DIGITAL DATA NETWORKS, INC.
                          NOTES TO FINANCIAL STATEMENTS


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

                                   FORM 10-KSB

(Mark One)
         [X] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 [Fee Required] For the fiscal year ended December 31, 2000.

         [ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [No Fee Required]

               For the transition period from ________________to_______________

               Commission file number:   0-27704

                           DIGITAL DATA NETWORKS, INC.
                 (Name of small business issuer in its charter)


Washington                                              91-1426372
(State or other jurisdiction of
incorporation or organization)                 (IRS EmployerIdentification No.)

3102 Maple Avenue, Suite 230
Dallas, Texas                                           75201
(Address of principal executive offices)             (Zip Code)

                                 (214) 969-7200
              (Registrant's telephone number, including area code)

Securities registered under Section 12(b) of the Exchange Act:  None

Securities registered under Section 12(g) of the Exchange Act:

Common Stock, no par value              Common Stock Purchase Warrants
(Title of class)                        (Title of class)


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 [ ]

Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B contained in this form, and no disclosure will be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB. [ X ]

The issuer's revenues for its most recent fiscal year were $590,000.

The aggregate market value of the voting stock held by non-affiliates of the
issuer on January 31, 2001 was approximately $315,000.

State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date: As of February 15, 2001, 2,314,597
shares of Common Stock were outstanding.

DOCUMENTS INCORPORATED BY REFERENCE:  None.



<PAGE>



                                     PART I

Item 1.     Business.

Company Background

         Digital Data Networks, Inc. (the "Registrant", the "Company" or "DDN"),
was incorporated as Transit Information Systems, Inc. under the laws of the
State of Washington on October 17, 1988. The present name was adopted in July,
1995. The Company also operates as The Transit Network under an assumed name
certificate. The Company's offices are currently located at 3102 Maple Avenue,
Suite 230, Dallas, Texas 75201, and its telephone number is (214) 969-7200.

         In February 1996, the Company completed its initial public offering,
and received net cash proceeds of approximately $5.8 million. The Company's
Common Stock is reported on the OTC Electronic Bulletin Board under the trading
symbol "DIDA".

         DDN generates advertising revenue in the out-of-home advertising
industry, primarily through its Transit Network operation, which operates a
digital information network. The Transit Network's digital information network
is a network of computerized electronic displays that delivers information, both
text and graphics, to riders on-board public transit vehicles, utilizing an FM
subcarrier signal to transmit the data. The Transit Network currently operates
its digital information network on the Dallas Area Rapid Transit ("DART") bus
and rail system, having begun operations in 1991. The Company's contract with
DART expires on October 15, 2001. If DART decides it wants to continue having a
digital information network on its vehicles, as the Company believes it will,
DART must solicit new proposals for this project. If other interested parties
submit bids for this proposal, there can be no guarantee that the Company will
be the successful bidder.

         In 2000, the Company entered into an agency relationship, whereby the
Company will be selling truckside advertising. Under its arrangement, the
Company is responsible for selling the advertising, for which the Company
receives a commission calculated as a percentage of the revenue, which varies.

         In 1996, the Company acquired three Internet related businesses, and in
1998 disposed of such businesses. The Company incurred net losses of
approximately $2 million and $3 million during 1996 and 1997, and $322,000
during 1998, and losses from operations of $135,000 and $113,000 during 1999 and
2000. While losses from operations have decreased significantly, the Company has
not yet consistently generated positive cash flows from operations. The Company
has taken actions to reduce negative cash flows, including disposing of portions
of the business in 1998, reducing general and administrative expenses, and
minimizing capital expenditures. The Company has pursued merger possibilities
and continues to do so.

The Transit Network's Digital Information Network

         Background

         The Transit Network's digital information network is a network of
computerized electronic displays that delivers transit authority messages, news,
information and may optionally include advertising, to riders on-board public
transit vehicles. The network consists of specialized electronic LED displays,
transmission protocol, and control software. The system requires an agreement
with a local FM radio station for the use of an FM subcarrier frequency.

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<PAGE>

         The electronic display utilized on the DART vehicles is approximately
six inches high by twenty-six inches in length, strategically located behind and
slightly above the operator, and is visible from most areas inside the vehicle.
The software for the digital information network is licensed from Sunrise
Systems. See "--Digital Information Network Technology" and "--Software
License."

         News briefs, weather, trivia questions, sports reports and transit
authority information are continuously presented, and can be interspersed with
advertising messages as well. The program sequence runs approximately 12-15
minutes, generally assuring that the full program cycle is viewed more than once
during an average commute, which lasts approximately 30 minutes according to
United States Department of Transportation statistics. Programs are usually
updated twice a day, changing content to reflect the demographic profile of
riders at different times, to update the news, and to include new information
from the transit authority. By accessing the Internet, the Company is able to
obtain current programming information on news, weather, sports and
entertainment, and can monitor stories throughout the day, allowing for news
stories to be changed more frequently if the events of the day warrant such
updates. Advertising copy is usually supplied by the advertiser, while public
service and transit information announcements are provided by the transit
authority.

         The digital information network has other important capabilities,
including the ability to (i) target specific buses and routes with different
programming, (ii) custom design special programming, and (iii) display in
Spanish and other foreign languages. The network allows certain messages to be
displayed system-wide, on selected vehicles, or on selected routes. In addition
to regular programming, special programming can be custom-tailored for specific
events. This ability to target vehicles and routes is a feature of the system
that can be sold to advertisers desiring to reach specific riders. Targeting of
individual buses which have been chartered for one-day special events is also
available on the system.

         Digital Information Network Technology

         The digital information network consists of specialized electronic LED
displays, transmission protocol, and control software. The software allows a
programmer to enter information and entertainment data into a personal computer.
The program is updated via a modem connected between the programming site and
the transmitting location. It is then broadcast through an FM subcarrier
frequency and received by a small antenna located on each vehicle. The digital
information is then transferred into buffer memory inside the LED display. As
the program then being displayed completes its cycle, the new data automatically
replaces the old data without any interruption. The entire broadcast cycle -
from in-house computer, to transmitter, to transit vehicle, to its on-screen
appearance, can be completed in just minutes. The Company is responsible for
repairing or replacing its electronic displays that are defective or damaged
after installation. The Company performs monthly maintenance on all installed
message displays.

         Software License

         The Company licenses the software to operate its digital information
network from Sunrise Systems, pursuant to a License Agreement (the "Software
License") dated November 1, 1995, as amended. The Software License grants the
Company a perpetual, fully paid up license to use the software wherever it
wishes. The Software License is exclusive with regard to each metropolitan area
in the United States and Canada (the "Primary Territory") which has a population
of at least 100,000 people, and is otherwise non-exclusive in the Primary
Territory. In areas other than the United States and Canada (the "Option
Territory"), the Software License is non-exclusive, although the Software
License allows it to become exclusive if certain conditions are met.

                                       3
<PAGE>


         Dallas Area Rapid Transit

         In a 2000 industry survey, DART ranked 21st in the North American bus
transit market, with approximately 822 vehicles. The Company entered into a
contract with DART in October 1990, which granted the Company exclusive rights
to install and operate its digital information network on-board DART's buses for
a period of five years. Installation of the DART system was completed in August
1993. The Company and DART entered into a new contract in 1995 for an additional
three years. In 1997, the Company and DART modified their contract, whereby the
Company was granted approval to install its electronic information system on
DART's forty (40) light rail vehicles, the installation of which was completed
in July 1998. During 2000, DART received an additional fifty-five (55) trains,
and the Company is currently in the process of installing its system on these
vehicles.

         When the Company and DART modified their contract in 1997, they
simultaneously extended it through October 2001. Under the existing contract,
the Company pays DART 4% of its gross advertising receipts. In addition, DART
has reserved a permanent position on the digital information network program for
its exclusive use, as well as limited access to advertising space for its own
printed material. The Company must reserve up to 30% of available space on
interior advertising panels and one message block on the digital information
network during each cycle of messages for DART'S use and public service
announcements. Advertising revenues from the interior advertising panels account
for less than five percent of total advertising revenues and the reservation of
advertising space to DART does not materially affect the Company's total
advertising revenues. Maintenance of the digital information network is
subcontracted to an independent party. Each vehicle is inspected monthly to
ensure that the hardware is functioning properly and the program is accurately
displayed. Defective hardware is sent to a third party vendor for repair or
replacement.

         The Company's contract with DART expires on October 15, 2001. If DART
wishes to continue having a digital information network on its vehicles, as the
Company believes it does, DART must solicit new proposals for this project and
allow any and all interested parties to submit a bid. There can be no guarantee
that the Company will be the successful bidder.

         Advertiser Participation

         In the DART market, where The Transit Network depends on the sale of
advertising to generate revenues, its clients consist primarily of local
consumer products and service companies, as well as regional and local offices
of national companies.

         Competition for Advertisers

         The advertising industry is intensely competitive. The Company competes
for advertising dollars with all advertising and promotional channels, including
television, radio, magazines, newspapers and direct mailings. Management
believes that its primary competition is radio and newspapers, which charge
rates significantly higher than those charged by the Company. The Company
believes that the primary basis for competition in the advertising industry is
price and value, although other factors such as market coverage, audience
demographics, and time and cost of production are also of importance.

         Manufacturing, Supply and Installation

         The Company does not manufacture its hardware, but contracts with third
parties to produce the equipment. Sunrise Systems assembles The Transit
Network's hardware from components and subassemblies manufactured by others.
While the Company believes that most of such components and subassemblies are
available to Sunrise Systems from multiple sources, there can be no assurance

                                       4
<PAGE>

that Sunrise Systems will be able to obtain commitments from qualified
manufacturers to provide the components and subassemblies within the Company's
time and cost estimates. The Company incorporates both system and application
software, most of which is licensed from Sunrise Systems. See "-Software
License."

         The Company contracts with third party electrical contractors to
install the hardware in participating transit authority vehicles. The Company
has an agreement with a Dallas electrical contractor who has installed The
Transit Network's hardware in DART vehicles, whereby the contractor has the
right of first refusal to install the hardware in other transit systems in the
United States, unless there are union labor or transit authority requirements
which the contractor cannot meet.

Terminated Merger Settlement

         In February 1999, the Company entered into a Settlement Agreement and
Mutual Release with Internet Sports Network, Inc. ("ISN") terminating the
October 1998 Agreement and Plan of Merger between the parties. In connection
with the Settlement Agreement, the Company received approximately $320,000 cash
and delivered shares of ISN common stock to ISN such that the Company retained
ownership of 150,000 shares of ISN common Stock. The recorded value of the
475,000 ISN shares delivered to ISN pursuant to the Settlement Agreement of
$190,000 and costs incurred of $69,000 relating to the merger were removed from
investments in equity securities and other assets, respectively. Cash received
exceeded the recorded value of ISN related assets, exclusive of the remaining
recorded value of the retained shares, by $60,000 and has been included in other
income in the accompanying consolidated statement of operations as gain on
settlement in 1999.

         The Company's investment in 150,000 shares of ISN common stock (the
"ISN Stock") had a cost of $60,000 when purchased in mid-1998, which
approximated its estimated fair value during periods preceding the settlement.
During 2000, the market value of ISN stock declined significantly and the stock
had a reverse 6 for 1 stock split, such that the Company now owns 25,000
post-split shares. ISN stock is included in investments in equity securities at
its estimated fair value of $2,000 at December 31, 2000, and the unrealized loss
on these available-for-sale equity securities has been included in other expense
in the accompanying consolidated statement of operations as the decline in
market value is considered to be other-than-temporary.


ACIS Acquisition

         In 1997, the Company entered into a letter of intent with Advanced
Communication and Information Services, Inc. ("ACIS") to acquire all of its
capital stock in exchange for DDN common stock. Pursuant to the letter of
intent, the Company advanced approximately $1 million cash under terms of
promissory notes. ACIS defaulted on repayment of amounts owed, and in April
1998, the Company received a judgment against ACIS in the principal amount of
approximately $1.35 million, but has not received any payment. The Company
continues to monitor various collection actions but believes it is unlikely that
it will be successful in recovering any, all or part of this judgment. The
entire amount of the receivable was reserved during 1997. See "Legal
Proceedings."


Domain Name Litigation

         An action in damages for breach of settlement agreement has been
commenced against the Company in connection with the April 1998 settlement
agreement with the former shareholder of hip Communications. As part of that
settlement agreement, the Company was required to transfer the "hip.com" domain

                                       5
<PAGE>

name to the former shareholder. The Company has not transferred the domain name
and no longer has registration rights to such domain name. The Company has
contacted the party which has such registration rights and is attempting to
reacquire the hip.com domain name, but to date it has not been successful in
these efforts. The Company is also exploring the viability of disputing the
current ownership of the hip.com domain name under the Internet Corporation for
Assigned Names and Numbers's Uniform Name Dispute Resolution Policy. In March
2001, a notice of motion was filed in the Supreme Court of British Columbia that
the plaintiffs will make an application for an order for judgment in the action
seeking damages for breach of settlement.


Employees

         As of January 31, 2001, the Company had five employees, of whom four
were employed full-time, and one part-time.



Item 2.     Properties.

         The Company leases approximately 1,370 square feet in Dallas for
approximately $2,600 per month pursuant to a 2-year lease that terminates on
November 30, 2001.


Item 3.     Legal Proceedings.

         In 1997, the Company entered into a letter of intent with Advanced
Communication and Information Services ("ACIS") to acquire all of the capital
stock of ACIS in exchange for DDN common shares. Pursuant to the letter of
intent, the Company forwarded ACIS $1,048,000 cash under terms of promissory
notes for working capital pending completion of the acquisition. Subsequently,
ACIS withdrew from the letter of intent and defaulted on repayment of amounts
owed. In April 1998, the Company received a judgment from the King County
Superior Court in the State of Washington against ACIS, ordering ACIS to pay the
Company the amount of the loan, plus interest, plus a $300,000 cancellation fee.
The Company continues to monitor various collection actions but believes it is
unlikely that it will be successful in recovering any, all or part of this
judgment.

         An action in damages for breach of settlement agreement has been
commenced against the Company in connection with the April 1998 settlement
agreement with the former shareholder of hip Communications. As part of that
settlement agreement, the Company was required to transfer the "hip.com" domain
name to the former shareholder. The Company has not transferred the domain name
and no longer has registration rights to such domain name. The Company has
contacted the party which has such registration rights and is attempting to
reacquire the hip.com domain name, but to date it has not been successful in
these efforts. The Company is also exploring the viability of disputing the
current ownership of the hip.com domain name under the Internet Corporation for
Assigned Names and Numbers's Uniform Name Dispute Resolution Policy. In March
2001, a notice of motion was filed in the Supreme Court of British Columbia that
the plaintiffs will make an application for an order for judgment in the action
seeking damages for breach of settlement.

         In January 1999, the Company was named a defendant in a lawsuit brought
before a United States Bankruptcy Court by the Trustee for the estate of one of
the Company's former customers seeking to recover certain payments made by the

                                       6
<PAGE>

former customer within 90 days of its 1997 bankruptcy filing. The Trustee and
the Company agreed to a settlement of $2,500, and in June 2000, the Court
approved this settlement.

         The Company is subject to various legal proceedings and claims that
arise in the ordinary course of business. Company management currently believes
that resolution of such other legal matters will not have a material adverse
impact on the Company's financial position, results of operations or cash flows.


Item 4.     Submission of Matters to a Vote of Security Holders.

         No matter was submitted to a vote of security holders during the fourth
quarter of 2000.


                                     PART II

Item 5.   Market for Registrant's Common Equity and Related Stockholder Matters.

         (a) Since May 1998, the Company's Common Stock (symbol "DIDA") has been
reported on the OTC Electronic Bulletin Board. The following table sets forth
the high and low closing prices.


                     Period                     High              Low
                     ------                     ----              ---
                 1999:
                 1st Quarter                $   1.00           $  0.35
                 2nd Quarter                    0.75              0.15
                 3rd Quarter                    0.34              0.14
                 4th Quarter                    0.26              0.06
                 2000:
                 1st Quarter                    1.02              0.16
                 2nd Quarter                    0.69              0.16
                 3rd Quarter                    0.41              0.16
                 4th Quarter                    0.31              0.05


         The above prices represent inter-dealer prices, without retail mark-up,
mark-down or commissions, and may not represent actual transactions. The
Company's warrants, which expired unexercised on February 13, 2001, were
reported on the OTC Electronic Bulletin Board until the second quarter 1999,
after which prices for warrants were reported at less than $0.01.


         (b) As of February 15, 2001, the Company had approximately 158
shareholders of record.

         (c) The Company has never paid cash dividends on its Common Stock, and
currently intends to retain earnings, if any, for use in the operation of its
business and therefore does not anticipate paying any cash dividends on the
Common Stock in the foreseeable future.

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<PAGE>


Item 6.  Management's Discussion and Analysis of Financial Condition and
Results of Operations.

The following discussion and analysis should be read in conjunction with the
Company's Consolidated Financial Statements included elsewhere in this Annual
Report on Form 10-KSB (the "Annual Report"). This Annual Report contains
forward-looking statements that involve risks and uncertainties, such as
statements of the Company's plans, objectives, expectations and intentions.
Forward-looking statements, within the meaning of Section 21E of the Securities
and Exchange Act of 1934, are made throughout this Management's Discussion and
Analysis of Financial Condition and Results of Operations. For this purpose, any
statements contained herein that are not statements of historical fact may be
deemed to be forward-looking statements. Without limiting the foregoing, the
words "believes", "anticipates", "plans", "expects", "estimates" and similar
expressions are intended to identify forward-looking statements. There are a
number of important factors that could cause the results of the Company to
differ materially from those indicated herein. The cautionary statements made in
this Annual Report should be read as being applicable to all related
forward-looking statements wherever they appear in this Annual Report.

Background

In February 1996, the Company closed its initial public offering and received
net cash proceeds of approximately $5.8 million from the issuance of
approximately 1.3 million shares of common stock. Subsequent to its public
offering, the Company completed three business acquisitions. In June 1996, the
Company acquired all of the outstanding common stock of (i) ProNet, a Vancouver,
British Columbia, Canada based internet service provider, for 100,000 shares of
Company common stock, and (ii) Cyber America, also an internet-related business,
for 50,000 shares of Company common stock. In September 1996, the Company
acquired for 30,000 shares of Company common stock, all of the outstanding
common stock of hip Communications Inc., a web page design firm. As a result of
continuing cash flow losses, the Company closed its Cyber America and RIPTA
operations in 1997. In September 1998, the Company sold all of its interests in
its internet services business.

The Company currently generates advertising revenue in the out-of-home
advertising industry, primarily through its Transit Network operation, which
operates a digital information network. The Transit Network's digital
information network is a network of computerized electronic displays that
delivers information, both text and graphics, to riders on-board public transit
vehicles, utilizing an FM subcarrier signal to transmit the data. The Transit
Network currently operates its digital information network on the Dallas Area
Rapid Transit ("DART") bus and rail system, having begun operations in 1991. The
Company's contract with DART expires on October 15, 2001. If DART wishes to
continue having a digital information network on its vehicles, as the Company
believes it does, DART must solicit new proposals for this project and allow any
and all interested parties to submit a bid. While the Company intends to seek to
continue to provide services to DART and enter into a new contract to do so,
there can be no guarantee that the Company will be the successful bidder.

In 2000, the Company entered into an agency relationship, whereby the Company
will be selling truckside advertising. Under its arrangement, the Company is
responsible for selling the advertising, for which the Company receives a
commission calculated as a percentage of the revenue, which varies.

                                       8
<PAGE>


Results of Operations

         1999 Compared to 1998

Revenues increased to $589,000 for the year ended December 31, 1999 as compared
to $574,000 for the prior year, generally the increase resulting from new
clients, as renewals from continuing clients remain relatively comparable. Total
expenses decreased from $972,000 to $724,000 during 1999 as compared to 1998.
Direct costs remained relatively unchanged during 1999 as compared to 1998,
decreasing slightly in amount and as a percent of revenues. Salaries and related
decreased approximately 10%, or $36,000, as a result of elimination of certain
executive salaries, which was in effect for all of 1999 and a portion of 1998.
Marketing, general and administrative costs decreased $206,000 in 1999 due to
$80,000 of stock-based compensation expense recorded in 1998 relating to certain
repriced stock options, $55,000 of such expense reversed in 1999 as a result of
declines in the market price of the Company's common stock, and due to reduced
corporate related costs as a result of reduced merger and investment related
activity. The loss from operations decreased to $135,000 in 1999 as compared to
$409,000 in 1998.

In 1999, the Company entered into a Settlement Agreement and Mutual Release with
Internet Sports Network, Inc. ("ISN") terminating an Agreement and Plan of
Merger between the parties. In connection with the Settlement Agreement, the
Company received approximately $320,000 cash and delivered shares of ISN common
stock to ISN such that the Company retained ownership of 150,000 shares of ISN
common stock (the "ISN Stock"). The Company's investment in ISN Stock had a cost
of $60,000 when purchased in mid-1998, which approximated its estimated fair
value during periods preceding the settlement. The recorded value of the 475,000
ISN shares delivered to ISN pursuant to the Settlement Agreement of $190,000 and
costs incurred of $69,000 relating to the merger were removed from investments
in equity securities and other assets, respectively. Cash received exceeded the
recorded value of ISN related assets, exclusive of the remaining recorded value
of the retained shares, by $60,000 and is included in other income in the
accompanying consolidated statement of operations as gain on settlement.

Other income, net increased to $78,000 of net income in 1999 from $11,000 of net
expense during 1998, primarily the result of the $60,000 gain on termination of
merger settlement.

The Company continues to record a valuation allowance for the full amount of
deferred income taxes, which would otherwise be recorded for tax benefits
relating to operating losses, as realization of such deferred assets cannot be
determined to be more likely than not.

         2000 Compared to 1999

Revenues increased slightly from $589,000 in 1999 to $590,000 in 2000. Revenues
remained flat, due primarily to increased time spent developing a market for
truckside advertising, which resulted in less marketing and sales time for the
existing products.

Total expenses decreased to $703,000 from $724,000 during the year ended
December 31, 2000, as compared to the prior year. Direct costs decreased to
$170,000 from $197,000 primarily due to decreased depreciation expense in 2000
as more equipment became fully depreciated. Salaries and related remained

                                       9
<PAGE>

relatively unchanged, increasing to $343,000 from $337,000, as did marketing,
general and administrative, which remained at $190,000 for each year.

Other income, net decreased to $61,000 for the year ended December 31, 2000 from
$78,000 of income for 1999, primarily the result of the $60,000 gain on
termination of merger settlement in 1999, and a reduction of provision for
disputed liabilities of $105,000 offset by an unrealized loss on equity
securities in 2000 in the amount of $58,000.

Financial Condition, Liquidity and Capital Resources

The Company is subject to various legal proceedings and claims that arise in the
ordinary course of business. Company management currently believes that
resolution of such legal matters will not have a material adverse impact on the
Company's financial position, results of operations or cash flows. (See Legal
Proceedings.)

Operating activities provided cash of $7,000 during 2000 as compared to using
cash of $12,000 during 1999. Cash used by operating activities was, for the most
part, due to net losses for such years, such losses having decreased
significantly as compared to preceding years. Cash was also provided during 2000
by a prepayment for services to be provided, which resulted in an increase of
$153,000 in deferred revenue. Investing activities provided $246,000 of cash in
1999, primarily from the merger settlement, as compared to using cash of $32,000
for capital expenditures in 2000.

The Transit Network is currently re-installing the Company's information system
on new DART buses that are periodically being added to replace older buses, as
well as in new DART trains that are being added to their fleet. The Company is
funding these (re)installations primarily from existing cash and cash
equivalents. The Company's contract with DART is due to expire in October 2001
and DART is required to rebid the Contract. There can be no assurance that the
Company will be the successful bidder for the new contract.

At December 31, 2000, the Company's principal current assets consisted primarily
of approximately $347,000 of cash and cash equivalents, most of which was
invested in short-term, interest-bearing investments with banks, and $73,000 of
net accounts receivable. The Company's total liabilities of $572,000 consisted
of $251,000 of deferred revenue (a significant increase over previous years due
to additional deferred revenue from a truckside advertising client), $102,000 in
accounts payable and accrued payroll and related liabilities, other accrued
liabilities of $45,000, and $174,000 of notes payable.

The Company has incurred net losses for several years, including approximately
$2 million and $3 million during 1996 and 1997, and $322,000 during 1998. It was
in 1998 that the Company's securities were delisted from the Nasdaq SmallCap
Market as a result of non-compliance with tangible net worth continued listing
requirements. As noted in an explanatory paragraph in the Report of Independent
Certified Public Accountants on the Company's consolidated financial statements,
these conditions raised substantial doubt about the Company's ability to
continue as a going concern.

The Company has taken actions to reduce negative cash flows, including disposing
of portions of the business, such as the 1998 sale of the internet services
segment, reducing general and administrative expenses, and minimizing capital
expenditures. While losses from operations have decreased significantly to

                                     10
<PAGE>

$135,000 in 1999 and $113,000 in 2000, the Company has not yet consistently
generated positive cash flows from operations. The Company has pursued merger
possibilities and continues to do so. The ability of the Company to generate
positive cash flows from operations and net income, is dependent on, among other
things, market conditions, the receptiveness of the advertising community to the
Company's recently-introduced advertising products, the recovery of recorded
assets, cost control, and the Company's ability to raise capital under
acceptable terms. While the Company has had some successes in certain of these
endeavors in the past, there can be no assurance that its efforts will be
successful in the future. The accompanying financial statements do not include
any adjustments that might result from the outcome of these uncertainties.

Quantitative and Qualitative Disclosure about Market Risk

         The Company believes that it does not have any material exposure to
interest or commodity risks. The Company does not own any derivative instruments
and does not engage in any hedging transactions.

                                       11
<PAGE>



Item 7.     Financial Statements.
                                                                   Page
         Index to Financial Statements:                            F-1

         Report of Independent Certified Public Accountants        F-2

         Consolidated Balance Sheets                               F-3

         Consolidated Statements of Operations                     F-4

         Consolidated Statement of Stockholders' Equity            F-5

         Consolidated Statements of Cash Flows                     F-6

         Notes to Financial Statements                             F-7 to F-12

Item 8.   Changes In and Disagreements With Accountants on Accounting
          and Financial Disclosure.

         None.


                                    PART III

Item 9.  Directors, Executive Officers, Promoters and Control Persons;
         Compliance With Section 16(a) of the Exchange Act.

                        DIRECTORS AND EXECUTIVE OFFICERS

         Information regarding the executive officers and directors of the
Company as of December 31, 2000 is as follows:

Name                          Age         Position with the Company
----                          ---         -------------------------
Donald B. Scott, Jr.          45          President and Chairman of the Board

James F. Biagi, Jr.           44          Secretary and Director

Robert F. Hussey              51          Director

Richard J. Boeglin            43          Vice President, Finance and Operations
                                          Chief Financial Officer

Susan E. Hassel               54          Vice President, Sales

----------------


         The names and a brief description of their business experience for at
least the past five years of the directors and executive officers of the Company
follows:

                                       12
<PAGE>

         Donald B. Scott, Jr. has served as President and a director of the
Company since March 1993. In July 1996, Mr. Scott was also elected as the
Company's Chairman of the Board. Mr. Scott served as the Company's Acting
President from December 1992 through March 1993. Mr. Scott was previously a
principal of Rutkowski, Erickson, Scott ("RES"), a consulting firm, from 1991 to
July 1995. Prior to his association with RES, Mr. Scott was with Paine Webber in
New York from 1987 to 1991.

         James F. Biagi, Jr. has served as Secretary and a director of the
Company since its inception in 1988. He is a practicing attorney in Seattle,
Washington, and has been a principal of the law firm Monahan & Biagi since March
1996. Prior to Monahan & Biagi, Mr. Biagi practiced law at the firm Monahan &
Robinson since 1989, where he has specialized in tax, corporate and securities
matters.

         Robert F. Hussey has served as a director of the Company since November
1997. Mr. Hussey was President and CEO of MetroVision of North America, Inc., a
niche cable television company, from February 1991 until April 1997, when it
merged with York Hannover Health Care, Inc. Mr. Hussey has been a director of
IVEX Corporation since May 1993 and Nur Macroprinters Ltd. since December 1997,
as well as on the board of advisors for Kaufmann Fund since December 1996,
Argentum Capital Partners, I and II since June 1990, and Josephthal & Company,
Inc. since December 1997.

         Richard J. Boeglin has served as Vice President of Finance and
Operations and the Chief Financial Officer since April 1995. He has been with
the Company since 1991. He has fourteen years of management experience,
including direct management of transit system design, development and
installation. From 1987 to 1991, Mr. Boeglin worked in the outdoor advertising
industry.

         Susan E. Hassel has served as Vice President of Sales since she started
with the Company in April 1992. She has sixteen years of sales and marketing
experience. From 1985 until 1991, Ms. Hassel was the Director of Sales and
Marketing for The Relocation Center, a relocation counseling company in Dallas,
Texas.


                             SECTION 16 REQUIREMENTS

         Section 16(a) of the Securities Exchange Act of 1934 (the "Exchange
Act") requires the Company's directors and officers, and persons who own more
than 10% of a registered class of the Company's equity securities, to file
initial reports of ownership and reports of changes in ownership with the
Securities and Exchange Commission (the "SEC"). Such persons are required by SEC
regulations promulgated pursuant to the Exchange Act to furnish the Company with
copies of all Section 16(a) report forms they file with the SEC.

         The Company's registration statement under Section 12 of the Exchange
Act became effective February 13, 1996. Based solely on its review of the copies
of report forms received by it with respect to initial filings from reporting
persons, the Company believes that all filing requirements applicable to its
directors, officers and persons who own more than 10% of a registered class of
the Company's equity securities have been timely complied with in accordance
with Section 16(a) of the Exchange Act.

                                       13
<PAGE>




Item 10.          Executive Compensation.

The following table sets forth certain information regarding cash and non-cash
compensation paid by the Company during each of the Company's last three fiscal
years to the Company's Chief Executive Officer and the other most highly
compensated executive officer of the Company whose annual compensation exceeded
$100,000 during the fiscal year ended December 31, 2000 (the "Named Persons").

<TABLE>
<CAPTION>
                                                     Annual Compensation          Long-Term Compensation
                                                                                            Awards
Name and                                                                                 Securities
Principal Position                      Year            Salary           Bonus        Underlying Options
------------------                      ----            ------           -----        -------------------

<S>                                     <C>             <C>             <C>                <C>
Donald B. Scott, Chairman               2000            $    -0-        $ 10,000           44,723
  of the Board and President            1999                 -0-          20,000           20,000
                                        1998              38,000             -0-             -0-


Susan E. Hassel, V.P. Sales             2000            $125,697         $   -0-              559
                                        1999             125,561             -0-            8,943
                                        1998             121,929             -0-             -0-
----------------
</TABLE>


With respect to the Named Persons, by extending previously-issued options, the
Company's Board of Directors awarded the Company's President and Chairman of the
Board 44,723 options, and the Company's V.P. Sales, 559 options. In addition,
the Company's President and Chairman of the Board was awarded $10,000 for year
2000 services. No options were exercised by the Named Persons during 2000. The
following table sets forth information with respect to unexercised options held
by the Named Persons at December 31, 2000.



                                      Number of
                                      Securities            Value of
                                      Underlying           Unexercised
                                      Unexercised         In-the-Money
                                      Options at             Options
                                      Fiscal                At Fisal
                Name                  Year-End (1)          Year-End (1)(2)
                                               ---                   ---

Donald B. Scott, President            176,408             $
                                                               -0-
Susan E. Hassel, V.P. Sales            26,738             $    -0-

-----------------
(1)   All options were exercisable on December 31, 2000. The value of
      unexercised options is based on an estimated fair market value of the
      Company's Common Stock on December 31, 2000, of $.16 per share.
(2)   Options to officers and  directors  were repriced to $.125 per share in
      February, 2001.

                                       14
<PAGE>





                            COMPENSATION OF DIRECTORS

         As compensation for serving in 2000, directors were awarded $10,000
each. In addition, by extending previously-issued options, Messrs. Scott and
Biagi were awarded 44,723 options and 27,952 options, respectively, to purchase
the Company's common stock at an exercise price of $.25 per share, exercisable
until March 9, 2001. In February 2001, the Company repriced options for its
officers and directors to $.125 per share.


Item 11. Security Ownership of Certain Beneficial Owners and Management.

         The following table sets forth certain information with respect to the
beneficial ownership of the Company's Common Stock as of December 31, 2000, by
(i) each person or entity who beneficially owns 5% or more of the Common Stock,
(ii) each director, (iii) the Named Persons, and (iv) all officers and directors
of the Company as a group. Unless otherwise noted, the persons and entities
named below have sole voting and investment power with respect to such shares.
<TABLE>
<CAPTION>

Name of                                 Total Beneficial Ownership              Percent of Class Beneficially
Beneficial Owner                            (including options)                 Owned as of December 31, 2000
----------------                            -------------------                 -----------------------------

<S>                                            <C>     <C>                       <C>
Whiterock, Inc.                                328,500 (1)                       11.5%
Donald B. Scott, Jr., Chairman of
   the Board and President                     185,209 (2)                        6.5%
James F. Biagi, Jr., Secretary and Director    144,946 (3)                        5.1%
Robert F. Hussey, Director                     172,000 (4)                        6.0%
Susan E. Hassel, V.P. Sales                     27,857 (5)                        1.0%
All Executive Officers and Directors           594,047 (6)                       20.9%
  as a group (5 persons)
</TABLE>
-----------------------
    (1) According to a Schedule 13d filed with the Securities and Exchange
        Commission, Whiterock, Inc. is a Texas corporation, principally engaged
        in the business of investments, of which Mr. Kevan Casey is founder,
        president and chairman of the board.
    (2) Includes options to purchase 174,366 shares exercisable within 60 days.
    (3) Includes options to purchase 119,133 shares exercisable within 60 days.
    (4) Includes options to purchase 150,000 shares exercisable within 60 days.
    (5) Includes options to purchase 26,738 shares exercisable within 60 days.
    (6) Includes options to purchase 532,594 shares exercisable within 60 days.



Item 12. Certain Relationships and Related Transactions.

         During the period June 1996 through July 1997, through advances and the
payment of personal expenses, the Company's president and CEO, Donald B. Scott,

                                       15
<PAGE>

owed the Company approximately $42,000. The Company has been accruing interest
at various rates on this amount over the years. The Company's Board of Directors
awarded Mr. Scott $20,000 for services performed as a director in 1999, of which
$10,000 was used to reduce his note with the Company. As of December 31, 2000,
the balance of Mr. Scott's receivable was $40,000.


         In April 1999 the Company advanced one of its directors, Robert F.
Hussey, $100,000 pursuant to a promissory note bearing interest at the rate of
8% per year. The original note was to mature in September 1999, and has been
subsequently extended. The new maturity date is December 31, 2001. This note is
collateralized by shares of ISN stock and shares of Company common stock owned
by Mr. Hussey, as well as Mr. Hussey's options to purchase the Company's common
stock. The Company's Board of Directors awarded Mr. Hussey $35,000 for services
performed as a director in 1999, of which $25,000 was used to reduce his note
with the Company. As of December 31, 2000, the balance of Mr. Hussey's
receivable was $88,000.

         The Company believes that the foregoing transactions with its officers
and directors were on terms no less favorable than could have been obtained from
independent third parties. All future transactions with such persons will also
be on terms no less favorable than could be obtained from independent third
parties.

Item 13.     Exhibits and Reports on Form 8-K.

         (a) Exhibits - Consent of Independent Certified Public Accountants
dated March 15, 2001.



                                       16
<PAGE>


                                     EXHIBIT


               CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS


Digital Data Networks, Inc.
Dallas, Texas

We hereby consent to the incorporation by reference in the Company's Form S-8 of
our report dated March 15, 2001 relating to the consolidated financial
statements of Digital Data Networks, Inc. appearing in the Company's Annual
Report on Form 10-KSB for the year ended December 31, 2000. Our report contains
an explanatory paragraph regarding the Company's ability to continue as a going
concern.





BDO Seidman, LLP
Seattle, Washington
March 15, 2001





                                       17
<PAGE>



                                   SIGNATURES

In accordance with Section 13 or 15(d) of the Exchange Act, the registrant has
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.


                               DIGITAL DATA NETWORKS, INC.
                               (Registrant)


                               By:    /s/  Donald B. Scott
                                    ----------------------
                                    Donald B. Scott, Chairman of the Board
                                    (Principal Executive Officer)


                               Date:  March 28, 2001


In accordance with the Exchange Act, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.


Signatures                 Capacity                            Date


/s/  Donald B. Scott       Chairman of the Board,              March 28, 2001
----------------------
Donald B. Scott            President, Director,
                           (Principal Executive Officer)

/s/  James F. Biagi, Jr.   Secretary and Director              March 28, 2001
------------------------
James F. Biagi, Jr.


/s/  Robert  F. Hussey     Director                            March 28, 2001
------------------------
Robert F. Hussey


/s/  Richard J. Boeglin    Vice President, Finance and         March 28, 2001
------------------------   Operations (Principal Financial
Richard J. Boeglin         and Accounting Officer)




                                       18
<PAGE>

                           DIGITAL DATA NETWORKS, INC.
                        CONSOLIDATED FINANCIAL STATEMENTS


                                      INDEX

                                                              Page

Report of Independent Certified Public Accountants            F-2

Consolidated Balance Sheets                                   F-3

Consolidated Statements of Operations                         F-4

Consolidated Statement of Stockholders' Equity                F-5

Consolidated Statements of Cash Flows                         F-6

Notes to Financial Statements                                 F-7 to F-12











                                      F-1
<PAGE>



               REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS


To the Board of Directors and Stockholders of
Digital Data Networks, Inc.


         We have audited the accompanying consolidated balance sheets of Digital
Data Networks, Inc. and its subsidiaries ("the Company"), as of December 31,
1999 and 2000 and the related consolidated statements of operations,
stockholders' equity and cash flows for each of the years then ended. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.

         We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audits to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.

         In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Digital Data
Networks, Inc. and its subsidiaries as of December 31, 1999 and 2000, and the
results of their operations and their cash flows for the years then ended in
conformity with accounting principles generally accepted in the United States of
America.

         The accompanying financial statements have been prepared assuming the
Company will continue as a going concern. As discussed in Note 2 to the
consolidated financial statements, the Company has incurred recurring losses
from operations and has experienced negative cash flows from operations.
Additionally, the Company's contract with Dallas Area Rapid Transit ("DART") is
due to expire in October 2001 and DART is required to rebid the contract. There
can be no assurance that the Company will be the successful bidder of the new
contract. These conditions raise substantial doubt about the Company's ability
to continue as a going concern. Management's plans concerning these matters are
also described in Note 2. The financial statements do not include any
adjustments that might result from the outcome of these uncertainties.



BDO Seidman, LLP
Seattle, Washington



March 15, 2001

                                      F-2

<PAGE>


                           DIGITAL DATA NETWORKS, INC.
                           CONSOLIDATED BALANCE SHEETS
                             (Dollars in thousands)


<TABLE>
<CAPTION>
                                                                                          December 31,
                                                                                  ---------------------------

                                                                                      1999              2000
                                                                                      ----              ----
Current assets
<S>                                                                               <C>               <C>
  Cash and cash equivalents                                                       $    372          $    347
  Trade accounts receivable, net of allowance
     for doubtful accounts of $8                                                        56                73
  Prepaid expenses and other current assets                                              3                63
  Receivables from officer and director, net of reserves (Note 8)                       81                87
                                                                                  --------          --------
     Total current assets                                                              512               570
Equipment, net (Notes 4 and 5)                                                          28                44
Investments in equity securities (Note 3)                                              150                 2
Other assets                                                                             2                 1
                                                                                  --------          --------

Total assets                                                                      $    692          $    617
                                                                                  ========          ========


Current liabilities
  Accounts payable                                                                $     49          $     81
  Accrued payroll and related                                                           20                21
  Deferred revenue                                                                      98               251
  Other accrued liabilities                                                            151                45
  Notes payable (Note 5)                                                                 -               174
                                                                                  --------          --------   ---
     Total current liabilities                                                         318               572
Long-term notes payable (Note 5)                                                       166                 -
                                                                                  --------          --------
     Total liabilities                                                                 484               572
                                                                                  --------          --------   ---

Commitments and contingencies (Notes 2, 10, and 11)

Stockholders' equity
  Preferred stock, no par value, 1,000,000 shares authorized,
     no shares issued or outstanding                                                     -                 -
  Common stock, no par value, 10,000,000 shares authorized,
    2,314,597 shares issued and outstanding (Note 7)                                13,418            13,397
  Treasury stock, at cost, 30,000 shares                                                (7)               (7)
  Unrealized appreciation on equity securities available
    for sale (Note 3)                                                                   90                 -
  Accumulated deficit                                                              (13,293)          (13,345)
                                                                                  --------          --------
     Total stockholders' equity                                                        208                45
                                                                                  --------          --------

     Total liabilities and stockholders' equity                                   $    692          $    617
                                                                                  ========          ========
</TABLE>








                 See accompanying notes to financial statements

                                      F-3
<PAGE>

                           DIGITAL DATA NETWORKS, INC.
                      CONSOLIDATED STATEMENTS OF OPERATIONS
                      (in Thousands, Except Per Share Data)

<TABLE>
<CAPTION>
                                                              Year Ended December 31,
                                                             --------------------------
                                                                1999             2000
                                                              --------         --------

<S>                                                           <C>              <C>
Revenues                                                      $   589          $   590
                                                              --------          -------

Expenses:
   Direct operating costs                                         197              170
   Salaries and related                                           337              343
   Marketing, general and administrative                          190              190
                                                              --------         --------

      Total expenses                                              724              703
                                                              --------         --------

Loss from operations                                             (135)            (113)
                                                              --------         --------

Other income (expense):
   Interest expense                                               (10)              (8)
   Investment income                                               28               22
   Unrealized loss on equity securities                             -              (58)
   Reduction of provision for disputed liabilities                  -              105
   Gain on merger termination settlement (Note 3)                  60                -
                                                              --------         --------


      Total other income (expense), net                            78               61
                                                              --------         --------

Net loss                                                      $   (57)         $   (52)
                                                              ========         ========

Net loss per share - basic and diluted                        $ (0.02)         $ (0.02)
                                                              ========         ========

Weighted average shares outstanding                             2,284            2,284
                                                              ========         ========
</TABLE>





















                 See accompanying notes to financial statements
                                      F-4

<PAGE>


                           DIGITAL DATA NETWORKS, INC.
                 CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
                                 (in Thousands)

<TABLE>
<CAPTION>
                                                                            Unrealized
                                                                            Appreciation
                                                                            on Equity
                                                                            Securities
                                  Common Stock        Treasury Stock        Available      Accumulated
                               Shares    Amount      Shares    Amount        For Sale       Deficit       Total
                               ------   --------     ------    ------        --------      ----------     -----

<S>                            <C>      <C>             <C>    <C>           <C>           <C>            <C>
Balance, January 1, 1999       2,314    $ 13,473        30     $  (7)        $    -        $(13,236)      $  230


Net loss                           -           -         -          -             -             (57)         (57)
Unrealized appreciation
on equity securities               -           -         -          -            90               -           90
available for sale
Total comprehensive income         -           -         -          -             -               -           33

Stock-based compensation           -         (55)        -          -             -               -          (55)
                               ------   ---------    ------    -------       -------       ----------     ------

Balance, December 31, 1999     2,314      13,418        30        (7)            90         (13,293)         208

Net loss                           -           -         -          -             -             (52)         (52)
Decrease in unrealized
 appreciation on equity
 securities available for          -           -         -          -           (90)              -          (90)
 sale
Total comprehensive income         -           -         -          -             -               -         (142)
Stock-based compensation           -         (21)        -          -             -               -          (21)
                               ------   ---------    ------    -------       -------       ----------     ------


Balance, December 31, 2000     2,314    $ 13,397        30     $  (7)        $    -        $(13,345)      $   45
                               ======   =========    ======    =======       =======       ==========     ======

</TABLE>























                 See accompanying notes to financial statements
                                      F-5

<PAGE>


                           DIGITAL DATA NETWORKS, INC.
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (in Thousands)

<TABLE>
<CAPTION>
                Increase (Decrease) in Cash and Cash Equivalents

                                                                                Year Ended December 31,
                                                                                -----------------------
                                                                                    1999           2000
Cash flows from operating activities                                                ----           ----
<S>                                                                              <C>            <C>
Net Loss                                                                         $      (57)    $     (52)
   Adjustments to reconcile net loss to net cash
     used by operating activities
       Depreciation and amortization                                                     74            16
       Unrealized loss on equity securities                                               -            58
       Reduction of provision for disputed liabilities                                    -          (105)
       Gain on merger termination settlement                                            (60)            -
       Compensatory option expense                                                      (55)          (21)
       Increase in accounts receivable                                                  (18)          (17)
       Decrease (increase) in prepaid expenses and other current assets                  43           (60)
       Increase in accounts payable and other current liabilities                        48            32
       Increase in deferred revenue                                                      30           153
       Other                                                                            (17)            3
                                                                                  ----------     ---------
Net cash provided (used) by operating activities                                        (12)            7
                                                                                  ----------     ---------

Cash flows from investing activities
   Purchases of equipment                                                                 -          (32)
   Advances on notes receivable to director                                            (100)           -
   Proceeds from terminated merger settlement                                           319            -
   Receipt of payments on notes receivable                                               27            -
                                                                                  ----------    ---------
Net cash provided (used)  by investing activities                                       246          (32)
                                                                                  ----------     --------

Cash flows from financing activities
   Debt principal payments                                                              (13)           -
                                                                                  ----------     --------
Net cash used by financing activities                                                   (13)           -
                                                                                  ----------     --------

Net increase (decrease) in cash and cash equivalents                                    221          (25)

Cash and cash equivalents
   Beginning of year                                                                    151          372
                                                                                  ----------     ---------

   End of year                                                                   $      372     $    347
                                                                                  ==========     =========
</TABLE>













                 See accompanying notes to financial statements
                                      F-6

<PAGE>


                           DIGITAL DATA NETWORKS, INC.
                          NOTES TO FINANCIAL STATEMENTS

Note 1  Description of Business and Summary of Significant Accounting Policies

Digital Data Networks, Inc. ("the Company" or "DDN"), a wireless, passenger
communication and advertising company, is principally engaged in the operation
of a "digital information network", a network of computerized electronics
message displays that deliver current news, information and advertising to
riders on-board public transit vehicles. The digital information network
consists of a series of electronic information displays utilizing digital radio
transmission technology. The Company, incorporated in 1988, operates a digital
information network in operation in Dallas, Texas under the name The Transit
Network.

Principles of Consolidation - The consolidated financial statements of DDN
include the accounts of its subsidiaries after elimination of intercompany
balances and transactions.

Cash and Cash Equivalents - For purposes of balance sheet classification and the
statements of cash flows, the Company considers all highly liquid investments
purchased with an original maturity of three months or less to be cash
equivalents.

Equipment - Equipment is stated at cost. Depreciation is computed using the
straight-line method over the estimated useful lives of the respective assets,
which typically range from three to seven years.

Impairment of Long-Lived Assets - In accordance with the provisions of Statement
of Financial Accounting Standards ("SFAS") No. 121, "Accounting for the
Impairment of Long-lived Assets and for Long-lived Assets to be Disposed Of",
management of the Company reviews the carrying value of its equipment and
intangible assets on a regular basis. Estimated undiscounted future cash flows
from operations is compared to current carrying value. Reductions or reserves
against assets, if necessary, are recorded to the extent the net book value of
the asset exceeds the estimate of future undiscounted cash flows on an aggregate
basis.

Investments in Equity Securities - The Company's investments in equity
securities are stated at estimated market value and considered available for
sale. Unrealized gain (loss) on equity securities available for sale are
recorded as a separate component of stockholders' equity, unless unrealized
losses resulting from declines in market value are considered other than
temporary. If declines in market value are considered to be other than
temporary, then the unrealized loss is recognized as a loss in the statement of
operations.

Income Taxes - The Company accounts for income taxes in accordance with the
provisions of SFAS No. 109, "Accounting for Income Taxes". SFAS No. 109 requires
recognition of deferred income taxes to provide for temporary differences
between financial reporting and tax basis of assets and liabilities. Deferred
taxes are measured using enacted tax rates expected to be in effect in years in
which temporary differences are expected to reverse.

Fair Value of Financial  Instruments - Carrying  amounts reported in the balance
sheet  for  cash  and  cash  equivalents,   trade  accounts  receivable,   notes
receivable,  other current assets,  accounts  payable and other accrued expenses
approximate  fair value  because of their  immediate or short-term  nature.  The
carrying  amount  reported  in the  balance  sheet  for  investments  in  equity
securities  approximates  fair value because they are stated at estimated market
value  based upon  recent  transactions  in such  securities.  The fair value of
long-term debt approximates its carrying value because of its near-term maturity
date.

Revenue Recognition - The Company records revenue over the contractual period
which services are provided. To the extent payment is received in advance of the
contractual period expiration, such prepaid amounts are recorded as deferred
revenue until services are provided.

Stock-Based Compensation - Statement of Financial Accounting Standards No. 123,
"Accounting for Stock-Based Compensation", ("SFAS 123") encourages, but does not
require, companies to record compensation cost for stock-based employee
compensation plans at fair value. The Company has chosen to continue to account
for stock-based employee compensation utilizing the intrinsic value method
prescribed in Accounting Principles Board Opinion No. 25, "Accounting for Stock
Issued to Employees" and related interpretations. Accordingly, compensation cost
for stock options is measured as the excess, if any, of the quoted market price
of the Company's stock at the date of

                                      F-7

<PAGE>

Note 1 Description of Business and Summary of Significant Accounting Policies
(continued)

grant over the amount an employee must pay to acquire the stock. If stock
options are repriced, the effects of changes in the stock price are recognized
as compensation expense in accordance with accounting for variable stock option
plans. Had the Company accounted for stock-based compensation at fair value in
accordance with SFAS 123, the pro forma financial statement effect on net loss
would have been insignificantly different from actual amounts.

Net Loss Per Share - Basic "Earnings Per Share" ("EPS") is computed as net
income (loss) divided by the weighted average number of common shares
outstanding for the period. Diluted EPS reflects the potential dilution that
could occur from common shares issuable through stock options, warrants and
other convertible securities. As the Company's stock options and warrants for
approximately 2.6 million shares of Company common stock at December 31, 1999
and 2000 are antidilutive, only basic EPS is presented. These securities could
potentially dilute future EPS calculations.

Accounting Estimates - Preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the financial statement date
and reported amounts of revenues and expenses during reported periods. Actual
results could differ from those estimates.

Comprehensive Income - Statement of Financial Accounting Standards No. 130,
Reporting Comprehensive Income establishes standards for reporting and
presentation of comprehensive income and its components in a full set of
financial statements. Comprehensive income consists of the net loss for the year
and the increase or decrease in unrealized appreciation on equity securities
available for sale, and is presented in the consolidated statement of
stockholders' equity.

Note 2  Financial Condition, Liquidity and Going Concern

While losses from operations have decreased to $135,000 in 1999 and $113,000 in
2000, the Company has not yet consistently generated positive cash flows from
operations. The Company has incurred net losses for several years, including
approximately $2 million and $3 million in 1996 and 1997 and $322,000 in 1998.
It was in 1998 that the Company's securities were delisted from the Nasdaq
SmallCap Market as a result of non-compliance with tangible net worth
requirements. These conditions raise substantial doubt about the Company's
ability to continue as a going concern.

The Company's contract with DART expires on October 15, 2001. If DART wishes to
continue having a digital information network on its vehicles, as the Company
believes it does, DART must solicit new proposals for this project and allow any
and all interested parties to submit a bid. While the Company intends to seek to
continue to provide services to DART and enter into a new contract to do so,
there can be no guarantee that the Company will be the successful bidder.

The Company has taken actions to reduce negative cash flows, including disposing
of portions of the business, such as the 1998 sale of the internet services
segment, reducing general and administrative expenses, and minimizing capital
expenditures. The Company has pursued merger possibilities and continues to do
so. The ability of the Company to generate positive cash flows from operations
and net income, is dependent, among other things, on market conditions, the
yet-to-be-determined receptiveness by the advertising community to the Company's
recently-introduced advertising products, the recovery of recorded assets, cost
control, and the Company's ability to raise capital under acceptable terms.
While the Company has had some successes in these endeavors in the past, there
can be no assurance that its efforts will be successful in the future. These
financial statements do not include any adjustments that might result from the
outcome of these uncertainties.

                                      F-8
<PAGE>

Note 3  Terminated Merger Settlement

In 1999, the Company entered into a Settlement Agreement and Mutual Release with
Internet Sports Network, Inc. ("ISN") terminating an Agreement and Plan of
Merger between the parties. In connection with the Settlement Agreement, the
Company received approximately $320,000 cash and delivered shares of ISN common
stock to ISN such that the Company retained ownership of 150,000 shares of ISN
common stock (the "ISN Stock"). The recorded value of the 475,000 ISN shares
delivered to ISN pursuant to the Settlement Agreement of $190,000 and costs
incurred of $69,000 relating to the merger were removed from investments in
equity securities and other assets, respectively. Cash received exceeded the
recorded value of ISN related assets, exclusive of the remaining recorded value
of the retained shares, by $60,000 and is included in other income in the
accompanying consolidated statement of operations as gain on settlement.

The Company's investment in ISN Stock had a cost of $60,000 when purchased in
mid-1998, which approximated its estimated fair value during period preceding
the settlement. ISN Stock is included in investments in equity securities at its
estimated fair value of approximately $150,000 and $2,000 at December 31, 1999
and 2000, respectively. At December 31, 1999, the unrealized appreciation on
these available-for-sale securities is included as a separate component of
stockholders' equity. At December 31, 2000, the unrealized loss is recognized as
a loss in the statement of operations, as the decline in market value is
considered to be other than temporary.

Note 4  Equipment

Equipment consists of the following (in thousands):
                                                                December 31,
                                                                ------------
                                                              1999       2000
                                                              ----       ----
Equipment installed in public transit vehicles              $ 1,485    $ 1,510
Office equipment and other                                       32         15
                                                            -------    -------
                                                              1,517      1,525
Accumulated depreciation                                     (1,489)    (1,481)
                                                            --------    -------
Equipment, net                                              $    28    $    44
                                                            ========   =======


Note 5  Note Payable and Long-Term Debt

The Company's long-term debt consists of a promissory note payable to Dallas
Area Rapid Transit ("DART"). The note bears interest at 5% per annum, is secured
by equipment installed on DART pubic transit vehicles, and is due in full,
including accrued interest, in October 2001.


Note 6  Software License and Supply Agreement

Pursuant to terms of a 1993 agreement, as amended, the Company's Transit Network
Division licenses substantially all of its computer software, which is an
essential element of the digital information network, from an electronics
supplier and software development company. The fully-paid license provides the
Company with exclusive rights to such software in metropolitan areas of the
United States and Canada with populations over 100,000 and nonexclusive rights
elsewhere in the world.


Note 7  Common Stock and Stock Options

In February 1996, the Company closed its initial public stock and warrant
offering and received net cash proceeds of approximately $5.8 million, after
deduction for underwriters commissions and certain other offering related costs.
The Company issued 1,322,500 shares of its common stock and 1,840,000 of its
common stock purchase warrants. Each warrant entitles the holder to purchase one
share of the Company's common stock at an exercise price of $6 per share during
the five years commencing upon issuance. All of the 1,840,000 warrants expired,
unexercised, on February 13, 2001.

                                      F-9
<PAGE>

Note 7  Common Stock and Stock Options (continued)

During 1994, the Company adopted a Combined Incentive and Non-Qualified Stock
Option Plan (the "1994 Plan") which permits the issuance of options to acquire
shares of Company common stock. The 1994 Plan permits grants of incentive stock
options to employees and of non-qualified stock options to employees, directors,
consultants or independent contractors of the Company. The exercise price of
incentive stock options shall not be less than the fair market value of Company
common stock at the date of grant. The exercise price of non-qualified stock
options may be greater or less than the fair market value of Company common
stock at the date of grant. The duration of options shall be established by the
Board of Directors, and shall not exceed ten years. During 1996, the Company
adopted a Combined Incentive and Non-Qualified Stock Option Plan (the "1996
Plan") with provisions similar to the 1994 Plan. The 1994 Plan and 1996 Plan
reserve approximately 112,000 shares and 250,000 shares, respectively, of common
stock for grant and provides that terms of each award be determined by the Board
of Directors. Prior to 1998, the Company granted approximately 323,000 options
under the 1994 and 1996 Plans.

During 1999, the Company granted to employees and directors approximately
118,000 options to purchase common stock at an exercise price of $.50 per share,
expiring in 2009. During 2000, the Company repriced 90,000 options granted to
directors having an exercise price of $.50 to $.30 per share, and extended the
life of approximately 74,000 options granted to officers and directors having an
exercise price of $.25 per share for one year to March 2001. No options have
been exercised. As a result of decreases in the excess of estimated fair value
of Company common stock over the exercise price for repriced options, which
approximated $25,000 at December 31, 1999 and nil at December 31 2000, the
Company recognized expense reversals of $55,000 and $25,000 during 1999 and
2000.

All stock options granted had an exercise price not less than the fair market
value of the Company's common stock on the date of grant. The following
summarizes stock option activity during the two years ended December 31, 2000
and represent exercise prices as adjusted for repricings (thousands of shares):
<TABLE>
<CAPTION>

                                                                    Exercise Price      Weighted Average
                                                   Shares              Per Share         Exercise Price
                                                ----------          ---------------      -----------------
<S>                                                  <C>            <C>      <C>           <C>
  Outstanding at December 31, 1998                    714           $0.09 to $19.68        $   4.75


  Granted or extended                                 118           $ .50                  $   0.50
  Expired or extended                                 (44)          $1.75 to $19.68        $   4.93
                                                ----------          ---------------

  Outstanding at December 31, 1999                    788           $0.09 to $ 9.93        $   4.59


  Repriced or extended                                173           $0.25 to $ 0.30        $   0.28
  Expired, repriced or extended                      (184)          $0.25 to $ 8.94        $   0.80
                                                ------------        ---------------


  Outstanding at December 31, 2000                    777           $0.09 to $ 9.93        $   1.15
                                                ==============      ===============
</TABLE>


Information relating to outstanding and exercisable stock options at December
31, 2000, summarized by exercise price are as follows (thousands of shares):
                                                  Weighted Average
                                          -------------------------------------

            Range of                      Remaining Life
      Exercise Price          Shares         in Years         Exercise Price
   ------------------         ------      --------------      --------------
   $  0.09 to $  0.30           676               1.6              $  0.25
   $  0.89 to $  1.75            17               1.2                 1.47
   $  4.47 to $  6.71            29               1.3                 5.41
   $  8.94 to $  9.93            55               2.7                 9.78
                              ------

                                777                 -              $  1.15
                              ======

                                      F-10
<PAGE>

Note 8  Related Party Transactions

Prior to 1998, the Company made cash advances to its President, who is also one
of the Company's directors, which approximated $42,000. The Company has
continued to request repayments on amounts due, although none have been made to
date. During 1998, the entire amount of the receivable was reserved. During
1999, the Company's Board of Directors authorized a $10,000 reduction in this
receivable in consideration for consulting services provided. Since the
receivable had been fully reserved in 1998, no net additional expense was
recognized in 1999. At December 31, 2000, the total receivable, which is fully
reserved, approximated $42,000, including accrued interest.

Included in receivables from officer and directors at December 31, 1999 and 2000
is $81,000 and $88,000 respectively, due from one of the Company's directors
pursuant to terms of an 8% promissory note, which had an original principal
balance of $100,000. The note's maturity date has been extended and is now due
December 31, 2001. The note is collateralized by shares of ISN and Company
common stock owned by the director and the director's options to purchase
Company common stock. During 1999, the Company's Board of Directors authorized a
$25,000 reduction in the note receivable in consideration for consulting
services, which has been recorded as consulting expense included in marketing,
general and administrative expense.


Note 9  Income Taxes

At December 31, 1999 and 2000, the Company had deferred tax assets of
approximately $2.7 million, principally arising from net operating loss
carryforwards. As management of the Company cannot determine that it is more
likely than not that the Company will receive the benefit of these assets, a
valuation allowance equal to the deferred tax asset has been established.

As of December 31, 2000 the Company had net operating loss carryforwards
available to reduce future taxable income of approximately $7.9 million, which
begin to expire in 2006. As a result of changes in stockholder ownership,
utilization of net operating loss carryforwards could be subject to annual
limitation.


Note 10  Operating Lease Commitments

The Company leases an FM subcarrier for transmission to electronic display signs
located on-board public transit vehicles. The FM subcarrier lease is pursuant to
an agreement expiring December 2001, which requires annual payments of $30,000.
Also, the Company leases an office facility under an operating lease with
monthly payments of approximately $2,600 expiring in November 2001. Future
annual minimum lease payments for all leases approximate $59,000 for 2001. Rent
expense for 1999 and 2000 was $60,000 and $61,000, respectively.


Note 11  Commitments and Contingencies

In 1998, the Company settled litigation between the Company and the former
stockholder of hip Communications pertaining to the Company's 1996 acquisition
of that company. In 1999, an action in damages for breach of settlement
agreement was commenced against the Company. As part of that settlement
agreement, the Company was required to transfer the "hip.com" domain name to the
former shareholder. The Company has not transferred the domain name and no
longer has registration rights to such domain name. The Company has contacted
the party which has such registration rights and is attempting to reacquire the
hip.com domain name. The Company is also exploring the viability of disputing
the current ownership of the hip.com domain name under the Internet Corporation
for Assigned Names and Numbers's Uniform Names and Dispute Resolution Policy.
Due to the early stage of this litigation and, as no amounts were named in this
action, the Company is unable to determine the consequences, monetary or
otherwise, which might result from the outcome of this uncertainty.

                                      F-11
<PAGE>


Note 11  Commitments and Contingencies (continued)

In 1997, the Company entered into a letter of intent with Advanced Communication
and Information Services ("ACIS") to acquire all of the capital stock of ACIS in
exchange for DDN common shares. Pursuant to the letter of intent, the Company
forwarded ACIS approximately $1 million cash under terms of promissory notes.
Subsequently, ACIS issued to the Company 1,000,000 shares of ACIS common stock
and withdrew from the letter of intent. ACIS defaulted on repayment of amounts
owed, and in April 1998, the Company received a judgment from the King County
Superior Court in the State of Washington against ACIS in the principal amount
of $1.35 million. Collection efforts with respect to this judgment have not
resulted in any recovery, nonetheless, the Company continues to monitor various
collection actions. There can be no assurance that the Company will recover any,
all, or part of this judgment. The entire amount of the receivable was reserved
during 1997.

The Company has a contract, which expires in October 2001, to provide services
with the Dallas Area Rapid Transit authority ("DART") that includes a provision
for a 4% royalty payable to DART on certain gross advertising receipts.

During the year ended December 31, 2000, the Company received no communications
from former vendors regarding previously recorded disputed liabilities, and
since it had been more than three years from invoice dates and more than a year
of no follow-up communications from vendors contesting the Company's dispute,
the Company reduced amounts previously provided for these liabilities by
$105,000 in the fourth quarter. The reduction of previously provided liabilities
is included in other income.

The Company is subject to various legal proceedings and claims that arise in the
ordinary course of business. Company management currently believes that
resolution of other various legal proceedings will not have a material adverse
impact on the Company's financial position, results of operations or cash flows.


Note 12  Segment, Geographic and Significant Customer Information

Revenues from major customers exceeding 10% of total revenue for 1999 included
two customers, Dallas County Community College District ("DCCCD") and Aegis
Communications, accounting for approximately 17% and 11% of consolidated
revenues, respectively. During 2000, revenues from major customers exceeding 10%
of total revenue included DCCCD, which accounted for approximately 17% of
consolidated revenues.

                                      F-12