U.S. Securities and Exchange Commission
                             Washington, D.C. 20549

                                  FORM 10-QSB/A
                                 AMENDMENT NO. 1

         [X]     QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
                 SECURITIES EXCHANGE ACT OF 1934 for the quarterly period ended
                 March 31, 2002

         [ ]     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 May 31, 2002:      33,465,653

Transitional Small Business Disclosure Format:       Yes: ___          No   X
                                                                          -----



<PAGE>




                                      INDEX


                                                                            PAGE

PART I - FINANCIAL INFORMATION..... ...........................................1

ITEM 1.  Financial Statements..................................................1

Condensed Consolidated Balance Sheets (unaudited):
As of March 31, 2002 and December 31, 2001.....................................1

Condensed Consolidated Statements of Operations (unaudited):
For the Three Months Ended March 31, 2002 and March 31, 2001
and for the period from April 25, 1990 (Inception) to March 31, 2002...........2

Condensed Consolidated Statements of Cash Flows (unaudited):
For the Three Months Ended March 31, 2002 and March 31, 2001
and for the period from April 25, 1990 (Inception) to March 31, 2002 ..........3

Notes to Condensed Consolidated Financial Statements........................4-12

ITEM 2.   Management's Discussion and Analysis of Financial Condition
          and Results of Operations........................................14-23

PART II - OTHER INFORMATION

ITEM 1.   Legal Proceedings.. ................................................24

ITEM 2.   Recent Sales in Unregistered Securities.............................24

ITEM 4.   Submission of Matters to a Vote of Security Holders.................26

ITEM 6.   Exhibits and Reports on Form 8-K....................................26



<PAGE>





                                     PART I

                              FINANCIAL INFORMATION

ITEM 1.  FINANCIAL STATEMENTS
                      DBS INDUSTRIES, INC. AND SUBSIDIARIES
                          (A Development Stage Company)
                      CONDENSED CONSOLIDATED BALANCE SHEETS
                                   (Unaudited)
<TABLE>
<CAPTION>
<S>                                                                                    <C>              <C>

                                                              ASSETS                March 31,       December 31,
                                                                                      2002              2001
Current assets:
                                                                                  -------------    --------------
     Cash and cash equivalents                                                    $      87,748    $      20,494
     Prepaid and other current assets                                                   119,661           51,981
                                                                                  -------------    -------------
       Total current assets                                                             207,409           72,475
                                                                                  -------------    -------------

Furniture and equipment, net                                                             25,359           27,999
License and satellite construction costs                                             14,628,873       14,623,873
                                                                                  -------------    -------------

       Total other assets                                                            14,654,232       14,651,872
                                                                                  -------------    -------------

              Total assets                                                        $  14,861,641    $  14,724,347
                                                                                  =============    =============

                             Liabilities, Mandatorily Redeemable Preferred Stock, and Stockholders' Equity
Current liabilities:
     Accounts payable                                                             $   2,621,954    $   2,253,859
     Customer advances                                                                  400,000          400,000
     Accrued compensation                                                               992,745          563,710
     Related party loans                                                                 76,252          105,000
     Warrants                                                                           559,795          342,956
     Other liabilities                                                                  150,145           94,825
                                                                                  -------------    -------------
       Total current liabilities                                                      4,800,891        3,760,350
                                                                                  -------------    -------------

Non-current liabilities:
     Convertible debentures                                                             175,009          167,430
                                                                                  --------------   -------------

              Total liabilities                                                      $4,975,900       $3,927,780
                                                                                   ------------   --------------

Series B Mandatorily Redeemable Convertible Preferred Stock, $0.004 par value;
     550 Shares authorized; 296 shares and 320 shares issued and outstanding at
     March 31, 2002 and December 31, 2001,
     respectively (liquidation preference $493,795)                                     493,795          447,587
                                                                                  -------------    -------------

Stockholders' equity:
     Series A Convertible Preferred Stock, $0.0004 par value 35,897 Shares
       authorized; 23,899 and 25,899 issued and outstanding at March 31, 2002
       and December 31, 2001, respectively; (liquidation
       preference $ 625,059)                                                                 10               10
     Common stock, $0.0004 par value; 100,000,000 shares authorized;
       27,658,565 and 24,734,420 issued and outstanding at
     March 31, 2002 and December 31, 2001, respectively                                  11,095            9,913
     Capital in excess of par value                                                  31,111,120       30,776,417
     Warrants                                                                         4,533,577        3,688,432
     Deficit accumulated during the development stage                               (26,263,856)     (24,125,791)
                                                                                  --------------     ------------
         Total stockholders' equity                                                   9,391,946       10,348,981
                                                                                  -------------    -------------

              Total liabilities, mandatorily redeemable preferred
                   stock, and stockholders' equity                                $  14,861,641    $  14,724,347
                                                                                  =============    =============

The  accompanying  notes  are  an integral  part of these condensed consolidated
financial statements.
</TABLE>

<PAGE>


                      DBS INDUSTRIES, INC. AND SUBSIDIARIES
                          (A Development Stage Company)
                 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
                                   (Unaudited)
<TABLE>
<CAPTION>
<S>                                                                      <C>             <C>            <C>


                                                                                                   April 25, 1990
                                                                       Three Months Ended          (Inception) to
                                                                            March 31,                 March 31,
                                                                     2002             2001              2002
                                                                -------------     -------------    -------------

Revenue  $                                                              -           $    -          $    161,420

Cost and operating expenses:
   Cost of revenue                                                      -                -               127,580
   Marketing and sales                                                 88,801            44,839        2,919,192
   General and administrative                                       1,341,375           816,474       21,090,691
   Research and development                                           268,304               514        6,616,913
                                                                -------------     -------------    -------------
                                                                    1,698,480           861,827       30,754,376
                                                                -------------     -------------    -------------
     Loss from operations                                          (1,698,480)         (861,827)     (30,592,956)
                                                                --------------    -------------    --------------

Other income (expense):
   Interest, net                                                     (201,325)          (12,293)        (983,017)
   Equity in loss of investees, net                                      -               -              (512,920)
   Gain (loss) on sale of investment                                     -               -             5,829,218
   Other, net                                                        (237,860)           -                89,279
                                                                --------------    -------------    -------------
                                                                     (439,185)          (12,293)       4,422,560
                                                                --------------    --------------   -------------
Loss before provision for income taxes
   and minority interest                                           (2,137,665)         (874,120)     (26,170,396)
Minority interest in income of consolidated subsidiaries                -                -                 8,575
Provision for income taxes                                               (400)             (400)        (102,035)
                                                                --------------    --------------   --------------

     Net loss                                                      (2,138,065)         (874,520)   (26,263,856)
                                                                ==============    ==============   ============

Preferred stock dividends associated with
   penalties, issued warrants and accretions                         (173,131)           -
                                                                --------------    -------------

Net loss  attributable to Common Stockholders                   $  (2,311,196)    $    (874,520)
                                                                ==============    =============

Basic and diluted net loss per share                            $       (0.09)     $      (0.05)
                                                                =============     =============

Weighted average number of shares of
   common stock, basic and diluted                                 25,512,979        18,096,341
                                                                =============     =============

</TABLE>

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



                      DBS INDUSTRIES, INC. AND SUBSIDIARIES
                          (A Development Stage Company)
                 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                                   (Unaudited)
<TABLE>
<CAPTION>
<S>                                                                  <C>               <C>              <C>

                                                                                                   April 25, 1990
                                                                       Three Months Ended          (Inception) to
                                                                            March 31,                 March 31,
                                                                     2002             2001              2002
                                                                -------------     -------------    -------------

Cash flow from operating activities
   Net loss                                                    $    (2,138,065)  $   (874,520)     $(26,263,856)
   Adjustments to reconcile net loss to net cash
     used in operating activities:
     Depreciation and amortization                                      2,639             2,554         476,229
     Minority interest's share of net loss                               -                 -             (8,575)
     Noncash charges                                                  121,581           216,000       2,457,953
     Amortization of deferred stock-based compensation                   -              112,532       2,486,740
Issuance of options and warrants for services rendered                671,017              -          2,818,191
     Effect of remeasurement of warrants                              237,860              -           (145,913)
     Late registration penalties on convertible debentures             45,000              -             45,000
     Issuance of common stock in connection
       with litigation settlement                                        -                 -            324,391
     Equity in loss of investees, net                                    -                 -            529,972
     Gain on sales of investments                                        -                 -         (5,829,342)
     Allowance for losses on advances                                    -                 -            216,932
     Common stock issued as payment for interest                        4,699              -             11,699
     Decrease (increase) in accounts receivable, prepaid and
       other current assets                                           (67,680)          (28,281)       (100,458)
     Increase (decrease) in accounts payable
       and accrued liabilities                                        852,451          (371,990)      3,435,848
     Increase in customer advances                                       -                 -            400,000
                                                               --------------    --------------   -------------
       Net cash used in operating activities                         (270,498)         (943,705)    (19,145,189)
                                                               ---------------   --------------   --------------

Cash flows from investing activities:
   Proceeds from sale of investment                                      -               -            1,102,486
   Proceeds from Loral settlement                                        -               -            3,573,677
   Purchase of furniture and equipment                                   -               -             (153,218)
   Satellite construction payments                                       -               -          (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 and advances                                            (5,000)           -           (2,756,203)
   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                           (5,000)           -          (12,372,167)
                                                               ---------------   --------------   --------------

Cash flows from financing activities:
   Repayment of borrowing under credit line                              -               -             (300,000)
   Issuance of debentures                                                -               -            5,318,501
   Issuance of Preferred and Common Stock                             185,000           675,372      28,804,614
   Proceeds from issuance of warrants to purchase common stock        120,000            -              120,000
   Redemption of common stock warrants                                   -               -              (19,490)
   Stock issue costs                                                     -              (77,125)     (1,378,611)
   Purchase of shares                                                    -               -               (5,000)
   Payment of debentures                                                 -               -           (1,168,445)
   Proceeds from stockholders' loans                                   37,752            -              585,502
   Payment of stockholders' loans                                        -               -             (351,967)
                                                               --------------    --------------   --------------

       Net cash provided by financing activities                      342,752           598,247      31,605,104
                                                               --------------    --------------   -------------

Net increase (decrease) in cash and cash equivalents                   67,254          (345,458)         87,748
Cash and cash equivalents, beginning of period                         20,494           389,319            -
                                                               --------------    --------------   -------------
Cash and cash equivalents, end of period                       $       87,748    $       43,861   $      87,748
                                                               ==============    ==============   =============

</TABLE>
The  accompanying  notes  are  an integral  part of these condensed consolidated
financial statements.

<PAGE>




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. (collectively,
          the subsidiaries), is unaudited.

          The   condensed   consolidated   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 March 31, 2002
          and the condensed  consolidated  results of operations  and cash flows
          for the interim  periods  reported.  The results of operations for the
          2002  interim  period  presented  are not  necessarily  indicative  of
          expected results for the full 2002 fiscal year.

          The Company was organized as a Delaware corporation on August 3, 1989.
          Since  inception the Company has been in the  development  stage.  The
          Company's  current  business  plan is to develop a data  communication
          service using a  constellation  of low earth orbit  satellites and the
          Internet.  The  Company's  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
          as reflected in these  condensed  consolidated  financial  statements.
          Accordingly,  the Company has relied  primarily upon obtaining  equity
          capital and debt financing to support its operations. The Company does
          not  expect  revenue  to  exceed  costs  and  expenses  in  2002  and,
          accordingly,  will  continue to incur losses and  negative  cash flows
          from operating activities.  To address financing needs, the Company is
          pursuing various financing  alternatives.  These  circumstances  raise
          substantial  doubt about the Company's  ability to continue as a going
          concern.  These  condensed  consolidated  financial  statements do not
          reflect  any  adjustments  that might  result  from the outcome of the
          above uncertainty.

          During fiscal 2001, the Company raised approximately $2.5 million, net
          of  stock  issuance  costs,  from  warrant   exercises,   issuance  of
          debentures, and sale of shares of common and preferred stock. However,
          the Company will need  substantial  additional  capital,  at least $60
          million, to construct its proposed E-SAT satellite constellation. Such
          financing is likely to result in a significant  dilution in the equity
          interests of the current  stockholders.  The construction of the first
          two of the six planned  satellites  was  required to be  completed  by
          March  2002  pursuant  to  the  terms  of the  Federal  Communications
          Commission (the FCC) license granted to E-SAT.  (See Note 3 - "License
          Costs".) On March 29, 2002,  the Company  notified the FCC that it has
          not achieved this milestone and requested a two-year extension. On May
          23, 2002,  the Company  entered into a contract  with an agency of the
          State of California.  (See Note 8 - "Subsequent  Events".) The Company
          believes the  implementation  of this contract,  if successful,  would
          provide  a  portion,  but not  all,  of the  funding  for the  further
          development of the E-SAT system.  However,  there is no assurance that
          the Company will be able to  successfully  finance and implement  this
          contract.

          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  financial  statements  and notes  contained in DBSI's 2001 Annual
          Report on Form 10-K.
<PAGE>

NOTE 2    LICENSE COSTS

          In October 1994, the Company and EchoStar  formed E-SAT,  Inc. for the
          purpose  of filing  with the FCC for a license  to operate a low earth
          orbit  satellite  system.  E-SAT filed an application  with the FCC on
          November 16, 1994.

          On March 31, 1998,  the FCC  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.

          On July 30, 1999, the Company  entered into an agreement with EchoStar
          under  which it  received  60.1% of E-SAT's  shares  from  EchoStar in
          exchange for consideration, including the grant of rights to use up to
          20% of the  satellite  capacity of the E-SAT system by EchoStar.  As a
          result of this  transaction,  which was  subsequently  approved by the
          FCC,  the Company now owns 80.1% of the E-SAT  shares.  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.

NOTE 3    SATELLITE CONSTRUCTION COSTS

          During  the  construction  of its  satellite  system,  the  Company is
          capitalizing all license, design, engineering, launch and construction
          costs. Such costs amounted to approximately  $14.6 million as of March
          31, 2002.

          Of that  amount,  approximately  $2 million was paid to Alcatel  Space
          Industries for preliminary engineering design 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. On October
          8, 1999,  the  Company  signed a contract  with  Alcatel for the final
          design, construction and delivery to the launch site of six little low
          earth  orbiting  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 E-SAT 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.  As  noted  above,  the  Company  paid  $2  million  in
          construction payments to Alcatel for engineering  specifications.  The
          Company has not made a further payment  required by the agreement with
          Alcatel, due 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 the Company's full system development schedule. Because these
          services  have  not  been  performed,  the  Company  has  recorded  no
          liability.  As of March 31, 2002,  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.  If the Alcatel  contract is never  brought into  effect,  the
          Company  retains the engineering  specifications  provided by Alcatel,
          which would still be used by the Company's  other  contractors  in the
          construction of the Company's satellite network.

          On  March  31,  1999,  the  Company  signed  construction  and  launch
          contracts  with Surrey  Satellite  Technology  Limited  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

<PAGE>

          Company,  Surrey Satellite 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.

          Surrey  Satellite's  construction  contract,  which  was to build  the
          satellite  infrastructures  that  would  house the  telecommunications
          payload, was to be managed by Alcatel as prime contractor, if and when
          the Company paid Alcatel $14.1 million to trigger the Alcatel contract
          effective  date.  As this  payment  has not  been  made,  the  Alcatel
          contract  is not in  effect  and  Surrey  Satellite  remains  a direct
          contractor of the Company.

          In  accordance  with  SFAS  144,  "Accounting  for the  Impairment  or
          Disposal  of  Long-Lived  Assets",  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's  management  and Audit
          Committee of the Board has concluded that no such events or changes in
          circumstances   have   occurred   and,   accordingly,   it   would  be
          inappropriate  to write down the  capitalized  satellite  construction
          costs as impaired as of March 31, 2002.

          The  Company  evaluated  a number of factors in its  consideration  of
          impairment events and changes in circumstances  including: (1) whether
          the  Company's  failure to meet its FCC milestone  requirements  would
          result in termination of the license;  (2) whether the assets continue
          to have value notwithstanding the delay since contracting; (3) whether
          the Company's  failure to bring the Alcatel prime contract into effect
          prevents the Company  from  constructing  its system;  (4) whether the
          state of difficulties in the satellite  financing capital markets were
          likely to prevent the Company from financing its system in the future;
          (5) whether the telecommunications industry had overcapacity such that
          there would be no business  opportunity for the E-SAT system;  and (6)
          whether  the  Company's  implementation  of  an  Iridium-based  system
          effectively  replaced the E-SAT  system.  In more detail,  the Company
          concluded the following:

          a.   The Company  believes that its failure to meet its milestones are
               not likely to result in termination  of the license.  The Company
               recognizes  that  the  loss  of  the  FCC  license  held  by  its
               subsidiary E-SAT, Inc. would be a change in circumstance and that
               the failure to meet  certain  milestones  could lead to a loss of
               the license.  The Company currently lacks adequate  financing and
               time to build and launch  two low earth  orbiting  satellites  in
               advance of the  required  FCC  construction  and launch  dates of
               March  2002  and  September  2002,  respectively.  As part of the
               Company's impairment analysis,  the Company received a report and
               opinion from Leslie Taylor  Associates,  its regulatory  counsel,
               that the  license  was likely to be  extended.  This  opinion was
               based on the satellite  construction progress to-date,  including
               the  launch of one  satellite,  and the fact that  there  were no
               other  pending  applicants  for the  spectrum  covered by E-SAT's
               license. As recommended by Leslie Taylor Associates, on March 29,
               2002,  E-SAT filed the request for an extension of milestones for
               an additional two years with the FCC. The request was accepted by
               the FCC, and the request was then subject to 30-day public notice
               period  beginning April 24, 2002. As of May 24, 2002, the request
               came off public notice and no opposing comments were filed during
               the 30-day period.  Based on these facts,  the Company  believes,
               while  there  is no  guarantee,  that  the  FCC  will  grant  the
               extension  and that it is  therefore  not in  imminent  danger of
               losing its FCC license but will continue to monitor the situation
               for any changes.
<PAGE>


          b.   The  Company  believes  that its  satellite  construction  assets
               continue   to  have  value   notwithstanding   the  delay   since
               contracting.  Included in the capitalized satellite  construction
               costs are  payments to Alcatel  Space  Industries,  Eurockot  and
               Surrey Satellite.  The Company paid Alcatel for the production of
               engineering specifications and analysis which information remains
               the property of the Company. These specifications are an integral
               part of E-SAT's  ability to  construct  the  satellites  and were
               transferred by the Company to Surrey  Satellite in 2001, and will
               be used by Surrey Satellite in satellite construction  regardless
               of whether the  Alcatel  contract is ever  brought  into  effect.
               Surrey  Satellite was paid for the design of the satellite ground
               station,  among other  things,  which is crucial to the design of
               the system and remains an important  element to  completion  of a
               complete satellite  communication network.  Eurockot was paid for
               the launch of the  satellites  and  although  the launch date has
               been  extended  past 2002,  E-SAT's  right to  Eurockot's  launch
               services remains intact.

          c.   The Company  believes that its failure to bring the Alcatel prime
               contract   into  effect   does  not  prevent  the  Company   from
               constructing  its system.  The  Company's  contract  with Alcatel
               called for a payment  by the  Company at the end of 1999 that has
               not been paid to-date and, as a result, Alcatel has the option to
               terminate the contract.  Alcatel has not indicated to the Company
               that it  intends  to  terminate  the  contract,  and the  Company
               believes  that  Alcatel  would  seek to bring the  contract  into
               effect when the Company  receives  financing.  In  addition,  the
               Company believes that alternative  suitable prime contractors are
               currently  available to manage  construction as prime contractor,
               including Surrey Satellite,  for a significantly  lower cost than
               negotiated  with  Alcatel,  and so the  Company may not choose to
               reinstate the Alcatel  contract.  As noted above, the Company has
               received viable assets  consisting of engineering  specifications
               and analysis in return for the $2.1 million paid to Alcatel.

          d.   The  Company  believes  that  the  state of  difficulties  in the
               satellite  financing capital markets is not likely to prevent the
               Company  from  financing  its system in the  future.  The Company
               believes  that  satellite  financing is cyclical and further that
               the low cost of its system,  approximately $60 million,  compared
               to  other  global  telecommunications  systems,  allows  it to be
               financed through a wide variety of sources,  including  customers
               and  strategic  partners.  The Company  believes that the primary
               impediment  to financing is therefore a  demonstration  of market
               viability    of    low-earth-orbiting    satellites    for   data
               communications to remote infrastructure.

          e.   The Company  believes  that current  telecommunications  industry
               overcapacity  does not  obviate  the market  opportunity  for the
               E-SAT  system.  The Company  believes  that the E-SAT system will
               have unique competitive advantages even if the telecommunications
               industry  maintains  a position  of low per  minute  costs due to
               overcapacity.  These  advantages  are primarily low terminal cost
               due to usage of low power-spread spectrum transceivers  permitted
               by the E-SAT license,  and high penetration of buildings,  remote
               terrain  and poor  weather  because  the E-SAT  license  uses VHF
               frequencies.

          f.   The Company  believes  that the  Company's  implementation  of an
               Iridium-based  system is not a substitute  for the E-SAT  system.
               The Company believes that the Iridium-based  system,  which has a
               higher transceiver cost and operates on the L-Band which requires
               line of sight, is potentially  complementary  to the E-SAT system
               with lower transceiver cost and operates on VHF frequencies which
               have strong building, terrain and weather penetration.
<PAGE>

          The Company  believes  that if the funding  necessary  to complete the
          satellite  network  and to remain a going  concern  is  obtained,  the
          capitalized  satellite  construction  costs will be  recoverable  from
          future operating cash flows. On May 23, 2002, the Company entered into
          a Demand  Reserves  Authority  Provider  Agreement with the California
          Power  Authority  to  implement  a   satellite-based   (using  Iridium
          capacity) automated conservation system design to conserve significant
          electrical  usage on demand at peak or  emergency  times.  The Company
          believes that  implementation  of this program,  if successful,  would
          provide  a  portion,  but not  all,  of the  funding  for the  further
          development  of the  E-SAT  system.  There  is no  assurance  that the
          Company  will be able  to  successfully  finance  and  implement  this
          contract,  however. Should the FCC extension request be denied, or any
          of the other  above  factors  materially  change,  the  Company may be
          required  to  record  an  impairment  of  the  capitalized   satellite
          construction costs.

NOTE 4    CUSTOMER ADVANCES

          The  Company's   wholly-owned   subsidiary,   Global  Energy  Metering
          Services,  Inc.,  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,  Global Energy  Metering  Services 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, with which the radio units  communicated,  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  accrues  simple  interest  on the
          $500,000  at the rate of 6% per  annum.  As of  March  31,  2002,  the
          Company  accrued  $23,300  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).

          On March 8,  2002,  the  holder  of the  above  Convertible  Debenture
          converted  $150,000  into  714,286  shares of Common Stock at $.21 per
          share and  elected to  receive  22,381  shares of Common  Stock of the
          Company in lieu of accrued interest of $4,700.

          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 a 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 a debt discount.
          This  amount will also be  amortized  over the  five-year  life of the
          debenture.   As  of  March  31,   2002,   the  Company  has   recorded
          approximately  $136,400  in  interest  expense  relating  to both  the
          amortization  of the value of the debt  discount  attributable  to the
          warrants  and the  beneficial  conversion  feature  for the debt still

<PAGE>

          outstanding,  as  well as the  portion  of the  beneficial  conversion
          feature and debt discount  attributable  to the $150,000 of debentures
          which were converted to Common Stock in the first quarter of 2002.

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  31,381,225
          shares of common stock with  exercise  prices from $0.10 to $5.60 were
          outstanding  as of March 31, 2002 and were  excluded from the net loss
          per share  calculation  for the three month  period then ended as they
          have the effect of decreasing net loss per share. Options and warrants
          to purchase 9,127,286 shares of common stock with exercise prices from
          $0.39 to $5.60 were outstanding as of March 31, 2001 and were excluded
          from the net loss per share  calculation for the quarter then ended as
          they have the effect of decreasing net loss per share.

NOTE 7    EQUITY TRANSACTIONS

          Equity Transactions with Non-Employees

          On January 30, 2002, the Company granted a warrant to purchase 100,000
          shares of its Common Stock to a consultant for services rendered,  and
          to be  rendered,  between  January  30,  2002 and July 31,  2002.  The
          warrant is exercisable for three years from date of grant at $0.10 per
          share  with  10,000  shares  vested  at the date of the  grant and the
          remaining  90,000  vesting in  increments of 15,000 each month for six
          months. The fair value of the vested warrants is being calculated on a
          monthly basis using the  Black-Scholes  option  pricing  model.  As of
          March 31,  2002,  a total of $5,240 had been  recorded  as  consulting
          expense.

          On February 1, 2002, the Company  granted a warrant to purchase 12,000
          shares of its Common Stock to a consultant for services rendered.  The
          warrant is  exercisable  for four years from the date of grant at $.12
          per share and vests  2,000 each month for six months  from the date of
          grant.  The fair value of the vested warrants is being calculated on a
          monthly basis using the  Black-Scholes  option  pricing  model.  As of
          March  31,  2002,  a total  of $230 had been  recorded  as  consulting
          expense.

          On March 8, 2002,  a Series A preferred  stockholder  converted  2,000
          Series A preferred  shares into 35,294  shares of Common  Stock of the
          Company at $1.70 per share.

          On March 18, 2002, Series B preferred stockholders converted 24 Series
          B preferred  shares into 375,000 shares of Common Stock of the Company
          at $.064 per  share.  The  preferred  stockholders  elected to receive
          54,286  shares  of  Common  Stock of the  Company  at $.064 in lieu of
          accrued cash dividends of $3,474. A beneficial  conversion  feature of
          $80,000  was  recorded  as a  preferred  dividend  in  relation to the
          conversion.

          Equity Transactions with Employees

          In January 2002, the Company issued 19,565 shares of Common Stock to a
          director  for past  services  on the  Board.  The  fair  value of such
          shares, which amounted to $9,000, was recorded as an expense.

          On  February  5,  2002,  in  exchange  for  cancellation  of loans and
          interest to the Company totaling $66,500, six warrants were granted to
          a director of the Company to purchase an aggregate of 6,650,000 shares
          of Common  Stock of the  Company at $0.10 per share.  Each  warrant is

<PAGE>

          exercisable  for a short  period  of time as  follows:  Warrant  1 for
          1,100,000  shares is exercisable  until March 15, 2002;  Warrant 2 for
          1,100,000  shares is exercisable  until April 15, 2002;  Warrant 3 for
          1,100,000  shares is  exercisable  until May 15,  2002;  Warrant 4 for
          1,100,000  shares is  exercisable  until June 15, 2002;  Warrant 5 for
          1,100,000 shares is exercisable until July 15, 2002; and Warrant 6 for
          1,150,000  shares is  exercisable  until August 15, 2002.  If Warrants
          Nos. 1, 2 and/or 3 or a portion  thereof are exercised  prior to their
          expiration  dates,  replacement  warrants  to  purchase  the number of
          shares exercised,  up to 1,100,000 shares,  are issued and exercisable
          for six months from the date of each  exercise at $0.10 per share.  On
          March 7, 2002,  Warrant 1 was exercised in full and the Company issued
          1,100,000  restricted shares of Common Stock and a replacement warrant
          to purchase an  additional  1,100,000  shares of Common Stock at $0.10
          per share.  On March 25, 2002 a portion of Warrant 2 was exercised for
          50,000  shares and the  Company  issued  50,000  restricted  shares of
          Common  Stock and a  replacement  warrant to  purchase  an  additional
          50,000 shares of Common Stock at $0.10 per share.

          On February 5, 2002, the Company granted to a newly  appointed  member
          of the Board of Directors  non-qualified  options under the 2000 Stock
          Option Plan to purchase 13,333 shares of Common Stock  exercisable for
          ten years at $0.10 per share.

          Also on February 5, 2002, a non-plan, non-qualified option to purchase
          450,000 shares of Common Stock  exercisable for ten years at $0.12 per
          share was granted to the Company's Chief Operating Officer.

          On March 1, 2002, the Company granted a non-plan, non-qualified option
          to a director  to  purchase  450,000  shares of its  Common  Stock for
          financial officer consulting services rendered. The fair value of such
          options,  which  amounted  to  $51,750,  was  recorded  as general and
          administrative expense. The following variables were used to determine
          the fair  value of such  instruments  under the  Black-Scholes  option
          pricing model:  volatility of 122%,  expected life of ten years,  risk
          free interest of 5%, and underlying  stock prices of $0.12 at the time
          of grant.

          On March 4, 2002, the Company received proceeds in a private placement
          of $100,000 from its Chief  Executive  Officer,  through an affiliated
          business entity of that individual. Of the $100,000 proceeds,  $30,000
          was  received by the Company in exchange  for  warrants to purchase an
          aggregate  of  2,250,000  shares of Common  Stock at the then  current
          market  price of $0.12 per share;  and  $70,000  was  received  by the
          Company  upon  exercise  of  certain  of those  warrants.  Each of the
          warrants  purchased  is  exercisable  for a  short  period  of time as
          follows:  Warrant 1 for 416,666 shares is  exercisable  until April 4,
          2002;  Warrant 2 for 416,666 shares is exercisable  until May 4, 2002;
          Warrant  3 for  416,667  shares is  exercisable  until  June 4,  2002;
          Warrant  4 for  416,667  shares is  exercisable  until  July 4,  2002;
          Warrant 5 for 416,667 shares is exercisable  until August 4, 2002; and
          Warrant 6 for 416,667 shares is exercisable  until  September 4, 2002.
          If  Warrants  Nos. 1, 2 and/or 3 or a portion  thereof  are  exercised
          prior to their expiration dates,  replacement warrants to purchase the
          number of shares  exercised,  up to  416,666,  shares  are  issued and
          exercisable for six months from the date of each exercise at $0.12 per
          share.  Of the $100,000  proceeds,  $70,000 was received from the full
          exercise  of Warrant 1 for  416,666  shares and  partial  exercise  of
          Warrant 2 for 166,667  shares.  In  accordance  with the terms of each
          warrant,  the Company  issued  416,666  shares and 166,667  restricted
          shares of Common Stock of the Company, and two replacement warrants to
          purchase an additional  416,666 and 166,667  shares of Common Stock of
          the Company at $0.12 per share.

          On March 7, 2002, the Company received proceeds in a private placement
          of $200,000  from a director.  Of the $200,000  proceeds,  $90,000 was
          received  by the  Company in  exchange  for  warrants  to  purchase an
          aggregate  of  7,500,000  shares of Common  Stock at the then  current

<PAGE>

          market  price of $0.12 per share,  and  $110,000  was  received by the
          Company in exercise of certain  warrants  granted on February 5, 2002.
          Each of the warrants  purchased is  exercisable  for a short period of
          time as follows:  Warrant 1 for 1,250,000 shares is exercisable  until
          September  15, 2002;  Warrant 2 for  1,250,000  shares is  exercisable
          until October 15, 2002;  Warrant 3 for 1,250,000 shares is exercisable
          until November 15, 2002; Warrant 4 for 1,250,000 shares is exercisable
          until December 15, 2002; Warrant 5 for 1,250,000 shares is exercisable
          until  January  15,  2003;  and  Warrant  6 for  1,250,000  shares  is
          exercisable until February 15, 2003. If Warrants Nos. 1, 2 and/or 3 or
          a portion  thereof  are  exercised  prior to their  expiration  dates,
          replacement warrants to purchase the number of shares exercised, up to
          1,250,000  shares,  are issued and exercisable for six months from the
          date of each  exercise at $0.12 per share.  Of the $200,000  proceeds,
          $110,000  was  received  from the full  exercise of a warrant  granted
          February 5, 2002 for 1,100,000 shares at $.10 per share. In accordance
          with the terms of the warrant, the Company issued 1,100,000 restricted
          common  shares,  and a  replacement  warrant to purchase an additional
          1,100,000 shares of Common Stock at $0.10 per share. Also, pursuant to
          the terms of this March 7, 2002  investment,  the  director  has a 33%
          anti-dilution  protection  through  March 8,  2003,  if he  invests an
          additional  $1.4  million  in the  Company  prior to that  date.  Such
          anti-dilution  protection  is  limited to the  authorized  outstanding
          shares of Common Stock of the Company.

          The warrants  with reloads sold to a director and the Chief  Executive
          Officer  on  February  5,  2002,  March 4, 2002 and March 7, 2002 were
          valued by an independent valuation  specialist.  The fair value of the
          warrants was  determined  to be $800,628.  The  difference of $612,128
          between the  purchase  price of the  warrants and their fair value was
          recorded as general and administrative expense.

NOTE 8    SUBSEQUENT EVENTS

          Effective  April 3, 2002,  unvested  options under the Company's  2002
          Stock  Option  Plan to  purchase  28,125  shares of Common  Stock were
          cancelled due to the  termination of an employee.  In connection  with
          this  termination,  incentive  options under the Company's  1996 Stock
          Option Plan to purchase  150,000  shares of Common Stock and incentive
          options under the Company's 2000 Stock Option Plan to purchase  56,250
          shares of Common Stock were cancelled and replaced with  non-qualified
          options under the Company's 2000 Stock Option Plan to purchase a total
          of 206,250 shares of Common Stock at the original  exercise prices and
          for the original exercise periods.

          On April 4, 2002,  the Company  granted a warrant to  purchase  25,000
          shares of its Common Stock to a consultant for services rendered.  The
          warrant is exercisable for three years from the date of grant at $0.38
          per share and vests immediately.

          Also on April 4,  2002,  the  Company  granted a warrant  to  purchase
          10,000  shares  of its  Common  Stock  to a  consultant  for  services
          rendered.  The warrant is exercisable for three years from the date of
          grant at $0.38 per share and vests immediately.

          On April 5, 2002,  the Company  granted a warrant to  purchase  15,000
          shares of its Common Stock to a consultant for services rendered.  The
          warrant is exercisable for three years from the date of grant at $0.34
          per share and vests immediately.

          On April 15, 2002, the Company received  $105,000 upon the exercise of
          a warrant by a director of the Company.  In accordance  with the terms
          of the warrant,  the Company  issued  1,050,000  restricted  shares of

<PAGE>

          Common  Stock and a  replacement  warrant to  purchase  an  additional
          1,050,000 shares of Common Stock at $0.10 per share.  Further, On June
          15, 2002,  the Company  received  $110,000  from the director upon the
          exercise of a warrant for 1,100,000  shares.  In  accordance  with the
          terms of the  warrant,  the  Company  issued  the  director  1,100,000
          restricted  shares of Common  Stock of the Company  and a  replacement
          warrant to purchase an additional  1,100,000 shares of Common Stock of
          the Company at $0.10 per share  exercisable for 6 months from the date
          of grant.

          Also on April 15, 2002,  the Company  received  approximately  $80,000
          upon the  exercise of warrants  to  purchase an  aggregate  of 666,666
          shares held by an affiliated  business  entity of the Company's  Chief
          Executive Officer.  In accordance with the terms of the warrants,  the
          Company  issued  666,666   restricted   shares  of  Common  Stock  and
          replacement  warrants  to  purchase an  additional  666,666  shares of
          Common  Stock at $0.12  per  share.  Further,  on June 12,  2002,  the
          Company  received  $20,000  upon the exercise of a warrant for 166,667
          shares of Common  Stock and  $10,000  upon the  partial  exercise of a
          warrant for 83,333  shares of Common Stock by an  affiliated  business
          entity of the  Company's  Chief  Executive  Officer and,  accordingly,
          250,000 shares of Common Stock were issued.

          On May 3, 2002,  the holder of a Convertible  Debenture  converted the
          remaining balance of $350,000 into 1,169,787 shares of Common Stock at
          $.2992 per share and elected to receive  47,571 shares of Common Stock
          in lieu of accrued cash dividends of $14,233.

          On May 8,  2002,  the  Company  granted a warrant to  purchase  50,000
          shares of its Common Stock to a consultant for services rendered.  The
          warrant is exercisable  for three years from the date of grant at $.40
          per share.

          On May 10, 2002, the Company received  approximately $200,000 upon the
          exercise of warrants to purchase an aggregate  of 666,668  shares held
          by an  affiliated  business  entity of the Company's  Chief  Executive
          Officer.

          On May 15,  2002,  a director  exercised  his Warrant 3 for  1,100,000
          shares.  In accordance  with terms of the warrant,  the Company issued
          1,100,000  restricted shares of Common Stock and a replacement warrant
          to purchase an additional 1,100,00 shares of Common Stock at $0.10 per
          share exercisable for six months from date of grant.

          On May 17,  2002,  the Company  granted a warrant to  purchase  20,000
          shares of its Common Stock to a consultant for services rendered.  The
          warrant is exercisable  for three years from the date of grant at $.42
          per share.

          On May 23, 2002, the Company entered into a Demand Reserves  Authority
          Provider Agreement with the California Consumer Power and Conservation
          Authority  to Implement a  satellite-based  (using  Iridium  capacity)
          automated   conservation  system  designed  to  conserve   significant
          electrical usage on demand at peak or emergency time.

          On June 12,  2002,  the Company  issued  7,065  shares of Common Stock
          valued  at  $0.25  per  share  each to two  directors  in lieu of cash
          payment of bridge loans of $1,813 each plus 5% annual interest.

          Effective  June 14, 2002, a  non-qualified  option to purchase  50,000
          shares of Common  Stock at $0.25 per share was  issued to an  employee
          exercisable  for ten years from date of grant in  accordance  with the
          2000 Stock Option Plan.
<PAGE>

          Effective  June 24,  2002,  the  holder of the  Convertible  Debenture
          elected to receive, and was issued,  400,000 shares of Common Stock of
          the Company valued at $0.25 per share in lieu of liquidated damages of
          $100,000.

          On June 25, 2002,  the Company  issued  429,876 shares of Common Stock
          valued  at $0.37  per  share in lieu of  salary  owed to a  terminated
          employee.

          On June 25, 2002,  the Company  issued  357,710 shares of Common Stock
          valued at $0.37 per share in lieu of cash payment to a consultant  for
          past services.


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

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 low
earth orbiting FCC license. On March 31, 1998, the FCC issued a license to E-SAT
to launch and operate a little low earth orbiting 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%.

During the intervening years, we raised financing and began the development of a
little low earth  orbiting  satellite  system  (the  "E-SAT  system") to provide
automated meter reading and short messaging services.  We signed a contract with
Eurockot for the launch of the satellites,  a contract with Surrey Satellite for
the  development  of ground  stations and the  satellite bus and a contract with
Alcatel for the  engineering  and  production of the  satellites  (this work was
subsequently  transferred to Surrey Satellite).  However, we have been unable to
secure financing to complete the launch and  commercialization  of the satellite
system.  We  initially  estimated  the costs  associated  with  building the six
satellite global  constellation to service this market to be approximately  $120
million and now believe that cost reductions are available to renegotiate  these
costs lower to approximately $60 million, in addition to costs already incurred,
which are allocated as follows:
<PAGE>

         Surrey Satellite (six satellites)           $17.0 million
         Eurockot (2 launches)                       $30.0 million
         Six transponders                            $ 9.0 million
         Launch and Satellite Insurance              $ 3.5 million

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.  The Iridium satellite system is a low earth orbiting satellite
network  consisting  of  66  satellites.  Using  Iridium's  currently  available
commercial  satellite  network  and  our  contract  with  the  California  Power
Authority detailed below, we hope to begin providing specialized satellite-based
data services during fiscal 2002. Under the agreement with Iridium,  the Company
has the right to utilize Iridium  capacity at predetermined  per-minute  pricing
and the right to purchase  Iridium  phones to utilize in the Company's  systems.
There are no contingencies on the Company's  ability to utilize Iridium services
under its  agreement.  The Company  estimates  that it requires $1 million to $3
million to develop an interface to the Iridium system for data  applications  to
utilize the Iridium system for the Company's services.

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.
On April 12, 2002, the California  Power  Authority  approved a Demand  Reserves
Program  that  was   essentially   based  on  our   proposals,   and  authorized
negotiations.

Effective May 23, 2002, we entered into a five-year,  Demand  Reserves  Provider
Agreement with the California  Power  Authority.  Under the agreement,  we shall
provide a minimum  of 200  megawatts  and a maximum  of 360  megawatts  of daily
available demand reduction from qualified end users. This minimum and maximum of
daily available demand  reduction  increases to 400 megawatts and 560 megawatts,
respectively, effective June 1, 2003.

Through the Company's  proposed  system,  the California Power Authority will be
able  to  immediately   reduce   non-critical  power  consumption  at  locations
throughout  the state in order to create  energy  reserves  to smooth out energy
usage during peak use or  emergency  times.  The Company  intends to utilize the
Iridium-based  system to provide its services to the California Power Authority.
The Company's  system  utilizes a proprietary  master  control system and remote
controller connected to the Iridium-based system to remotely monitor and control
roof-top air conditioning systems or other types of  electricity-using  devices.
Tiax, LLC, formerly Arthur D. Little's  Technology and Innovation  business,  is
providing  engineering services to the Company. It is anticipated that qualified
end users will consist of primarily large private  commercial  energy users such
as owners of large retail stores and shopping centers.

For its services,  the Company will be paid by the  California  Power  Authority
approximately  $51,000 per year per  megawatt  for  "non-spinning  reserves".  A
portion  of  these  fees  will be  remitted  to the  qualified  end  users as an
incentive to participate in the demand reserve program.

The Demand Reserves Provider  Agreement will terminate in May 2007. In addition,
this  agreement  may be  terminated  earlier if the Company fails to provide the
California  Power  Authority  with the daily  minimum 200 megawatt of electrical
demand  reduction by October 1, 2002, the California  Power  Authority  fails to
enter into a Participating Load Agreement with the California Independent System
Operator by October 1, 2002,  such  Participating  Load  Agreement is terminated
during the term of the Demand Reserves Provider Agreement,  or the Company fails
to reduce energy usage by its specified level for two consecutive  months during
the summer.
<PAGE>

The Company is in the process of signing up qualified  end users to  participate
in the program.  The Company  estimates  that revenues  from the fully  deployed
system from the State of California,  if the Company  successfully  signs up and
deploys   during  the  next  year  560  megawatts  of  sources  of   electricity
curtailment, will exceed $100 million over the five-year term.

The Company  expects the capital and operating  costs for full deployment of the
system to cost  approximately $15 million to $20 million over the next two years
to engineer, install and implement the system, including the costs of $1 million
to  $3  million  to  develop  an  interface  to  the  Iridium  system  for  data
applications.  The Company is currently engaged in preliminary  discussions with
investment firms with regard to equity financing for  approximately one third of
the required capital,  and debt financing of the remaining required capital.  If
the Company is unable to raise a significant portion of this financing,  it will
be unable to  implement  its system and the  California  Power  Authority  could
terminate the Company's agreement.

We hope to begin  generating  revenues  in the fourth  quarter  of fiscal  2002.
Successful  implementation  and  completion of the  California  Power  Authority
contract  would also offer us a basis for  offering  similar  services  to other
entities worldwide.  Additionally,  cash flow from such  satellite-based  energy
management  services  would  provide us with funds and market  justification  to
continue the  development  of the E-SAT  system,  which we have  estimated at an
additional  $60 million.  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.

Plan of Operation

Bankruptcies  in the satellite  sector and sharp declines in  telecommunications
and technology  sectors have impeded our financing  efforts and have 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
have developed over the past ten years, with an objective of generating  revenue
and proving our market potential in fiscal 2002.

Throughout  the first quarter of fiscal 2002, 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 have held preliminary  discussions
with half a dozen international  strategic partners over the past four years. To
date we have not entered into  definitive  contractual  discussions  with any of
these partners. The Company currently lacks adequate financing and time to build
and launch two low earth  orbiting  satellites  in advance of the  required  FCC
construction  and launch  date of March 2002 and  September  2002,  which  could
result  in the  loss of our FCC  license.  The  Company  estimates  that it cold
require up to $10 million of capital and up to 18 months to successfully  launch
the required  satellites.  This amount is in addition to the capital required to
deploy our contract with California using the Iridium system. On March 29, 2002,
we applied to the FCC for an  extension  of the  milestone  requirements  for an
additional  two years.  The request was accepted by the FCC and placed on 30-day
public notice on April 24, 2002. As of May 24, 2002, the request came off public
notice,  and no  opposing  comments  were filed  during the  30-day  period.  We
continue  to 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

<PAGE>

limited by our stock price,  which,  during the first quarter of fiscal 2002 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 March 31, 2002, our cash and cash  equivalents  amounted to $87,748 while our
current   liabilities,   including  amounts  owed  to  employees,   amounted  to
$4,833,273.  Throughout  the first quarter of fiscal 2002, 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 begin 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.

Critical Accounting Policy

During the  construction of its E-SAT system,  the Company is  capitalizing  all
license, design, engineering, launch and construction costs. Such costs amounted
to approximately $14.6 million as of March 31, 2002. Because of our difficulties
in financing  construction  of the E-SAT system and resulting  inability to meet
required  FCC  milestones,   the  Company  reviews  its  capitalized   satellite
construction and FCC license costs for impairment  whenever events or changes in
circumstances  indicate  that the  carrying  amounts of these  assets may not be
recoverable. The Company's management and Audit Committee of the Board concluded
no such event or changes in circumstances  exist and,  accordingly,  it would be
inappropriate  to write down the  capitalized  satellite  construction  costs as
impaired as of March 31, 2002.

In  reaching  this  conclusion,  the  Company  applied  Statement  of  Financial
Accounting  Standards  ("SFAS")  No.  144,  "Accounting  for the  Impairment  or
Disposal of Long-Lived Assets".  Under this standard,  the Company  periodically
reviews whether there have been events or changes in circumstances that indicate
that  the  carrying  amount  of the  satellite  construction  costs  may  not be
recoverable.  If an impairment event exists,  the amount of the impairment loss,
if any,  would be  calculated  based on the excess of the carried  amount of the
assets over their fair value.

Of the capitalized  amounts,  approximately $2 million was paid to Alcatel Space
Industries for preliminary  engineering  design 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.  On October 8, 1999, the Company
signed a contract with Alcatel for the final design,  construction  and delivery
to the launch site of six little low earth orbiting  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 E-SAT 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.  As noted  above,  the Company paid $2
million in construction payments to Alcatel for engineering specifications.  The
Company has not made a further  payment  required by the agreement with Alcatel,
due 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 the  Company's  full system
development  schedule.  Because  these  services  have not been  performed,  the
Company has recorded no liability. As of December 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.  If
the Alcatel  contract is never  brought  into  effect,  the Company  retains the

<PAGE>

engineering specifications provided by Alcatel, which would still be used by the
Company's  other  contractors  in the  construction  of the Company's  satellite
network.

On March 31, 1999, the Company  signed  construction  and launch  contracts with
Surrey Satellite Technology Limited 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  Satellite  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.

Surrey  Satellite's  construction  contract,  which was to build  the  satellite
infrastructures  that  would  house the  telecommunications  payload,  was to be
managed by Alcatel as prime  contractor,  if and when the Company  paid  Alcatel
$14.1 million to trigger the Alcatel  contract  effective  date. As this payment
has not been made,  the Alcatel  contract is not in effect and Surrey  Satellite
remains a direct contractor of the Company.

The  Company  evaluated a number of factors in its  consideration  of whether an
impairment event has incurred,  including:  (1) whether the Company's failure to
meet its FCC milestone  requirements would result in termination of the license;
(2) whether the assets  continue to have value  notwithstanding  the delay since
contracting;  (3)  whether  the  Company's  failure to bring the  Alcatel  prime
contract  into effect  prevents the Company from  constructing  its system;  (4)
whether the state of  difficulties  in the satellite  financing  capital markets
were likely to prevent the Company from financing its system in the future;  (5)
whether the  telecommunications  industry had overcapacity such that there would
be no business  opportunity for the E-SAT system;  and (6) whether the Company's
implementation of an Iridium-based system effectively replaced the E-SAT system.
In more detail, the Company concluded the following:

     1.   The Company  believes that its failure to meet its  milestones are not
          likely to result in termination of the license. The Company recognizes
          that the loss of the FCC license held by its  subsidiary  E-SAT,  Inc.
          would be a change in circumstance and that the failure to meet certain
          milestones could lead to a loss of the license.  The Company currently
          lacks  adequate  financing  and time to build and launch two Low earth
          orbiting  satellites in advance of the required FCC  construction  and
          launch dates of March 2002 and September 2002,  respectively.  As part
          of the Company's  impairment  analysis,  the Company received a report
          and opinion from Leslie Taylor  Associates,  its  regulatory  counsel,
          that the license was likely to be extended.  This opinion was based on
          the satellite  construction progress to-date,  including the launch of
          one  satellite,  and  the  fact  that  there  were  no  other  pending
          applicants for the spectrum covered by E-SAT's license. As recommended
          by Leslie Taylor Associates, on March 29, 2002 E-SAT filed the request
          for a two-year  extension of milestones  with the FCC. The request was
          accepted  by the FCC and placed on 30-day  public  notice on April 24,
          2002. As of May 24, 2002, the request came off public  notice,  and no
          opposing comments were filed during the 30-day period.  Based on these
          facts, the Company believes, while there is no guarantee, that the FCC
          will grant the  extension  and that it is  therefore  not in  imminent
          danger of losing its FCC  license,  but will  continue  to monitor the
          situation for any changes.

     2.   The Company believes that its satellite  construction  assets continue
          to have value notwithstanding the delay since contracting. Included in
          the capitalized  satellite  construction costs are payments to Alcatel
          Space  Industries,  Eurockot  and Surrey  Satellite.  The Company paid
          Alcatel for the production of engineering  specifications and analysis
          which  information   remains  the  property  of  the  Company.   These
          specifications  are an integral  part of E-SAT's  ability to construct
          the satellites and were transferred by the Company to Surrey Satellite
          in  2001,   and  will  be  used  by  Surrey   Satellite  in  satellite
          construction  regardless  of  whether  the  Alcatel  contract  is ever
          brought into effect.  Surrey  Satellite was paid for the design of the
          satellite ground station,  among other things, which is crucial to the
          design of the system and remains an important element to completion of
          a complete satellite communication network.  Eurockot was paid for the
          launch  of the  satellites  and  although  the  launch  date  has been
          extended  past  2002,  E-SAT's  right to  Eurockot's  launch  services
          remains intact.

     3.   The  Company  believes  that its  failure to bring the  Alcatel  prime
          contract  into effect does not prevent the Company  from  constructing
          its system.  The Company's  contract with Alcatel called for a payment
          by the Company at the end of 1999 that has not been paid  to-date and,
          as a result,  Alcatel  has the  option to  termination  the  contract.
          Alcatel has not  indicated to the Company that it intends to terminate
          the  contract,  and the Company  believes  that Alcatel  would seek to
          bring the contract into effect when the Company receives financing. In
          addition,   the  Company  believes  that  alternative  suitable  prime
          contractors  are currently  available to manage  construction as prime
          contractor, including Surrey Satellite, for a significantly lower cost

<PAGE>

          than  negotiated  with  Alcatel,  and so the Company may not choose to
          reinstate  the  Alcatel  contract.  As noted  above,  the  Company has
          received viable assets  consisting of engineering  specifications  and
          analysis in return for the $2.1 million paid to Alcatel.

     4.   The Company  believes that the state of  difficulties in the satellite
          financing  capital  markets is not likely to prevent the Company  from
          financing  its  system  in  the  future.  The  Company  believes  that
          satellite  financing  is cyclical and further that the low cost of its
          system,   approximately   $60   million,   compared  to  other  global
          telecommunications  system,  allows it to be  financed  through a wide
          variety of sources,  including customers and strategic  partners.  The
          Company believes that the primary impediment to financing is therefore
          a demonstration of market viability of  low-earth-orbiting  satellites
          for data communications to remote infrastructure.

     5.   The  Company   believes  that  current   telecommunications   industry
          overcapacity  does not  obviate the market  opportunity  for the E-SAT
          system.  The Company  believes  that the E-SAT system will have unique
          competitive  advantages  even  if  the   telecommunications   industry
          maintains  a  position  of low per minute  costs due to  overcapacity.
          These  advantages  are primarily low terminal cost due to usage of low
          power-spread spectrum transceivers permitted by the E-SAT license, and
          high penetration of buildings, remote terrain and poor weather because
          the E-SAT license uses VHF frequencies.

     6.   The  Company  believes  that  the  Company's   implementation   of  an
          Iridium-based  system is not a substitute  for the E-SAT  system.  The
          Company  believes that the  Iridium-based  system,  which has a higher
          transceiver  cost and  operates on the L-Band which  requires  line of
          sight,  is  potentially  complementary  to the E-SAT system with lower
          transceiver  cost and  operates on VHF  frequencies  which have strong
          building, terrain and weather penetration.

The Company  believes  that if the funding  necessary to complete the  satellite
network and to remain a going  concern is obtained,  the  capitalized  satellite
construction  costs will be recoverable from future operating cash flows. On May
23,  2002,  the  Company  entered  into a  Demand  Reserves  Authority  Provider
Agreement with the  California  Power  Authority to implement a  satellite-based
(using  Iridium  capacity)  automated  conservation  system  design to  conserve
significant  electrical  usage on demand at peak or emergency times. The Company
believes that  implementation  of this program,  if successful,  would provide a
portion,  but not all, of the funding for the further  development  of the E-SAT
system.  There  is,  however,  no  assurance  that the  Company  will be able to
successfully  finance and  implement  this  contract.  Should the FCC  extension
request be denied,  or any of the other above  factors  materially  change,  the
Company may be required to record an  impairment  of the  capitalized  satellite
construction costs.
<PAGE>

Results of Operations

Revenues

     The Company remains in the development  stage and did not generate revenues
in either the quarter ended March 31, 2002 or March 31, 2001.

Operating Expenses

     Total  operating  expenses for the  quarters  ended March 31, 2002 and 2001
were  $1,698,480  and  $861,827,  respectively.  DBSI's  operating  expenses are
related to marketing and sales expenses,  general and  administrative  expenses,
and research and development expenses.

Marketing and Sales Expenses

     Marketing  and  sales   expenses  are  primarily  the  costs  of  personnel
(including non-cash stock compensation) and travel. Marketing and sales expenses
for the three  months  ended March 31, 2002 and 2001 were  $88,801 and  $44,839,
respectively.  The increase of $43,962 is primarily due to increased  consulting
fees incurred on the California Power Authority project.

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 March 31, 2002 and 2001 were
$1,341,375  and $816,474,  respectively.  The increase of $524,901 was primarily
due to the increase compensation expense of $734,128,  including expense related
to sales of  warrants  as  discussed  below,  and an  increase  in legal fees of
$25,000, offset by a decrease in consulting fees of $285,000. During the quarter
ended March 31, 2002, in order to finance its operations, the Company issued six
warrants to a director of the Company to  purchase  an  aggregate  of  6,650,000
shares of  Common  Stock of the  Company  at $0.10  per  share in  exchange  for
cancellation of loans and interest to the Company totaling $66,500. In addition,
in order to finance  operations,  the  Company  sold  warrants  to  purchase  an
aggregate of 2,250,000  shares of Common Stock at the then current  market price
of $0.12 per share for $30,000 to the Company's Chief Executive Officer and sold
warrants to purchase an  aggregate  of  7,500,000  shares of Common Stock at the
then  current  market  price of $0.12 per share for $90,000 to a director of the
Company. Based on a valuation by an independent valuation specialist,  the value
attributed  to  these  warrants,  which  include  warrant  reloads,  sold to the
director  and Chief  Executive  Officer  amounted to  $800,628.  The  difference
between  the warrant  value and  warrant  purchase  price was  $612,128  and was
recorded  as general  and  administrative  expense.  See  Liquidity  and Capital
Resources below.

Research and Development Expenses

     Research and development expenses primarily represent the costs incurred to
develop  the  system to be used for the  California  Power  Authority  contract.
Research and development  expenses for the three months ended March 31, 2002 and
2001 were  $268,304 and $514,  respectively.  The increase was due to consulting
fees incurred on the California Power Authority project.

Other Income (Expense)

     We  experienced  a  non-operating  loss of  $493,185  and  $12,693  for the
quarters ended March 31, 2002 and 2001, respectively.  The increase is primarily

<PAGE>

due to (1) an increase in interest  expense of  approximately  $201,325  arising
from the issuance of convertible  debentures in the amount of $500,000 in August
of 2001 and to the amortization of the Beneficial  Conversion  Feature contained
in  and  debt  discount  related  to  the  convertible  debenture  and  (2)  the
remeasurement of warrants included in liabilities of $237,860.

Net Loss

     Our net loss for the quarter  ended March 31, 2002 and 2001 was  $2,138,065
and  $874,520,  respectively.  The  increase  in net loss  was due to  increased
expenditures attributable to the California Power Authority project.

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  $460,000  per month  during  the first  quarter  of fiscal  2002,
compared to $291,000  during the first  quarter of fiscal 2001. If we proceed to
raise sufficient  financing,  expenses will increase during fiscal 2002 with the
demands of increased  efforts in developing our systems and in implementing  our
business  plan.  Additional  capital will be necessary to expand  operations and
continue  current  operations.  Until we are  successful  in raising the capital
necessary to deploy our energy  conservation system for the State of California,
we will likely continue to raise only enough capital to continue  operations for
the next one to three  months at a reduced  rate of  approximately  $150,000 per
month.  We do not currently have  financing in place to fund  operations for the
next twelve months and estimate that,  without additional  capital,  we will not
have enough working capital to sustain operations.

     During the quarter ended March 31, 2002, we received  approximately $23,750
in loans from  stockholders.  We also  received  proceeds  from the  exercise of
warrants totaling $185,000.  Additionally,  during the quartered ended March 31,
2002,  the Company sold six warrants to a director of the Company to purchase an
aggregate of 6,650,000 shares of Common Stock at $0.10 per share in exchange for
cancellation of loans and interest to the Company  totaling  $66,500.  The loans
were made during fiscal 2001. Further,  the Company sold warrants to purchase an
aggregate of 2,250,000  shares of Common Stock at the then current  market price
of $0.12 per share for $30,000 to the Company's Chief Executive Officer and sold
warrants to purchase an  aggregate  of  7,500,000  shares of Common Stock at the
then  current  market  price of $0.12 per share for $90,000 to a director of the
Company. In determining the value of the warrants,  the board considered,  among
other factors,  the financial  condition of the Company,  lack of revenues,  the
Company's current obligations and working capital needs and that the Company had
sought  various  sources of financing  with no success.  Based on an independent
valuation, the value attributed to these warrants sold to the director and Chief
Executive Officer amounted to $800,628. The difference between the warrant value
and warrant purchase price was $612,128 and is recorded as compensation  expense
as  discussed  above.  In  determining  the warrant  valuation,  among the items
considered by the valuation  specialist were the exercise price of the warrants,
the historical  stock price of the Company,  the reload feature and the exercise
period of the warrants.  However,  the valuation did not take into consideration
the financial condition of the Company.

     We had  cash and cash  equivalents  of  $87,748  as of March  31,  2002 and
negative working capital of $4,625,864 as of March 31, 2002.

     Until we are able to either: 1) successfully implement our program with the
California  Power  Authority  to  provide   satellite-based   energy  management
services,  or 2) develop,  construct  and  operate  the E-SAT  system and derive
revenues therefrom,  we must continue to rely solely on outside sources to raise
cash for our operations.

     Net cash used in operating  activities for the three months ended March 31,
2002 was $301,498. This resulted from a net loss of $1,379,477, offset primarily
by (1) Common Stock issued for consulting services in the amount of $26,871, (2)
the effect of  remeasurement  of warrants in the amount of $237,860,  and (3) an
increase in accounts payable and accrued liabilities by $866,451,  and increased
by a reduction  in accounts  receivable,  prepaid  and other  current  assets of
$67,680.

     Net cash used in investing  activities for the three months ended March 31,
2002,  was $5,000 as compared to $0 for the quarter ended March 31, 2001. Due to
the Company's focus on its financing efforts, no fixed assets were purchased nor
payments made for the construction of its satellite system.

     Net cash provided by financing  activities for the three months ended March
31, 2002,  was $373,752 as compared to $598,247 for the three months ended March
31, 2001.  Net cash  provided by financing  activities  during the quarter ended
March 31, 2002 was related  primarily  to proceeds  from the sale of warrants in
the amount of $185,000,  the exercise of warrants in the amount of $120,000, and
loans from stockholders in the amount of $23,752.

     We are  required to pay  certain  license  fees to the FCC to maintain  the
validity  of our  license.  Over the next five  years,  we are  expected to make
payments  to the FCC of  approximately  $90,000  per year.  The FCC  waived  our
license fee for 2001 following our application for such waiver on the grounds of
financial hardship.

     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.

     As of June 4, 2002, the Company has outstanding options,  warrants or other
commitments  to issue  33,556,433  shares of Common Stock.  In addition to those
outstanding commitments, pursuant to an investment by Mr. Apatoff, a director of
the Company,  on March 7, 2002, the Company is required to issue reload warrants
for 3,750,000  shares of Common Stock if certain  warrants are exercised  during
2002. Also, pursuant to the terms of this March 7, 2002 investment,  Mr. Apatoff
has 33%  anti-dilution  protection  through  March 8,  2003,  if he  invests  an
additional  $1.4 million in the Company prior to that date.  Such  anti-dilution
protection is limited to the  authorized  outstanding  shares of Common Stock of
the Company.

Risks and Uncertainties Affecting Future Operating Results

     A number of factors could cause future  results to differ  materially  from
historic  results.  In addition to the risks  described  below,  you should also
carefully review the risk factors detailed in our Annual Report on Form 10-K for
the period ended  December 31, 2001 and other  reports or documents we file from
time to time with the Securities and Exchange  Commission.  We are a development
stage company and as of March 31, 2002, we had generated no revenues.  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

<PAGE>

that we may require  between $15 to $20 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.

     Our contract with the State of California for energy management services is
subject  to a number  of  risks.  Some of  these  risks  are  that we will  need
additional  financing to build and operate the Irdium-based  system, that we may
be unable to sign up participants who will voluntarily  allow  electricity usage
to be  curtailed,  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.

     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.  On March 29, 2002
E-SAT filed the request for a two-year extension of milestones with the FCC. The
request was accepted by the FCC and placed on 30-day  public notice on April 24,
2002. As of May 24, 2002,  the request came off public  notice,  and no opposing
comments  were filed  during  the 30-day  period.  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 low earth orbiting 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.
<PAGE>

        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>


                                     PART II

                                OTHER INFORMATION

ITEM 1.  LEGAL PROCEEDINGS

         None.

ITEM 2.  RECENT SALES IN UNREGISTERED SECURITIES

(a)  In January  2002,  the Company  issued  19,565  shares of Common Stock to a
     director for past services on the Board.  The  transaction  was exempt from
     registration in reliance upon Section 4(2) of the Securities Act.

(b)  On January  30,  2002,  the Company  granted a warrant to purchase  100,000
     shares of its Common Stock to a consultant for services rendered, and to be
     rendered,  between  January  30,  2002 and July 31,  2002.  The  warrant is
     exercisable  for three  years  from  date of grant at $0.10 per share  with
     10,000  shares  vested at the date of the grant  and the  remaining  90,000
     vesting in increments  of 15,000 each month for six months.  The fair value
     of the vested  warrants is being  calculated  on a monthly  basis using the
     Black-Scholes option pricing model. As of March 31, 2002, a total of $5,240
     had been recorded as consulting  expense.  The  transaction was exempt from
     registration in reliance upon Section 4(2) of the Securities Act.

(c)  On February  1, 2002,  the  Company  granted a warrant to  purchase  12,000
     shares of its Common  Stock to a  consultant  for  services  rendered.  The
     warrant  is  exercisable  for four years from the date of grant at $.12 per
     share and vests 2,000 each month for six months from the date of grant. The
     fair value of the vested  warrants is being  calculated  on a monthly basis
     using the Black-Scholes option pricing model. As of March 31, 2002, a total
     of $230 had been recorded as consulting expense. The transaction was exempt
     from registration in reliance upon Section 4(2) of the Securities Act.

(d)  On February 5, 2002, in exchange for  cancellation of loans and interest to
     the Company  totaling  $66,500,  six warrants were granted to a director of
     the Company to purchase an aggregate of 6,650,000 shares of Common Stock of
     the Company at $0.10 per share.  Each  warrant is  exercisable  for a short
     period of time as follows:  Warrant 1 for 1,100,000  shares is  exercisable
     until March 15, 2002;  Warrant 2 for 1,100,000 shares is exercisable  until
     April 15, 2002; Warrant 3 for 1,100,000 shares is exercisable until May 15,
     2002;  Warrant 4 for 1,100,000  shares is exercisable  until June 15, 2002;
     Warrant 5 for  1,100,000  shares is  exercisable  until July 15, 2002;  and
     Warrant 6 for  1,150,000  shares is  exercisable  until August 15, 2002. If
     Warrants  Nos. 1, 2 and/or 3 or a portion  thereof are  exercised  prior to
     their  expiration  dates,  replacement  warrants to purchase  the number of
     shares exercised,  up to 1,100,000  shares,  are issued and exercisable for
     six months from the date of each  exercise at $0.10 per share.  On March 7,
     2002,  Warrant 1 was  exercised  in full and the Company  issued  1,100,000
     restricted shares of Common Stock and a replacement  warrant to purchase an
     additional  1,100,000  shares of Common Stock at $0.10 per share.  On March
     25,  2002 a portion of Warrant 2 was  exercised  for 50,000  shares and the
     Company issued 50,000  restricted  shares of Common Stock and a replacement
     warrant to purchase an  additional  50,000  shares of Common Stock at $0.10
     per share.  The transaction  was exempt from  registration in reliance upon
     Section 4(2) of the Securities Act.

(e)  On February 5, 2002, the Company granted to a newly appointed member of the
     Board of Directors  non-qualified  options under the 2000 Stock Option Plan
     to purchase  13,333  shares of Common  Stock  exercisable  for ten years at

<PAGE>

     $0.10 per share.  The transaction was exempt from  registration in reliance
     upon Section 4(2) of the Securities Act.

(f)  Also on February  5, 2002,  a  non-plan,  non-qualified  option to purchase
     450,000 shares of Common Stock exercisable for ten years at $0.12 per share
     was granted to the Company's Chief Operating  Officer.  The transaction was
     exempt from  registration  in reliance upon Section 4(2) of the  Securities
     Act.

(g)  On March 1, 2002, the Company granted a non-plan, non-qualified option to a
     director  to purchase  450,000  shares of its Common  Stock for  consulting
     services  rendered.  The warrant is exercisable for ten years from the date
     of  the  grant  at  $.12  per  share.   The  transaction  was  exempt  from
     registration in reliance upon Section 4(2) of the Securities Act.

(h)  On March 4, 2002, the Company received  proceeds in a private  placement of
     $100,000 from its Chief Executive Officer,  through an affiliated  business
     entity of that individual.  Of the $100,000 proceeds,  $30,000 was received
     by the  Company in exchange  for  warrants  to  purchase  an  aggregate  of
     2,250,000  shares of Common Stock at the then current market price of $0.12
     per share; and $70,000 was received by the Company upon exercise of certain
     of those  warrants.  Each of the warrants  purchased is  exercisable  for a
     short  period  of  time  as  follows:  Warrant  1  for  416,666  shares  is
     exercisable  until  April  4,  2002;   Warrant  2  for  416,666  shares  is
     exercisable until May 4, 2002;  Warrant 3 for 416,667 shares is exercisable
     until June 4, 2002;  Warrant 4 for 416,667 shares is exercisable until July
     4, 2002;  Warrant 5 for 416,667 shares is exercisable until August 4, 2002;
     and Warrant 6 for 416,667 shares is exercisable until September 4, 2002. If
     Warrants  Nos. 1, 2 and/or 3 or a portion  thereof are  exercised  prior to
     their  expiration  dates,  replacement  warrants to purchase  the number of
     shares exercised,  up to 416,666, shares are issued and exercisable for six
     months from the date of each  exercise at $0.12 per share.  Of the $100,000
     proceeds,  $70,000  was  received  from the full  exercise of Warrant 1 for
     416,666  shares and partial  exercise of Warrant 2 for 166,667  shares.  In
     accordance  with the terms of each  warrant,  the  Company  issued  416,666
     shares and 166,667  restricted  shares of Common Stock of the Company,  and
     two  replacement  warrants to purchase  an  additional  416,666 and 166,667
     shares of Common Stock of the Company at $0.12 per share.  The transactions
     were  exempt  from  registration  in  reliance  upon  Section  4(2)  of the
     Securities Act.

(i)  On March 7, 2002, the Company received  proceeds in a private  placement of
     $200,000 from a director. Of the $200,000 proceeds, $90,000 was received by
     the Company in exchange  for warrants to purchase an aggregate of 7,500,000
     shares of Common Stock at the then current market price of $0.12 per share,
     and $110,000  was  received by the Company in exercise of certain  warrants
     granted on February 5, 2002. Each of the warrants  purchased is exercisable
     for a short period of time as follows:  Warrant 1 for  1,250,000  shares is
     exercisable  until  September 15, 2002;  Warrant 2 for 1,250,000  shares is
     exercisable  until  October 15,  2002;  Warrant 3 for  1,250,000  shares is
     exercisable  until  November 15, 2002;  Warrant 4 for  1,250,000  shares is
     exercisable  until  December 15, 2002;  Warrant 5 for  1,250,000  shares is
     exercisable  until January 15, 2003; and Warrant 6 for 1,250,000  shares is
     exercisable  until  February 15, 2003.  If Warrants Nos. 1, 2 and/or 3 or a
     portion thereof are exercised prior to their expiration dates,  replacement
     warrants  to  purchase  the  number of shares  exercised,  up to  1,250,000
     shares,  are issued and  exercisable  for six months  from the date of each
     exercise  at $0.12  per  share.  Of the  $200,000  proceeds,  $110,000  was
     received from the full exercise of a warrant  granted  February 5, 2002 for
     1,100,000  shares at $.10 per share.  In  accordance  with the terms of the
     warrant,  the Company issued  1,100,000  restricted  common  shares,  and a
     replacement  warrant to purchase an additional  1,100,000  shares of Common
     Stock at $0.10 per share. The transactions were exempt from registration in
     reliance upon Section 4(2) of the Securities Act.

(j)  On March 8, 2002, a Series A preferred shareholder converted 2,000 Series A
     preferred shares into 35,294 shares of Common Stock of the Company at $1.70
     per share.  The transaction  was exempt from  registration in reliance upon
     Section 4(2) of the Securities Act.

(k)  On March 18, 2002,  Series B preferred  shareholders  converted 24 Series B
     preferred  shares  into  375,000  shares of Common  Stock of the Company at
     $.064 per share.  The  preferred  shareholders  elected  to receive  54,286
     shares of Common  Stock of the  Company  at $.064 in lieu of  accrued  cash
     dividends  of $3,474.  The  transaction  was exempt  from  registration  in
     reliance upon Section 4(2) of the Securities Act.

ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

         None.

ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K

(a)      Exhibits:

         None.

(b)      Reports on Form 8-K:

          Report on Form 8-K filed on May 30,  2002  reporting  the signing of a
          Demand Reserves Provider Agreement with the California Power Authority
          of the State of California.


                                   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:  July 19, 2002                            By:      /s/ Fred W. Thompson
                                                         --------------------
                                                         FRED W. THOMPSON
                                                         President
                                                         Chief Financial Officer