Company
     were  issued  to an  accredited  investor  in  exchange  for  $10,000.  The
     transaction  was  performed by the Company in reliance  upon the  exemption
     from registration provided by Section 4(2) of the Securities Act.

          On July 9,  2001,  the  Company  granted  a  warrant  to  purchase  an
     aggregate of 500,000 shares of its Common Stock to two  consultants as part
     of two agreements dated July 9, 2001. The warrants has an exercise price of
     $.38 per share. Of these 500,000 warrants,  175,000 vested upon performance
     of service during the quarter ended  September 30, 2001,  while the vesting
     of the remainder is contingent  upon the occurrence of future  events.  The
     Company  valued the 175,000  vested  warrants using the Black Scholes model
     and recorded the related fair value of $54,250 as consulting expense.

          Also,  on July 9, 2001,  the Company  issued  43,411  shares of Common
     Stock valued at $.4156 per share to two Directors as payment for service on
     the Board of Directors.  In  accordance  with the  director's  compensation
     plan, the price of the shares was based upon the average  closing price for
     the first five trading days of the-six  month period  ending June 30, 2001.
     As a result of this  transaction,  $18,000  was  recorded  as  compensation
     expense.

          On July 17, 2001, the Company received  approximately  $4,350 from the
     sale of 12,083  shares of Common  Stock to  employees  pursuant to the 1999
     Employee Stock Purchase Plan for the period ended June 30, 2001.

          On July 27, 2001,  the Company sold an aggregate of 600,000  shares of
     its Common Stock to three accredited investors. The stock was sold for $.60
     per share  resulting  in gross  proceeds  to the  Company of  $360,000.  In
     addition,  the Company  issued  warrants to purchase an aggregate of 59,999
     shares of its  Common  Stock at $.60 per  share.  These  transactions  were
     performed by the Company in reliance upon the exemption  from  registration
     provided by Section 4(2) of the Securities Act.

          On August 1, 2001,  the Company  granted a warrant to purchase  62,000
     shares of its Common  Stock to a consultant  as part of an agreement  dated
     August 1, 2001.  The warrant has an  exercise  price of $.77 per share.  Of
     these 62,000 warrants, 25,000 vested upon performance of service during the

<PAGE>21


     quarter  ended  September  30, 2001,  while the vesting of the remainder is
     contingent  upon the  occurrence of a future event.  The Company valued the
     25,000  vested  warrants  using the Black  Scholes  model and  recorded the
     related fair value of $17,000 as consulting expense.

          On August 7, 2001,  in order to  continue to retain and  motivate  the
     employees  of the  Company,  non-plan,  non-qualified  stock  options  were
     granted to  employees  to  purchase a total of  2,362,505  shares of Common
     Stock of the Company at current market value of $.77 per share.

          On August 9, 2001, warrants to purchase 100,000 shares of Common Stock
     of the Company exercisable at $.62 per share were issued to two consultants
     for services rendered. The Company valued the 100,000 vested warrants using
     the Black  Scholes  model and recorded the related fair value of $55,000 as
     consulting expense.

          On August 10, 2001,  warrants to purchase a total of 50,000  shares of
     Common  Stock of the Company  exercisable  at $.67 per share were issued to
     two consultants for services rendered. The Company valued the 50,000 vested
     warrants  using the Black Scholes model and recorded the related fair value
     of $29,500 as consulting expense.

          On August 16, 2001, the Company sold an aggregate of 478,722 shares of
     its Common Stock to two accredited investors and a Director.  The stock was
     sold for $.47 per share  resulting  in gross  proceeds  to the  Company  of
     $225,000.  In  addition,  the Company  issued  warrants to purchase  74,467
     shares of its  Common  Stock at $.47 per  share.  These  transactions  were
     performed by the Company in reliance upon the exemption  from  registration
     provided by Section 4(2) of the Securities Act.

          On August 19, 2001, a warrant to purchase 9,722 shares of Common Stock
     of the Company exercisable at $.59 per share was issued to a consultant for
     services  rendered.  The Company valued the 9,722 vested warrants using the
     Black  Scholes  model and  recorded  the  related  fair  value of $4,958 as
     consulting expense.

          On August 20, 2001, the Company granted a warrant to purchase  250,000
     shares of its Common  Stock to a consultant  as part of an agreement  dated
     August 20, 2001. The warrant has an exercise  price of $.50 per share.  The
     transaction was exempt from  registration in reliance upon Sec. 4(2) of the
     Securities Act.

         Also on August 20, 2001, the Company sold 500,000 shares of its Common
     Stock to an  accredited  investor.  The  stock  was sold for $.50 per share
     resulting in gross  proceeds to the Company of $250,000.  In addition,  the
     Company issued a warrant to purchase  300,000 shares of its Common Stock at
     $.50 per share.  The  transaction  was performed by the Company in reliance
     upon the  exemption  from  registration  provided  by  Section  4(2) of the
     Securities Act.

          On August 29, 2001, the Company sold 94,203 shares of its Common Stock
     to an accredited investor.  The stock was sold for $.69 per share resulting
     in gross  proceeds  to the  Company of $65,000.  In  addition,  the Company
     issued a warrant to purchase  9,420  shares of its Common Stock at $.69 per
     share.  The  transaction  was performed by the Company in reliance upon the
     exemption from registration provided by Section 4(2) of the Securities Act.

          On August 31,  2001,  the Company  sold to an  accredited  investor an

<PAGE>22

     aggregate of $500,000 principal amount of Convertible Debentures due August
     31, 2006,  together with warrants to purchase up to an aggregate of 250,000
     shares of Common  Stock of the  Company at an  exercise  price of $1.06 per
     share. The Company shall accrue simple interest on the $500,000 at the rate
     of 6% per annum.  The principal and accrued  interest are convertible  into
     shares  of  Common  Stock  of the  Company  at  the  lower  of (i) a  fixed
     conversion  price  equal  to  $.98  (maximum  conversion  price)  or (ii) a
     variable conversion price equal to 85% of the market price, but in no event
     lower than $.21 per share (minimum  conversion  price).  In connection with
     this  transaction,  a  structuring  fee of $30,000  and a  finder's  fee of
     $15,000 were paid. The transaction was performed by the Company in reliance
     upon the  exemption  from  registration  provided  by  Section  4(2) of the
     Securities Act.

          On  September 7, 2001,  the Company  issued  333,333  shares of Common
     Stock to a  consultant  for  services  rendered  for a total  fair value of
     $216,000. The transaction was performed by the Company in reliance upon the
     exemption from registration provided by Section 4(2) of the Securities Act.


ITEM 6.      EXHIBITS AND REPORTS ON FORM 8-K

(10.67) Securities Purchase Agreement between Azure Capital Holdings LLC and DBS
        Industries dated August 31, 2001.

(10.68) 6%  Convertible  Debenture  between Azure  Capital  Holdings LLC and DBS
        Industries dated August 31, 2001.


<PAGE>23


SIGNATURES

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

                                               DBS INDUSTRIES, INC.



DATE:  November 14, 2001                       By:   /s/ FRED W. THOMPSON
                                                     --------------------
                                                     FRED W. THOMPSON
                                                     President

                                               By:   /s/ STANTON C. LAWSON
                                                     ---------------------
                                                     STANTON C. LAWSON
                                                     Chief Financial Officer