U.S. SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549


                                   FORM 10-KSB

[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
    OF 1934 (FEE REQUIRED)

                  For the fiscal year ended December 31, 2000

                                       OR

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
    ACT OF 1934 (NO FEE REQUIRED)

  For the transition period from ____________________ to ____________________

                           Commission File No. 0-28348
                                     -------

                              DBS INDUSTRIES, INC.
                 (Name of small business issuer in its charter)




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


100 Shoreline Highway, Suite 190A     Mill Valley, California        94941



(Address of principal executive                                    (Zip Code)
offices)




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



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

Securities registered under Section
12(g) of the Exchange Act:              Common Stock, par value $.0004 per share




<PAGE> 2


     Indicate  by check  mark  whether  the  issuer  (1) has 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 issuer was required to file such
reports),  and (2) has been subject to such filing  requirements for the past 90
days.

         YES    X       NO
             --------      -------

     Indicate by check mark if disclosure of delinquent  filers pursuant to Item
405 of Regulation S-K is contained herein, or 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. [ ]

     Issuer's revenues for its most recent fiscal year: $ -0-.

     As of March 15, 2001, the aggregate market value for the 19,001,861  shares
of the Common  Stock,  par value $.0004 per share,  held by  non-affiliates  was
approximately $7,125,698.

     The  number of shares  outstanding  of  registrant's  only  class of Common
Stock,  as of March 15, 2001,  was  19,704,331  shares of its Common Stock,  par
value $.0004 per share.

                      DOCUMENTS INCORPORATED BY REFERENCE:

     Certain  exhibits  required by Item 13 have been  incorporated by reference
from the  Company's  previous  Form  10-KSBs,  Form 8-Ks,  and its  Registration
Statements on Form SB-2.

     Information  called  for by  Items 9  through  12 of  Part  III  have  been
incorporated  by  reference  to the  Company's  Proxy  Statement  for its annual
meeting of shareholders to be filed within 120 days of its fiscal year end.


     Exhibit Index is located at Page 29.




                                     PART I

                           FORWARD-LOOKING STATEMENTS

     This report contains forward-looking statements, as that term is defined in
the Private  Securities  Litigation  Reform Act of 1995,  in the items  entitled
"Business,"  "Management's  Discussion  and Analysis of Financial  Condition and
Results of Operations," and elsewhere.  These statements relate to future events
or  our  future  financial   performance.   In  some  cases,  you  can  identify
forward-looking  statements  by  terminology  such as "may,"  "will,"  "should,"
"expects,"  "plans,"   "anticipates,"   "believes,"   "estimates,"   "predicts,"
"potential"  or  "continue"  or the negative of these terms or other  comparable
terminology. These statements are only predictions and involve known and unknown
risks,  uncertainties  and other  factors,  including  the risks set forth below
under  "Risk  Factors,"  that may cause our or our  industry's  actual  results,
levels of activity,  performance or achievements to be materially different from
any future results, levels of activity, performance or achievements expressed or
implied by these forward-looking statements.

         Although   we  believe   that  the   expectations   reflected   in  the
forward-looking  statements are reasonable,

<PAGE> 3

we  cannot  guarantee  future  results,  levels  of  activity,   performance  or
achievements.  Except as required by applicable  law,  including the  securities
laws of the United States, we do not intend to update any of the forward-looking
statements  after the date of this report to conform these  statements to actual
results.


ITEM 1. BUSINESS

BUSINESS

Overview

We  are  a   telecommunications   company  dedicated  to  providing  a  low-cost
satellite-to-Internet  data  messaging  service  to and from  remote  locations.
Through our ownership interest in E-SAT, Inc., we are the only company currently
licensed by the FCC to provide  commercial two-way data messaging services using
the  code  division  multiple  access,  or  CDMA,  technology  and  Little  LEO,
low-earth-orbiting  satellites,  known as the NewStar System. We expect to begin
providing our data messaging services in 2002. Our initial target market is data
collection and communications with energy meters in hard to access locations.

Historically,  remote and hard to access energy  meters have been  expensive for
utility  companies to read as a result of the  significant  time and labor costs
involved in collecting the data.  Using low earth orbit  satellites,  we believe
that we will be able to collect data from those meters at a significantly  lower
cost to utility companies and in a more timely manner.  This should also improve
the ability of utility  companies to manage the  distribution of valuable energy
resources.  By  focusing on the  collection  of data in remote or hard to access
locations,  we  believe  we can limit the  competition  from  terrestrial  based
technologies,  like cellular communications,  where the infrastructure costs are
generally too high to justify implementation.

We have  also  identified  other  significant  follow-on  markets  for our  data
messaging services including, the collection of data from propane tanks, oil and
gas  wellheads  and gas  pipelines,  checking the  inventory  and cash status of
vending  machines and the  monitoring of air and water quality of waste disposal
sites in various geographic regions.

The NewStar System is designed for use with a small  constellation  of low earth
orbiting satellites.  The term "LEO" is shorthand for low-earth-orbit satellites
and the term "Little LEO" is shorthand for low-earth-orbit  satellites operating
in a lower  frequency  band. The system is designed to use a radio terminal unit
that attaches to a customer's meter or other device and transmits data to Little
LEO satellites.  From the satellites,  the information is then  transmitted to a
ground  station that sorts the data and transmits  it, via the Internet,  to the
end user. The two-way features will also allow us to send instructions, messages
and updates to the radio terminal unit. Through use of the CDMA technology,  the
NewStar  System is  designed  to require  less  transmission  power and  provide
superior  noise  tolerance.  The store and forward design also allows the Little
LEO  satellites  to  store  data for  later  transmission  to a ground  station,
minimizing the number of necessary ground stations.

Our Strategy

To achieve  our  business  objectives,  we have  identified  the  following  key
components to our business strategy:

     Providing a reliable,  worldwide, two-way data communications network based
     on existing  technologies.  We believe that, by incorporating  existing and
     proven   technologies  such  as  CDMA

<PAGE> 4

     communications  technology and a store-and-forward  design into the NewStar
     System and by using six Little LEO  satellites in polar orbits,  we will be
     able to provide reliable, global, two-way data and messaging communications
     services.  The distribution of our satellite  constellation in polar orbits
     is designed to provide us access to all of the earth's  populated land mass
     approximately every hour with each satellite,  reducing the potential risks
     from the loss or outage of one or more satellites.

     Offering a low-cost service. We believe the relatively lower costs involved
     in designing,  constructing,  launching  and operating the NewStar  System,
     together with lower-powered,  relatively  inexpensive ground  transceivers,
     will  allow  us  to  provide  data  messaging   services  to  customers  in
     hard-to-access  or remote  locations  at  substantially  lower  rates  than
     competing systems. We have designed our system specifically for the two-way
     communication  of short  messages,  using fewer  satellites  than competing
     near-real  time low earth orbit  systems.  Our system  should  utilize less
     complex  and less  expensive  components  than  those  required  for larger
     satellite systems designed to carry voice,  video and  high-intensity  data
     traffic.  Competing Little LEO systems using the older TDMA  communications
     technology  will require more  satellites  and more gateway earth  stations
     than the NewStar System.

     Offering a low-cost  ground  transceiver.  We expect to offer a smaller and
     lower  cost  ground  transceiver  than  competing  systems  by  using  CDMA
     technology  and  an  application  specific  integrated  circuit,  or  ASIC,
     technology.  This should provide us with significant  competitive advantage
     in the marketplace.

     Capitalizing on not being the first to market. We have learned a great deal
     from  earlier  commercial  satellite  operators  whose  services  have  not
     developed as they may have  anticipated.  This  experience  has provided us
     with the  ability to market  what we believe  is a superior  system  using,
     among other things,  the CDMA  technology and lower cost  transceivers,  to
     help differentiate our services from those of our competitors.

     Capitalizing  on the  barriers to entry into our  marketplace.  The primary
     barrier to entry into the Little LEO satellite service market in the United
     States is the acquisition of an operating  license from the FCC. Before the
     FCC issues any additional licenses,  it must allocate an additional portion
     of the frequency  spectrum for use, which we do not expect to happen in the
     near future.

     Directly marketing to large industrial customers and governmental entities.
     We believe  that  marketing  directly  to large  industrial  customers  and
     governmental  entities will ensure greater  customer service and support in
     each geographic region or targeted market than will value-added  resellers,
     and will reduce our selling and  administrative  expenses  for bringing the
     NewStar System to market. Outside of the United States, it will also aid us
     in securing any necessary local regulatory and other approvals.

     Capitalizing on the commitment and expertise of our strategic partners.  We
     have successfully  assembled a group of investors who we believe are highly
     qualified strategic partners. We negotiated equity investments totaling $10
     million.  We received a total investment of $5 million from Eurockot Launch
     Services,  our launch service  provider,  and Surrey  Satellite  Technology
     Limited, our satellite  manufacturer.  We have received a commitment for an
     additional  $5  million  investment  from  Alcatel  Space  Industries,  our
     end-to-end  system  prime  contractor,  which is  contingent  on our paying
     Alcatel  $14.1  million to bring into effect the prime  contract  effective
     date.  As of March 15,  2001 this  payment,  which  was  originally  due in
     November,  1999, has not been made and therefore the agreement with Alcatel
     is not  currently in effect.  (See "Risk  Factors - The  contract  with our
     prime contractor could be declared void.").

<PAGE> 5

Development Milestones

The deployment of the NewStar  System's six Little LEO satellites is expected to
begin in 2002. To date, we have achieved the following milestones:

     Development of the system. We initially  conducted  research and testing to
     develop our NewStar System design and were  successful in  integrating  our
     satellite transmitter and antenna completely within a utility meter.

     Completed    proof-of-concept   trials.   We   conducted   proof-of-concept
     demonstrations  with 36 electric  and natural gas  utilities  demonstrating
     Little LEO  satellite  technology  as a viable  method to collect data from
     hard-to-access locations. We conducted a proof-of-concept trial for Pacific
     Gas & Electric  Company,  in which data from  several  natural gas wellhead
     meters  was  collected  and  transmitted  by Little LEO  satellites  to the
     customer. This trial was completed in April 1995. Subsequently, a series of
     proof-of-concept  demonstrations  were  conducted in  conjunction  with ABB
     Power T&D Company,  Inc.,  commonly  referred to as ABB, in which prototype
     radio  terminal  units and  electric  meters were  installed at 34 electric
     utilities in the continental  United States and two  international  utility
     companies in South America and Canada.  Typical trial demonstrations lasted
     for a 30-day period,  and the  demonstrations  were completed in late 1997.
     These early trials utilized the Argos System, a satellite location and data
     collection  system operated and controlled by the Centre National  d'Etudes
     Spatiales (France) and the National Oceanic and Atmospheric Administration,
     or NOAA.

     Granting of FCC License.  On March 31, 1998,  E-SAT was issued a license by
     the FCC to provide Little LEO satellite services in the United States.

     Commenced  construction of the  satellites.  On March 31, 1999, we signed a
     contract with Surrey Satellite  Technology  Limited for the construction of
     our constellation of six Little LEO satellites. Should we bring into effect
     our  prime  contract  with  Alcatel  Space  Industries  (see  below in this
     section, "Entered into an agreement with an end-to-end prime contractor for
     the  NewStar  System"),  our  contract  with  Surrey  would be  assigned to
     Alcatel.

     Engaged a launch service  provider to deliver our satellites into orbit. On
     March 31, 1999, we signed a contract with Eurockot  Launch  Services  GmbH,
     for two  launches.  Two launches are  currently  expected to occur in 2002,
     each for a set of three satellites.

     Acquired controlling interest,  subject to FCC approval, of the FCC license
     and  subsequently  received FCC  approval.  On July 31,  1999,  we signed a
     contract  with  EchoStar  to  increase  our  ownership  in E-SAT to  80.1%.
     Pursuant  to  that  agreement,  EchoStar  has the  right  to use 20% of the
     NewStar  System's  communications  capacity.  The  transfer  of control was
     subject to FCC approval, which was subsequently granted.

     Entered into an  agreement  with an  end-to-end  prime  contractor  for the
     NewStar System. On October 8, 1999, we signed a contract with Alcatel Space
     Industries  for the final design,  construction  and delivery to the launch
     site of six Little LEO  satellites.  This agreement also includes the final
     design,  construction and delivery of the ground infrastructure,  including
     the gateway earth station, mission center, satellite control center, ground
     communications  network and ground-based  transceivers to be

<PAGE> 6

     installed into devices,  like utility meters.  Alcatel is also  responsible
     for providing  in-orbit  testing of the NewStar System.  The total contract
     price for the  end-to-end  system is $88.5  million.  Either  party has the
     right to terminate this agreement under certain circumstances. We have paid
     $2 million in construction  payments to Alcatel,  pursuant to which Alcatel
     completed  the  preliminary  engineering  design  review for the  Company's
     system,  including  the payload  design and  designs for the gateway  earth
     station and tracking facilities,  as well as the satellite orbital analysis
     and  communications  link  margins to and from space.  As of March 15, 2001
     this payment, which was originally due in November, 1999, has not been made
     and therefore the agreement  with Alcatel is not currently in effect.  (See
     also,  "Risks--The  contract  with our prime  contractor  could be declared
     void.")

     Negotiated equity  investments in us by all of our strategic  partners.  We
     negotiated  equity  investments  totaling  $10 million by  Eurockot  Launch
     Services and Surrey  Satellite  Technology  Limited.  We also  negotiated a
     potential  investment  by  Alcatel,  but  that is  subject  to  making  the
     milestone payments necessary to establish the effective date of contract.

     Organized  our risk  management  through  insurance.  On July 14, 1999,  we
     engaged  Frank  Crystal  and Co. and its  subsidiary,  International  Space
     Brokers as our exclusive risk management advisors and insurance brokers for
     both space and ground segments.

     Successfully launched and commissioned first satellite payload. On June 28,
     2000,   we  launched   our  first   satellite   payload   aboard  a  SNAP-1
     nanosatellite,  and  completed  the  in-orbit  commissioning  in August and
     September.  The satellite,  which is not being used for commercial service,
     has succeeded in its purpose of validating critical design elements that we
     believe will lead to the  successful  deployment of our NewStar  commercial
     satellite services in 2002. Surrey Satellite  Technology Ltd. completed the
     payload from design to commissioning  in only seven months.  On October 20,
     2000, the FCC informed the International Telecommunications Union that this
     payload brought into use the LEOTELCOM-2  international  frequency license,
     under which the Company operates, into service.

     Obtained FCC approval of and completed the transfer of controlling interest
     of E-Sat to us. On November 21, 2000, the Federal Communications Commission
     granted our joint application with EchoStar  Communications  Corporation to
     transfer control of E-SAT,  Inc.'s mobile satellite  service license to us.
     On December 29, 2000, we executed  documents  for the formal  transfer from
     EchoStar.

Targeted Markets

We have designed the NewStar System to provide low cost,  two-way data messaging
services to industrial  customers throughout the world who need regular, but not
real-time,  information.  By focusing on the  non-real-time  market,  where some
delay between data collection and transmission to the customer has insignificant
business  consequence,  we are  able to  substantially  lower  the  costs of our
system, and therefore lower the price to the customer. By focusing on collecting
data that is in remote or  hard-to-access  locations,  we reduce our competition
from terrestrial  technologies,  such as cellular  communications,  which cannot
justify the infrastructure  expense in each remote location, and we increase the
value offered to the customer as a result of their higher costs in those areas.

     Energy Meters

Our initial  focus is on energy  meters in remote  locations.  One of our target
markets is the United  States  electric  and  natural  gas  utility  industries,
particularly  their   high-cost-to-read   metering  segment  which  historically

<PAGE> 7

required such "meter reading" to be conducted by utility  personnel.  This labor
intensive activity presents logistical issues such as significant travel time to
a meter site, rugged terrain,  physical risk,  restricted  sites,  environmental
issues,  and  mis-reads  requiring  additional  site  visits,  all of which  can
contribute to higher costs for utilities.

Our proposed  messaging services are designed to provide a reduction in the cost
to gather data from  hard-to-access  meters.  We expect to charge  significantly
less than the costs utility  companies  normally  incur in sending meter reading
personnel  out to each of those  difficult  to reach  locations.  This  provides
several advantages including:

     o    Planning  and  decision-making  is improved  through  greater and more
          timely availability of their consumers' energy-related information.

     o    Estimated billing is eliminated.

     o    Service  connects  and  disconnects  can be  scheduled  and  performed
          automatically.

     o    Value added features are available such as meter  diagnostics,  tamper
          detection, outage reporting, and power quality information.

     o    Two-way  communication  capabilities can substantially reduce customer
          costs while  enabling new  customer  applications  such as  initiating
          remote diagnostics and remote turn-on/turn-off of electric meters.

In the United  States,  the emergence of automatic  meter reading as an accepted
technology and the  deregulation of the utility  industry in a number of states,
which has forced  utility  companies to focus on all aspects of their costs and,
in some cases, to compete to retain the meter reading  activity,  has provided a
foundation for us to market our services.

There is also a significant  potential market for our services in countries that
do not broadly monitor energy consumption. For those countries,  implementing or
expanding coverage of metering is of significant  strategic and economic benefit
both as a source of revenue and as a critical  component of  implementing  their
energy  infrastructure.  By working with these  countries as they develop  their
services and providing them with a low-cost  alternative  to  traditional  meter
reading methods, we believe we can succeed in becoming an integral part of their
utility infrastructure.

     Other Markets

We believe other significant markets for our data messaging services include:

     Propane tanks. Currently,  most propane tanks are not metered and customers
     can be invoiced only on fuel  delivery.  Automated  meter  reading  enables
     monthly   billing  based  on  actual   consumption,   which   improves  the
     distributor's  cash flow and, even more  important,  creates an opportunity
     for fuel arbitrage.  Since the consumer would not need to pay for fuel upon
     delivery,  the  distributor  can fill customer tanks in the summer or other
     times,   when  fuel  prices  are  lower.   The  consumer  also  avoids  the
     inconvenience  of running out of fuel and enjoys a reduction  in the safety
     issues associated with re-lighting the pilots on their appliances.

<PAGE> 8

     Oil and gas wellheads.  In the energy sector, data from particularly remote
     and hard-to-access  oil and gas wellheads can be collected  electronically,
     providing  material  savings in costs per read. Some of these wellheads are
     located in areas that are not only extremely remote, but are also high-risk
     and the physical safety of the meter reader is a real concern.  In addition
     to  eliminating   the  personal  safety  risk  this  also  will  create  an
     opportunity to aggregate data internationally,  if the service provider has
     global coverage.

     Gas pipelines. Monitoring for cathodic protection, flow control and leakage
     from gas  pipelines is another  market  appropriate  for the periodic  data
     transmission  from sensors located in isolated areas. Most of the cathodic,
     flow control and leakage sensors around the world are read manually,  which
     is a tedious  process,  frequently  using  helicopters for typical pipeline
     terrain.  Given the cost of product  flowing  through the  pipeline and the
     ecological impact of a pipeline failure,  energy companies are motivated to
     quickly identify any failures as well as the sources of the problem.

     Vending  machines.  Vending  machines can use our proposed  data  messaging
     service  for  inventory  and cash  control.  By  collecting  data from each
     machine on a timely  basis,  distributors  can deliver the right product to
     the  right  machine  at  the  right  time,  thereby  improving  sales,  the
     productivity  of their route  personnel,  and greatly  simplifying the cash
     reconciliation  process.  While most  vending  machines  are not located in
     hard-to-access  places,  a system that offers both ease-of-use and complete
     geographic coverage offers significant benefits to the distributor.

     Environmental  and  Agriculture.  The waste disposal  industry,  faced with
     increased public awareness of pollution  problems,  is required by federal,
     state,  and local  governments to closely  monitor air and water quality at
     all  waste  disposal  sites.  Collecting  data  from  these  locations  and
     reporting it to both  operating and  regulatory  agencies is well suited to
     our proposed  services.  In addition,  we believe that existing  irrigation
     systems can become more efficient through timely monitoring of usage data.

The NewStar System

The  NewStar  System is  designed  to  minimize  infrastructure  investment  and
maximize  efficiency by utilizing a small constellation of Little LEO satellites
with  the  ability  to reach  markets  not  readily  accessible  by  terrestrial
technologies.  We expect that the  aggregate  cost to  construct  and launch the
NewStar System into commercial  service will be approximately  $120 million,  in
addition  to the  approximately  $12.2  million  which  has been  spent  through
December 31, 2000.

The NewStar  System's radio terminal units will attach to a customer's  meter or
other device and transmit data to the  satellites  using CDMA  technology.  From
these Little LEO satellites,  the data is transmitted to ground stations,  which
sort the data and transmit the  information  to our  customers via the Internet.
The two-way  service also allows our customers to send  instructions,  messages,
and updates to their remote meters or other devices.  The following  illustrates
the data collection and dissemination process:


<PAGE> 9
                                [GRAPHIC OMITTED]


         Space Segment

The  constellation  to be launched  will consist of six  satellites.  We plan to
initially launch three satellites on a single launch vehicle in a circular, near
polar  orbit  at  an  altitude  of  approximately  550  miles  and  a 99  degree
inclination  angle.  At this altitude,  there will be fourteen  revolutions  per
satellite per day,  taking about 100 minutes per orbit.  After the initial three
satellites are deployed and become  operational,  and the system is established,
an additional three satellites will be deployed in a second  near-polar  orbital
plane within FCC guidelines. These Little LEO satellites, which will weigh about
110  kg  each,  will  be  almost  constantly  illuminated  by the  sun,  thereby
significantly  reducing  battery  usage.  Supplemental  battery  power  will  be
required only for power load  leveling,  occasional  brief  eclipse  periods and
contingencies. Based on the current design, we estimate that each satellite will
operate for a period of five years.

The  satellites  will consist of two functional  segments,  the platform and the
payload.  Put simply,  the platform is the structure part of the satellite.  The
payload is the radio  frequency  equipment on board the satellite that allows it
to communicate with earth-based transceivers.  The platform provides the payload
with power and thermal control,  allowing it to operate and perform the mission.
The platform  provides the altitude control in order to keep the payload antenna
pointing towards the earth. Orbit  determination and control is performed by the
platform in order to maintain the proper constellation configuration.

The FCC license  will allow us to operate  from earth to the  satellites  in the
148.0000 - 148.905 MHz band and from the satellites to the earth in the 137.0725
to137.9275 MHz band. The communications  plan for our system will utilize direct
sequence spread spectrum  multiple access  transmission for service links,  from
meter to satellite,  and feeder links,  from ground  station to satellite.  This
modulation  technique  is designed to allow the  communications  to  distinguish
between messages and the background noise emanating into space.

Due to the continuing  growth of electrical and  electronic  equipment,  such as
personal paging systems that incorporate wireless communication technology,  the
radio frequency spectrum has become crowded or "noisy." Commercial  applications
demand reliable  communication systems. This objective is harder to achieve with
conventional  solutions because of numerous wireless systems creating more noise
in the frequency  bands of  operation.  CDMA is designed to enable our system to
provide high  functionality  in a noisy radio frequency  environment and achieve
those particular data transmission objectives.

With most conventional modulation techniques,  energy concentration is maximized
for a narrowband  transmission  channel.  While  narrowband  solutions opt for a
single  carrier  channel,  the  transmitted  signal must be strong  enough to be
recognized  over the  background  noise.  Therefore,  terminals  operating  in a
narrowband  technique must have relatively high power  capability.  CDMA spreads
the data signal over the entire band of

<PAGE> 10

operations  reducing the power required by a terminal unit to transmit data to a
satellite. Through E-SAT, we are presently the only commercial Little LEO system
operator  licensed in the United States to implement CDMA in its  communications
protocol.

     Ground Segment

Rather than using  traditional  technology  that  transmits the data to a ground
station  as soon as it is  received,  the  non-real-time  nature of our  markets
allows us to use a  store-and-forward  design.  Our  satellites  are designed to
receive the  information  from  terminals on the ground,  store it in memory and
hold all of the data until they pass over a ground  station.  This  allows us to
use fewer ground  stations,  reducing  costs and radio  frequency  licensing and
coordination  requirements.  We  currently  intend to locate our initial  ground
station on Svalbard Island in Spitzbergen,  Norway,  and are evaluating  certain
sites in other countries for additional service.

The mission  control center will manage the collection and retrieval of data. It
will  interface  with  ground  stations  and a  satellite  control  center.  The
satellite  control  center will  communicate  directly with and provide  overall
operational control of the satellites.  The mission center location is currently
in review and the satellite control center is currently planned to be located in
the United Kingdom.

Secure  Internet  communication  with customers is a crucial part of the NewStar
System.  Data  collected  or  delivered  will  utilize the Internet as a global,
cost-effective  vehicle to disseminate data and maximally  automate the customer
servicing   system.   Data  will  lack   meaningful   descriptors   or  customer
identification  and so should  have no meaning if  intercepted,  but may also be
encrypted.

     Terminals

The system is also  comprised  of remote  terminal  units that will connect to a
device  such as an  electric  utility  meter and allow  that  device to send and
receive  signals  to  and  from  the  system.  The  terminal  will  provide  the
communication link between the meter and our satellites.  A relatively  low-cost
terminal is a key success factor for this business plan and, for that reason, we
intend to strictly control the development and manufacturing of the terminals.

The complete  terminal  unit will consist of two parts,  the core engine and the
fixed  asset  interface  module.  The core engine  will  include a  programmable
controller  unit and  will  incorporate  the  cost-saving  benefits  of the ASIC
technology. This will allow us to manufacture the terminals at a lower cost. The
fixed asset  interface  module will be optimized  for the specific  application,
such as an electric meter, vending machine or propane tank, and will contain all
the  application  specific  functions  required to interface the device with the
core engine.  The interface will also contain any necessary  power  conditioning
components  to  allow  reliable  communication  between  the  terminal  and  the
satellites.

During 1998, we worked with SAIT Radio Holland SA to perform studies on antennas
for the  proposed  terminal  units  and to  develop  and  test  prototypes.  The
development  of terminal  units was also included as an item under our agreement
with Alcatel.  (See "Development  Milestones--Entered  into an agreement with an
end-to-end prime contractor for the NewStar System".) We have not yet identified
a main subcontractor for the engineering,  development and provision of hardware
and software for terminal units, or for the manufacture of terminals.

<PAGE> 11

Regulatory Environment

     United States

All commercial non-voice,  non-geostationary  mobile-satellite services, such as
Little LEO  satellites,  in the  United  States  are  subject to the  regulatory
authority of the FCC.  Little LEO operators must obtain  authorization  from the
FCC to launch and operate their satellites and to provide permitted  services in
assigned spectrum segments.

In  November  1994,  E-SAT  filed an  application  with the FCC for a license to
develop a  commercial  Little  LEO  satellite  system  for data  collection  and
transmission.   E-SAT  was  one  of  five  applicants  requesting  approval  for
essentially  the same  frequency  band but  proposing a different  use. The five
applicants  mutually  agreed upon a spectrum  sharing  plan which  requires  the
applicants to share an uplink and downlink  frequency band with other  satellite
systems.  In October 1997,  the FCC released a report and order which  concluded
that  with  use  of   appropriate   transmission   techniques,   proper   system
coordination,  the  time-sharing of frequencies and the adoption of the spectrum
sharing  plan,  there was  sufficient  spectrum to license all five  applicants.
Thereafter,   E-SAT  filed  an  amendment  conforming  its  application  to  the
guidelines adopted by the FCC report and order.

On March  31,  1998,  the FCC  approved  E-SAT's  application  for a Little  LEO
satellite license.  Under the license, E-SAT is authorized to launch and operate
six Little LEO satellites to provide a two-way,  low-cost  messaging  service in
the United States in the 148 to 148.905 MHz for service and feeder uplinks,  and
the 137.0725 to 137.9725 MHz  frequency  band for service and feeder  downlinks.
For its uplink,  E-SAT is licensed to utilize 500 kHz of contiguous  spectrum in
the 148 to 148.855  MHz band that is not  shared  with the other  United  States
licensees.  Some of this  spectrum  may be required to be operated  co-frequency
with the French S-80 system, based on inter-governmental  agreements between the
United States and France.  In December 1998, we completed our coordination  with
France on this shared use.  E-SAT is licensed to utilize  148.855 to 148.905 MHz
for  feeder  uplinks.  E-SAT  will  operate  in the  other 355 kHz of the 148 to
148.905 MHz band on a co-frequency basis with three other companies, Leo One USA
Corporation,  Final  Analysis  Communication  Services and Orbcomm  Corp. In the
downlink  direction,  E-SAT will  operate in the band  137.0725 to 137.9275  MHz
co-frequency  with  NOAA  satellites,  Orbcomm  and  Final  Analysis.  E-SAT  is
obligated to coordinate with the other Little LEO licensees and NOAA, coordinate
internationally  and engage in  consultations  as  required by Article 14 of the
INTELSAT Agreement and Article 8 of the Inmarsat Convention.

In order to maintain the  validity of the FCC license,  E-SAT must comply at all
times with the terms of the FCC license,  unless specifically waived or modified
by  the  FCC.  The  terms  include,  among  other  things,  system  construction
milestones.  In  order to  comply  with the  milestone  requirements  of the FCC
license, E-SAT was required to commence construction of the first two satellites
by March 1999 and the  remaining  four  satellites  by March 2001.  On March 31,
1999, we, on E-SAT's behalf, entered into an agreement with Surrey Satellite for
the construction of the Little LEO satellites,  and we notified the FCC on April
8, 1999,  that we had met the first  milestone of the license,  commencement  of
satellite  construction by March 1999. The FCC has neither  confirmed nor denied
our assertion.  Because of the competitive  nature of the Little LEO market, the
other  licensees  may  challenge in the future our  timeliness or our ability to
meet the  conditions  of the license.  The terms of the FCC license also require
that construction, launch and operation of the NewStar System be accomplished in
accordance  with the technical  specifications  set forth in the FCC application
and consistent  with the FCC's rules,  unless  specifically  waived.  During the
process of constructing the NewStar System,  there may be certain  modifications
to the design set forth in the FCC application  that may necessitate regulatory
approval.

<PAGE> 12

Assuming  continued  compliance,  the FCC license will remain  effective for ten
years from the date on which we certify to the FCC that the  initial  satellites
have  been  successfully  placed  into  orbit  and  that the  operations  of the
satellites conform to the terms and conditions of the FCC license.

In addition,  the FCC must approve the  integration of NewStar  System's  ground
transceivers  with the fixed devices.  If received,  the approval would apply to
all transceivers to be operated in the United States.

     International Regulations

Landing  Rights.  In addition to the FCC  license for  operation  of the NewStar
System in the  United  States,  we will be  required  to seek  certain  "landing
rights" in each  country in which our ground  transceivers  will be located.  We
intend to utilize international clients,  partners or affiliates in each country
we  intend  to  operate  in to  obtain  such  authority.  In  the  event  we are
unsuccessful in obtaining a foreign license in a particular  country, we will be
able to offer only one-way,  broadcasting from the satellite, data and messaging
services in that country.

International  Telecommunications Union Coordination.  The E-SAT System operates
in frequencies that are allocated on an international  basis under the authority
of the  International  Telecommunications  Union, or ITU. The United States,  on
behalf  of  various  Little  LEO  service   providers,   pursued   international
allocations of additional frequencies for use by Little LEO systems. In addition
to   cooperation   through  the  FCC,  E-SAT  will  be  required  to  engage  in
international  coordination with respect to other satellite systems, and in some
cases, with terrestrial  communication systems. The purpose of this coordination
is to ensure, to the maximum extent feasible, that communication systems will be
able to operate without  unacceptable  radio frequency  interference  from other
communication  systems.  This process,  called "satellite  coordination,"  takes
place under the  auspices  of the ITU and is  essentially  a first  come,  first
served process.  That is, earlier filings generally establish some priority over
later filings  although the ITU encourages  applicants to cooperate to enable as
many satellite systems as possible to be implemented.

Ownership Interest in E-SAT

E-SAT was incorporated in 1994 in partnership with EchoStar.  In connection with
the formation  agreement,  we hold 80.1% of the outstanding  shares of E-SAT and
EchoStar  holds  the  remaining  19.9%.  E-SAT was  formed  for the  purpose  of
acquiring  an FCC  license  to  develop,  construct  and  operate  a Little  LEO
satellite  system.  In March 1998 the FCC issued the  license to E-SAT.  In July
1999, we entered into an agreement to acquire an additional 60.1% from EchoStar,
to bring our total  ownership of E-SAT to 80.1%.  The  agreement and transfer of
control of E-SAT is subject to FCC approval, which was formally requested on May
2, 2000 and approved by the FCC on November 21,  2000.  The transfer  agreements
were executed in December 2000. The terms of the agreement  grant EchoStar a 20%
undivided interest in the satellite  transmission  capacity  associated with the
FCC E-SAT license.

Competition

Competition  in the  communications  industry  is  intense,  fueled by rapid and
continuous  technological  advances and alliances between industry  participants
seeking  competitive  advantages on an  international  scale to capture  greater
share of existing and emerging markets.

<PAGE> 13

In addition to E-SAT, three other commercial  entities have been licensed by the
FCC to provide  Little LEO satellite  services in the United States  although no
other  entity  has been  issued a license to use CDMA  communication  protocols:
Orbcomm Global,  Leo One, and Final Analysis.  The FCC also granted a license in
1998 to Volunteers  in Technical  Assistance  to transmit  health,  research and
scientific data on a delayed basis between  developing  countries and the United
States.

Of the three commercial entities, only Orbcomm is currently in service.  Orbcomm
failed to generate revenue sufficient to cover its debt and filed for Chapter 11
bankruptcy  protection in September 2000. Over $800 million has been invested to
date in the  Orbcomm  service,  which  was  initiated  in 1996 and  consists  of
approximately thirty satellites, 5 gateway control centers, and 10 gateway Earth
stations.  Orbcomm  aimed at  serving on a  near-real-time  basis the broad data
markets of mobile  asset  tracking of  trailers,  containers,  rail cars,  heavy
equipment,  autos,  fishing vessels and barges and U.S. government assets; fixed
asset  monitoring  of oil and gas tanks,  pipelines,  chemical  tanks,  electric
utility  meters,  and  environmental  projects;   two-way  commercial  and  U.S.
government  messaging;  home  and  commercial  security  systems;  and  personal
messaging.  Orbcomm  uses time  division  multiple  access  (TDMA)  narrow  band
communication protocols.

Other than Orbcomm's  existing TDMA based system,  we do not believe that any of
the other proposed  Little LEO systems will be  commercially  operational in the
near term. We believe that we hold an advantage over these potential competitors
by having  obtained  an FCC  license  for the only CDMA based  store-and-forward
Little LEO system in the United  States;  by focusing  on a low-cost  and highly
targeted market; and by achieving  international  coordination of our designated
frequencies  through  the ITU.  Over the course of the next  several  years,  we
expect  to  obtain  further  advantages  over  these  potential  competitors  by
demonstrating  that a CDMA  store-and-forward  system can offer service at lower
cost than those offered by the competition.

Plans for Little LEO systems  have also been  announced  in  Australia,  Brazil,
France, Russia, South Korea, Tonga and Uganda, although we believe that, without
additional  allocations of spectrum in the United States,  these systems will be
unable  to offer  services  in the  United  States,  and they will have to reach
coordination  agreements  with all  countries who have prior ITU filings for the
same spectrum,  namely the spectrum license filed by the FCC which it awarded to
us.

We expect that  potential  competitors  will  include  other Little LEO systems,
certain   geosynchronous   or   geostationary   orbit,  or  GEO-based   systems,
terrestrial-based  communications systems, LEO satellite systems operating above
1GHz,  often called Big LEO  systems,  and various  medium earth orbit,  or MEO,
systems.

We believe  further that we will compete in certain of our market  segments with
existing  operators  and users of certain  GEO-based  systems  such as  American
Mobile and Qualcomm, and companies providing services using the Inmarsat system.
American  Mobile  offers  data  services,  both  satellite  only and  dual-mode,
satellite  and  terrestrial,  through a public data  network that can reach both
densely  populated  urban areas and sparsely  populated  rural  areas.  In 1998,
American Mobile acquired  Motorola's  ARDIS two-way  terrestrial-based  wireless
messaging network, which complements American Mobile's existing  satellite-based
voice and data communications  services.  This allows American Mobile to offer a
hybrid solution that has the ability,  among other things,  to serve urban areas
and to penetrate  buildings.  Qualcomm  designs,  manufactures,  distributes and
operates a  satellite-based,  two-way mobile  communications and tracking system
that   provides   messaging,   position   reporting   and  other   services  for
transportation  companies  and other mobile and fixed site  customers  using GEO
satellites.  In  addition,  various  companies  using the  Inmarsat  system  are
providing fishing vessel and other marine tracking applications. We believe that
the  NewStar  System will have  certain  advantages  over these  other  systems,
including worldwide coverage and lower equipment costs.

<PAGE> 14

The Big LEO and MEO systems mentioned earlier are expected to provide real time,
uninterrupted  service.  These systems are designed primarily to provide two-way
voice services that require larger,  more complex satellites than our satellites
and larger  constellations to provide coverage. As a result, the cost of the Big
LEO and MEO systems is  significantly  greater than those of the NewStar System.
However,  the marginal cost on a per-message basis of providing services similar
to those we will offer could be relatively  low for a Big LEO or MEO system that
is unable to sell its capacity for voice  services.  For example,  the satellite
system  operated by  Globalstar,  L.P.  is  expected to utilize a  multi-billion
dollar constellation of 48 satellites--as compared with DBSI's planned system of
6 satellites  with an expected  construction,  marketing and  operating  cost of
approximately $110 million--with  those system costs then having to be allocated
into each company's pricing structure and pricing strategy.

We  also  face  competition  from  a wide  range  of  terrestrial  technologies,
including paging, cellular, and power line carrier systems. Generally, our focus
is not to compete  with  existing and planned  terrestrial-based  communications
systems.  However,  in  particular  segments  of our  market,  we believe we may
encounter  certain of these systems.  While  providing  cost-effective  services
primarily in metropolitan areas where subscriber  densities justify construction
of radio towers,  terrestrial  systems generally do not have sufficient coverage
outside   metropolitan   areas,   which  makes  them  less   attractive  to  the
hard-to-access  and remote  location  markets  that we  initially  targeted.  In
addition,  we  believe  that the  NewStar  System  will  present  an  attractive
complement  to  tower-based  services  because  NewStar can  provide  geographic
gap-filler   service  at  affordable  costs  without  the  need  for  additional
infrastructure  investment.  Because of the inherent  coverage  limitations of a
terrestrial-based communications system, we believe that the NewStar System will
complement such systems.

SkyTel,  for example,  provides paging messaging  services in U.S. cities and is
using its messaging  network to provide fixed  location  services,  specifically
utility meter reading in urban areas. Hunt Technologies and Distribution Control
Systems provide power line carriers (PLC) solutions,  using very low frequencies
to transmit  messages over power  distribution  lines,  typically  transmit data
one-way and very  slowly.  Phone line  carriers,  which use a  dedicated  common
carrier   telephone   service,   are  constrained  by  industry   infrastructure
transaction volume and addressability  limitations.  Cellemetry,  which operates
within the control channel of common carrier cellular frequencies,  and Cellular
Digital  Packet Data,  which uses common  carrier  cellular  frequencies to send
messages  in high  speed  bursts  during  the idle  time in voice  transmission,
require  local  infrastructures  to operate.  The triple  shortcomings  of these
systems - namely (1) lack of instantaneous,  cross-continental  data collection,
(2) "black  holes" and lack of  ubiquitous  coverage,  and (3) high  incremental
infrastructure and per message costs outside  concentrated  population centers -
are all competitive advantages for the NewStar system.


Employees

As of December  31,  2000,  we had eight  full-time  employees.  We consider our
relationship with our employees to be good.

<PAGE> 15


                                  RISK FACTORS


RISK FACTORS

An investment in shares of our Common Stock is very risky.  You should carefully
consider  the risks  described  below in addition to other  information  in this
filing.  Our  business,  operating  results  and  financial  condition  could be
seriously  harmed due to any of the  following  risks.  The trading price of the
shares of our Common  Stock  could  decline due to any of these  risks,  and you
could lose all or part of your investment.

We are a development stage company and we do not have any customers.

We  are a  development  stage  company  and  as of  March  15,  2001,  we had no
customers.  Although we previously  recorded gains from the sale of interests in
entities which own direct broadcast satellites licenses,  we have not earned any
significant operating revenues since our formation.  Given our limited operating
history  and lack of  revenues,  we  cannot  assure  you that we will be able to
construct and implement the NewStar System,  and, if  implemented,  to develop a
sufficiently large customer base to be profitable.

We  have  incurred   significant  losses  and  expect  to  continue  to  do  so.
Additionally,  we will require  further  financing.  These  circumstances  raise
substantial doubt about our ability to continue as a going concern.

We expect our  operating  expenses to  significantly  increase as our  satellite
system reaches its critical stages of development.  We recorded operating losses
of approximately  $6,557,000 for 2000 and approximately $6,029,000 for 1999, and
do not  anticipate  any revenues  during the year 2001. We expect to continue to
incur  substantial  and increasing  operating  losses and negative net cash flow
until our satellite system is developed,  deployed and operating in a profitable
manner.  These  circumstances  raise  substantial  doubt  about our  ability  to
continue  as a going  concern  as  discussed  in the  report of our  independent
accountants.  Our management is actively pursuing various financing alternatives
to finance our operations.

We currently estimate that we will require approximately $120 million in capital
related to the  construction,  launch and operations  costs  associated with our
satellite  system.  Given the risks in an undertaking of this nature,  we cannot
assure you that  actual  cash  requirements  will not exceed our  estimates.  In
particular,  additional  capital,  over and above amounts  anticipated,  will be
required in the event that we:

     o    incur  unexpected  costs in  completing  the NewStar  System design or
          encounter any unexpected technical or regulatory difficulties;

     o    incur  delays  and  additional  expenses  as the result of a launch or
          satellite failure;

     o    are unable to enter into  marketing  agreements  with third parties or
          sell our metering services; or

     o    incur any other significant unanticipated expenses.

The occurrence of any of these events would adversely affect our ability to meet
our  business  objectives.  If we are  unable to obtain a  sufficient  amount of
financing necessary to complete our system and on commercially acceptable terms,
our business and future success will be adversely affected.

<PAGE> 16

Difficulties  within the  satellite  industry have  increased the  difficulty to
raise capital.

The  difficulties  facing the  satellite  industry,  as well as the broad  stock
market  and  technology  stocks in  particular,  have led to  delays in  raising
short-term  operating capital. If we are unable to obtain a sufficient amount of
financing necessary to complete our system and on commercially acceptable terms,
our business and future success will be adversely affected.


Future financings will likely result in significant stockholder dilution and may
have restrictive conditions.

With the decreased  availability  of bond markets for satellite  financings,  we
anticipate  that we will depend on principally  on equity  financings to pay for
our satellite system.  Capital may not be available to us in sufficient  amounts
to meet the  development  costs or on terms  acceptable  to us. The  issuance of
additional  equity  securities by us will result in significant  dilution to the
equity  interests  of the  current  stockholders.  Should we  instead  sell debt
securities,  such as bonds,  this would increase our liabilities and future cash
commitments.  Regardless  of whether  financing is structured as equity or debt,
investors may require  pledges of assets,  including  our ownership  interest in
E-SAT, or may impose restrictive  conditions on the conduct of our business.  In
the event of a default on such pledges or conditions,  it would be unlikely that
there will be any assets remaining to be distributed to equity holders.

We are subject to development contract commitments.

In order to comply with development  milestones  required by the FCC license, we
have  entered  into  various   development   contracts   including  a  satellite
construction  contract and a satellite launch contract.  Entering into these and
other development and service contracts are critical to the overall  development
of the NewStar System.  The satellite  construction and launch contracts require
progress payments of approximately  $60 million over a 12 month period.  Failure
to maintain these contracts would adversely  affect our ability to construct the
NewStar  System.  (See  "Risk  Factor  below  -- The  contract  with  our  prime
contractor could be declared void.)

The contract with our prime contractor could be declared void.

We have not made the  necessary  payments  to our  prime  contractor  and,  as a
result,  that contract  could be declared  void.  The  Agreement  with our prime
contractor,  Alcatel Space Industries,  required a payment at the end of 1999 of
approximately  $9.1 million in cash and the  equivalent  of $5 million in Common
Stock. This payment was necessary for Alcatel to continue work and to trigger an
effective date for our full system development  schedule.  As of March 15, 2001,
this payment has not been made, and Alcatel  therefore has the right to consider
this contract  void.  Although  Alcatel has verbally  indicated that it does not
intend to terminate the contract, it has the right to do so. Until the effective
date of contract, or "EDC", we continue to have a direct satellite  construction
contract with Surrey Satellite  Technology  Limited. At EDC, this contract would
be assigned to Alcatel. Any cancellation or termination of these contracts could
cause delay in  construction of the system and which could result in the loss of
the FCC license.  (See also "Development  Milestones--Entered  into an agreement
with an end-to-end prime contractor for the NewStar System".)


The technology,  design and  construction of our satellite  system is subject to
numerous risks.

<PAGE> 17

The design and construction of the NewStar System is subject to risks associated
with a space--based  communications system. Although we believe that the NewStar
System is based on sound technology,  its design will contain certain technology
that has not been used in a commercial application. Although we intend to engage
contractors that are experienced in the satellite and  communications  industry,
we have no experience  in  developing,  constructing,  and operating a satellite
based  data  communications  system.  The  failure of the  NewStar  System to be
constructed,  function  as  designed,  or the  failure of system  components  to
function  with other  components  or to  specification  could  result in delays,
unanticipated  costs,  and loss of system  performance,  thereby  rendering  the
NewStar System unable to perform at the quality and capacity levels anticipated.

Future advances in the industry could make our services obsolete.

Future   advances  in  the   telecommunications   industry  could  lead  to  new
technologies,  products or services  competitive  or superior to the products or
services to be provided by us. Such technological  advances could also lower the
costs of other  products or services  that may compete with the NewStar  System,
resulting  in pricing  pressures  on our  products  and  services,  which  could
adversely affect our business and results of operations.

Our  satellite  system may  experience  unscheduled  delays  that could harm our
business or lead to the loss of the FCC license.

Delays  and  related  increases  in  costs  in  the  construction,   launch  and
implementation  of the  NewStar  System  could  result from a variety of causes,
including:

     o    delays encountered in the construction, integration and testing of the
          NewStar System;

     o    launch delays or failures;

     o    delays  caused by  design  reviews  in the  event of a launch  vehicle
          failure or a loss of satellites or other events beyond our control;

     o    further  modification of the design of all or a portion of the NewStar
          System in the event of, among other things,  technical difficulties or
          changes in regulatory requirements;

     o    our failure to enter into agreements with marketing providers on terms
          acceptable to us; and

     o    the failure to develop or acquire effective  applications for use with
          the NewStar System.

We cannot  assure you that the Little LEO  satellites  or the data and messaging
services we intend to provide will be available on a timely basis,  or at all. A
significant  delay in the  completion  of the  NewStar  System  could  erode our
competitive position, could result in cancellation of the FCC license, and could
have a  material  adverse  effect on our  financial  condition  and  results  of
operations.

We will face many risks associated with the launching of satellites.

Satellite  launches are subject to  considerable  risks,  including the possible
failure  of the  launch  vehicle,  which may result in the loss or damage to the
satellite or its deployment into an incorrect or unusable orbit.  Each

<PAGE> 18

launch is  expected  to carry  three  Little LEO  satellites.  Consequently,  an
unsuccessful  launch could adversely  affect  one-half of our planned  satellite
constellation.  We intend to obtain a certain  amount of insurance to cover some
of our  potential  losses  in this  area,  but we  cannot  assure  you  that the
insurance  will cover all  incidents or be in a  sufficient  amount to cover the
losses.

We have entered into a launch  services  agreement with Eurockot Launch Services
GmbH,  headquartered in Bremen, Germany to provide for two payload launches from
a launch site in Plesetzk, Russia during specified periods. Eurockot has limited
experience in launching commercial  satellites.  Further, it is anticipated that
any launch must be approved by a governmental  agency of the Russian Federation.
We do not know whether the launches  will be approved by the Russian  Federation
or if the  launches  will take place as planned.  The failure of the launches or
the occurrence of any problems  generally  associated  with  satellite  launches
would have an adverse effect on us.

Our satellites may malfunction or fail prematurely.

A number of factors will affect the useful lives of the NewStar  System's Little
LEO  satellites,  including the quality of  construction,  the expected  gradual
environmental  degradation of solar panels,  the amount of fuel on board and the
durability of component  parts.  Random  failure of satellite  components  could
result in damage to or loss of a satellite. In rare cases, satellites could also
be damaged or destroyed  by  electrostatic  storms,  high levels of radiation or
collisions  with  other  objects  in  space.  Any  premature  loss of  satellite
performance  or  capacity  could  have a  material  and  adverse  effect  on the
efficiency of the overall system and the operation of the NewStar System.

We will only be able to obtain a limited amount of satellite insurance.

We expect to obtain launch insurance for each of our satellite launches and have
engaged Frank Crystal & Co. and its  subsidiary,  International  Space  Brokers,
Inc. to provide risk management counsel in obtaining  insurance coverage for our
planned Little LEO satellite  constellation.  This insurance would, in the event
of a launch  failure,  provide  funds  for  replacement  launch  satellites.  In
addition,  we expect to obtain  satellite  replacement  insurance,  which  would
provide funds for rebuilding  satellites  damaged in  construction,  shipment or
launch.  In the  event a  covered  loss  occurs,  we will  need to  satisfy  the
insurance  underwriters that the technological or other problems associated with
the covered loss have been addressed prior to continuing the launch process. The
launch and  replacement  insurance  marketplace  is volatile  and we do not know
whether launch or replacement insurance, or both, will be available to us, or if
available,  will be available  on terms  acceptable  to us. We will  continue to
evaluate the insurance marketplace to determine the level of risk we are willing
and able to absorb  internally  as well as the  amount of risk we may be able to
transfer to third parties.

We are subject to governmental regulation which can be difficult to satisfy.

Our business is subject to both United States and international  regulations and
licensing. The E-SAT license has several milestones, including:

     o    the  completion of  construction  of the first two satellites by March
          2002,

     o    the launch of those satellites by September 2002, and

     o    the  construction and launch of the remaining four satellites by March
          2004.

<PAGE> 19

Our ability to meet these milestones is dependent on a number of factors many of
which are  outside of our  control.  The  failure to meet the  milestones  could
result in loss of the FCC license.  Furthermore, we will need to secure "landing
rights" in various  countries  where we hope to do  business.  Failure to secure
foreign  rights  would  preclude  us from  offering  our full  services  in such
countries, which would adversely affect our anticipated results of operation. In
addition,  if  financial  difficulties  arise,  we may be  unable  to  meet  our
obligations  under our construction and launch  agreements.  Any cancellation or
termination of these contracts could also result in loss of the FCC license.

The services we intend to provide must be acceptable to the utility industry.

Our success is largely  dependent on whether utility and other related companies
will contract for services utilizing the NewStar System.  Although we have other
proposed uses for the data messaging services,  utility companies,  such as gas,
electrical  and  water  utility  companies,  remain  the  primary  focus  of our
marketing  and  development  efforts.  We  cannot  assure  you  that  we will be
successful in completing the  development and commercial  implementation  of our
services  using the  NewStar  System.  We must  complete  a number of  technical
developments   and   continue  to  expand  and  upgrade  the  NewStar   System's
capabilities  prior to  implementing  our services on a full  commercial  basis.
Utility  companies  typically  go through  numerous  steps  before  making final
decisions which can take up to several years to complete.

Further,  utilizing  satellite data  messaging  services is a relatively new and
evolving business. It is difficult to predict the future growth of the market or
the potential size of the market.  Utility companies are testing products from a
number of entities developing various communication technologies. The use of the
NewStar System is only one possible solution for hard-to-access  meter sites. We
may not be  successful  in achieving  the adoption of the NewStar  System by the
utility industry or to a significant extent. In the event that utility companies
do not adopt our  technology,  or do so less rapidly than  expected,  our future
results, including our ability to achieve profitability,  will be materially and
adversely affected.

The price of ground transceivers will affect the success of our service.

The  development of low-cost  ground  transceivers  to collect and transmit data
from fixed  devices  such as meters will be important  in the  development  of a
broad utility market for our data messaging  services.  Ground transceivers must
be  manufactured  and operated at a low cost in order to make our data messaging
services  attractive to commercial users. It is expected that the cost of ground
transceivers  will decline as the volume of units  produced  increases.  We must
develop a low-cost ground  transceiver  which requires less power to operate and
will be attractive to utility and other companies. However, we cannot assure you
that ground  transceivers  can be developed at a cost and with the  capabilities
that will attract a large enough  commercial  subscriber  base for us to receive
significant revenues or achieve profitability.

We are dependent on third party vendors and consultants.

We have relied on, and will continue to rely on,  vendors and  consultants  that
are not our employees to complete the design, construction and implementation of
the NewStar System, to market our data messaging services and for representation
on regulatory issues. These vendors and consultants must continue to provide the
expertise  necessary  to  complete  the design and  construction  of the NewStar
System,  and we cannot assure you that suitable  vendors and consultants will be
available  in the future,  and if  available,  will be available on terms deemed
acceptable to us.

We are dependent on third party manufacturers.

<PAGE> 20

We rely on, and will continue to rely on, outside  parties to manufacture  parts
and equipment for the NewStar System such as meters, transceivers, antennas, and
other Little LEO  satellite  related  devices.  We cannot  assure you that these
manufacturers will be able to meet our needs in a satisfactory and timely manner
or  that  we  will  be able  to  obtain  additional  manufacturers  when  and if
necessary.   A  significant  price  increase,  a  quality  control  problem,  an
interruption  in supply or other  difficulties  with third  party  manufacturers
could have a material and adverse effect on our ability to successfully  provide
our  proposed  services.  Further,  the failure of third  parties to deliver the
products,  components,  necessary parts or equipment on schedule, or the failure
of third parties to perform at expected  levels,  could delay our  deployment of
the NewStar System.  Any such delay or increased costs could  significantly harm
our business and operating results.

Our  failure to  effectively  manage our growth  would harm our future  business
results.

As we  proceed  with the  development  of our  satellite  system,  we  expect to
experience  significant  and rapid  growth in the  scope and  complexity  of our
business.  We will need to add staff to market our services,  manage operations,
control the  operations of the proposed  satellites,  handle sales and marketing
efforts and perform  finance and  accounting  functions.  We will be required to
hire  a  broad  range  of  additional   personnel  before  we  begin  commercial
operations.  This  growth  is likely  to place a strain  on our  management  and
operational  resources.  The failure to develop and implement effective systems,
or to hire and train  sufficient  personnel  for the  performance  of all of the
functions necessary to effectively  service and manage our potential  subscriber
base and  business,  or the failure to manage growth  effectively,  could have a
material adverse effect on our business and financial condition.

We are dependent on key personnel.

Our success is  substantially  dependent  on the  performance  of our  executive
officers  and key  personnel  and on our  ability  to retain  and  motivate  our
personnel. The loss of any of our key personnel,  particularly Fred W. Thompson,
our president,  would harm our ability to manage  operations and  development of
the  NewStar  System,  and  could  have a  material  and  adverse  effect on our
business, financial condition, and operating results.

Intense  competition  from existing and new entities could adversely  affect our
business.

We will encounter  competition from other Little LEO satellite systems,  as well
as from competitive  terrestrial-based  communication  companies. The market for
collection  and  transmission  of data from fixed devices such as meters and the
potential  market for other  applications of data messaging  services has led to
substantial  and  increasing  competition.   Many  of  our  present  and  future
competitors using Little LEO satellites have begun to address the collecting and
transmitting  data from fixed devices and at least one of these  competitors has
substantially greater

     o    financial, marketing, technical and manufacturing resources,

     o    name recognition, and

     o    experience.

Such  competitors  may be  able  to  respond  more  quickly  to new or  emerging
advancements in the industry and to devote greater resources to the development,
promotion  and sale of their  products  and  services.  Our

<PAGE> 21

technology  must be  competitive so that the NewStar System can provide the data
transmission  service at a cost lower than most of our competitors'  systems. We
cannot assure you that such competitors will not succeed in developing better or
more cost-effective data transmission systems.

We face  increased  competition  as a result of  strategic  alliances  and other
consolidation in the industry.

Our  current  and  potential  competitors  may make  strategic  acquisitions  or
establish cooperative  relationships among themselves or with third parties that
could  increase  their ability to reach  commercial  customers or subscribers of
data  messaging  services.  Further,  terrestrial-based  wireless  communication
systems are already  providing data messaging  services to the utility industry.
Such  existing  and future  competition  could  affect  our  ability to form and
maintain agreements with utility companies and other customers. We cannot assure
you that we will be able to compete  successfully against our current and future
competitors,  and our failure to do so would have a material  adverse  effect on
our business.

Substantially   all  of  our  assets  consist  of  our   capitalized   satellite
construction costs and acquisition costs relating to the E-SAT license and these
assets may be  significantly  impaired if we are unable to obtain the  necessary
financing.

We cannot  assure you that we will be able to obtain  financing  in a sufficient
amount for the construction and deployment of our satellite  constellation.  Our
failure to obtain  sufficient  and timely  financing  will likely  result in our
conclusion that the carrying amounts of the capitalized  satellite  construction
costs and the investment in E-SAT are not recoverable.  Under generally accepted
accounting  principles  relating to the  impairment of assets,  we would then be
required to write off all or a portion of the capitalized satellite construction
costs and our acquisition costs relating to the E-SAT license which would have a
material and adverse effect on our business, results of operations and financial
position.

Our certificate of  incorporation  and Delaware law contain  certain  provisions
which could deter  takeovers  which may prevent you from receiving a premium for
your shares.

Provisions of our  certificate  of  incorporation  and Delaware law could delay,
defer or  prevent a change in our  control.  Our  certificate  of  incorporation
contains a fair price  provision that requires a certain  threshold  approval by
our board of directors  in the event of a merger,  sale of assets or other types
of business  combinations.  In addition, our board consists of members who serve
staggered three year terms so that only a portion of our board can be removed at
the annual meeting of  stockholders.  Further,  the board is authorized to issue
preferred  stock, the classes and terms of which may be determined by the board.
We are also  subject  to the  anti-takeover  provisions  of  Section  203 of the
Delaware  General  Corporation  law,  which  prohibits  us  from  engaging  in a
"business  combination"  with an "interested  stockholder" for a period of three
years after the date of the transaction in which the person became an interested
stockholder, unless the business combination is approved in a prescribed manner,
under Delaware law. These  provisions in our  certificate of  incorporation  and
Delaware law could have the effect of delaying, deferring or preventing a change
in control, even if doing so would be beneficial to our stockholders.

We have not paid  dividends  and are not likely to pay  dividends  on our Common
Stock in the future.

We have not  declared  or paid any  dividends  on our Common  Stock,  and do not
anticipate  paying any dividends for the foreseeable  future.  In addition,  the
holders of our shares of Series A Preferred  Stock and Series B Preferred  Stock
are entitled to receive,  out of any legally available funds,  annual cumulative
dividends  equal  to  five  percent  and  ten  percent,   respectively,  of  the
liquidation preference of their shares. All dividends must

<PAGE> 22

be paid on the Series A Preferred  Stock and Series B Preferred Stock before any
may be declared or paid on the Common Stock. It is also  anticipated  that if we
obtain bond financing or other  financing  facilities,  we will be restricted in
our ability to declare future dividends on our Common Stock.

Our stock price is volatile.

Our Common Stock is quoted on the OTC Bulletin  Board and is thinly  traded.  In
the past,  our trading price has  fluctuated  widely,  depending on many factors
that may have  little  to do with  our  operations  or  business  prospects.  In
addition,  the OTC Bulletin  Board is not an exchange  and,  because  trading of
securities on the OTC Bulletin  Board is often more sporadic than the trading of
securities  listed  on an  exchange  such as  NASDAQ,  you may  have  difficulty
reselling any of the shares that you purchase.

The exercise of  outstanding  options and warrants,  and  conversion of Series B
Preferred  Stock may  adversely  affect our stock price and your  percentage  of
ownership.

In addition to the shares issuable to Torneaux Ltd., as of March 15, 2001, there
were  outstanding  warrants  and options to purchase an  aggregate  of 9,139,609
shares of our Common  Stock.  Most of the options  and  warrants  have  exercise
prices greater than the current  trading price of our Common Stock. In addition,
if the Company  does not redeem the Series B Preferred  Stock within 180 days of
the closing date of October 6, 2000, then the holders have the option to convert
their shares into Common Stock at  approximately  80% of the then current market
price.  Conversion  of  the  Series  B  Preferred  Stock  and  exercise  of  the
outstanding  options and  warrants  may have a  detrimental  impact on the terms
under which we may obtain  financing  through a sale of our Common  Stock in the
future  since they may hinder our  ability to raise  capital at a higher  market
price due to the  dilutive  effect to new  investors.  For  these  reasons,  any
evaluation  of the  favorability  of market  conditions  for a subsequent  stock
offering must take into account any outstanding warrants and options.


ITEM 2. PROPERTIES

We have leased 3,550 square feet at a monthly rate of $12,353, for our principal
offices at 100 Shoreline  Highway,  Suite 190A,  Mill Valley,  California,  on a
three-year lease which expires on July 31, 2003.

ITEM 3. LEGAL PROCEEDINGS

We are not a party to any legal proceedings.

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

None.

<PAGE> 23


                                     PART II


ITEM 5. MARKET FOR COMPANY'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS

Price Range of Common Stock

The following table sets forth the high and low bids quoted for our common stock
during  each  quarter  for the past two fiscal  year ends and until the  quarter
ended December 31, 2000, as quoted on the OTC Bulletin Board.


                                     Common Stock

Quarter Ended                     High           Low

December 31, 2000                $0.44          $0.38
September 30, 2000                1.06           0.94
June 30, 2000                     1.69           1.59
March 31, 2000                    3.00           2.19

December 31, 1999                 2.25           2.16
September 30, 1999                2.56           2.44
June 30, 1999                     3.00           2.75
March 31, 1999                    4.97           4.06


These quotations reflect inter-dealer prices,  without retail markup,  mark-down
or commission, and may not represent actual transactions.

As of December 31, 2000, we had  15,601,143  shares of common stock  outstanding
and 408  stockholders  of record.  The number of  stockholders  does not include
those who hold our securities in street name.

DIVIDEND POLICY

We have not  declared or paid any cash  dividends  on our Common Stock since our
inception.  The holders of our shares of Series A  Preferred  Stock and Series B
Preferred  Stock are entitled to receive,  out of any legally  available  funds,
annual cumulative dividends equal to five percent and ten percent, respectively,
of the liquidation preference of their shares. All dividends must be paid on the
Series A Preferred Stock and Series B Preferred Stock before any may be declared
or paid on the Common Stock. We currently intend to retain any additional future
earnings  for use in the  operation  and  expansion of our  business.  We do not
intend to pay any cash dividends on our Common Stock in the foreseeable future.

<PAGE> 23

SALES OF UNREGISTERED SECURITIES

Preferred Stock Transaction

On October 6, 2000, the Company received proceeds of $400,000 from the sale in a
private placement of (1) 400 shares of Series B Convertible Preferred Stock, (2)
warrants to purchase  83,660  shares of Common  Stock with an exercise  price of
$1.052 per share and (3) warrants to purchase 83,660 shares of Common Stock with
an  exercise  price of $1.434  per share.  During  the first 180 days  following
October 6, 2000,  the Series B  Preferred  Stock may not be  converted;  and the
Company has the right to redeem these shares if the Company  repays the purchase
price plus an additional  5-7% depending on repayment  date, plus dividends at a
rate of 10% per annum.  After 180 days  following  October 6, 2000, the Series B
Preferred  Stock  are  convertible  into  Common  Stock  at  the  lesser  of (1)
approximately  $.96 per share which was the closing bid price at the time of the
purchase or (2) 80% of the average of the three lowest closing bid prices of the
Common Stock for the 20-day  trading  period prior to the  conversion  date. The
Company also has the  obligation  to register the Common  Stock  underlying  the
warrants and,  after 180 days,  Common Stock  underlying  any redeemed  Series B
Preferred Stock. For this  transaction,  an agent received a fee of 40 shares of
Series B Preferred Stock and warrants to purchase 120,000 shares of Common Stock
of the Company  with an exercise  price of $1.052 per share.  As of December 31,
2000, 440 shares of Series B Preferred Shares remain outstanding.  During fiscal
2000  accreted  dividends  totaled  $10,511.  The  transaction  was exempt  from
registration in reliance upon Section 4(2) of the Securities Act.



Common Stock Transactions

In  September  2000,  the Company  issued  200,000  shares of Common Stock and a
warrant to purchase  200,000 shares of Common Stock to a consultant for services
rendered.  The warrants are  exercisable  through  September 2003 at an exercise
price ranging from $1.50 to $2.50 per share.  The fair value of such warrants of
$194,500  was  expensed  and was  estimated on the date of grant using the Black
Scholes  model with  volatility  of 150%,  expected  life of 3 years,  risk free
interest  rate of 6% and a fair  market  value of the Common  Stock of $1.25 per
share.  The  transaction  was exempt from  registration in reliance upon Section
4(2) of the Securities Act.

In October 2000, the Company granted a warrant to purchase 500,000 shares of the
Company's  Common  Stock at an exercise  price of $1.31 per share to a financial
institution as consideration for its efforts to help raise capital.  Warrants to
purchase the first 50,000 vested as of the grant date and will expire in October
2004.  The  remaining  warrants to purchase  450,000  shares shall vest upon the
closing of transactions that provide cash to the Company based on the success of
the  financial   institution's   efforts.   The   transaction  was  exempt  from
registration in reliance upon Section 4(2) of the Securities Act.

In December 2000, the Company  received from  accredited  investors  proceeds of
$100,000 in exchange for 100,000  units,  each unit  consisting of two shares of
Common Stock at a price of $0.50 per share and a warrant to purchase one-quarter
of one  share of  Common  Stock at an  exercise  price of $1.00  per  share.  In
connection  with this  transaction,  a finder's  fee of $7,000  was paid,  and a
warrant was issued to purchase  10,000  shares of Common  Stock  exercisable  at
$1.00 per share.  The  200,000  shares of Commons  Stock were  issued in January
2001. The transaction was exempt from registration in reliance upon Section 4(2)
of the Securities Act.

In December 2000 the Company  received  from  accredited  investors  proceeds of
$500,000 in exchange for 2,000,000  units,  each unit consisting of one share of
Common  Stock at a price of $0.25 per share and a warrant to purchase  one share
of  Common  Stock at an  exercise  price  of  $0.50.  In  connection  with  this
transaction,  a finder's  fee of $35,000  was paid,  and a warrant was issued to
purchase 100,000 shares of

<PAGE> 25

Common Stock at an exercise  price of $0.50 per share.  The 2,000,000  shares of
common  stock were  issued in January  2001.  The  transaction  was exempt  from
registration in reliance upon Section 4(2) of the Securities Act.

During  fiscal  2000,  a total of 65,569  shares of Common Stock were issued for
services  rendered to a consultant  for a total fair value of $36,886  which was
expensed  during  the  course of the  year.  The  transaction  was  exempt  from
registration in reliance upon Section 4(2) of the Securities Act.

During  fiscal  2000,  a total of 7,451  shares of Common  Stock were  issued to
employees  under the 1999 Employee  Stock Purchase  Plan.  The  transaction  was
exempt from registration in reliance upon Section 4(2) of the Securities Act.


<PAGE> 26

ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION

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

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

General

DBS Industries,  Inc. ("DBSI" or "We" or the "Company") is a  telecommunications
company dedicated to providing low-cost  satellite-to-Internet data messaging to
and from remote locations.  DBSI is the only company  currently  licensed by the
Federal  Communications  Commission  (through  the  E-SAT  license)  to  provide
commercial two-way data messaging using Code Division Multiple Access technology
and  low-earth-orbiting  satellites operating below the 1Ghz frequency range. We
expect to begin providing our data messaging services,  currently marketed under
the "NewStar" name, during 2002.

Plan of Operations

It has been our plan to continue the  construction and deployment of our system.
This plan has been,  and continues to be,  dependent upon our success in raising
adequate financing. As of March 15, 2001, difficulties in the satellite industry
continue to impede our financing efforts.

Based upon these  financing  difficulties,  management  initiated  an  intensive
effort to identify and commence  negotiations with strategic  partners who could
serve as both customers and financiers of the Company's system - both in and out
of the  company's  target  meter  reading  market.  The Company is involved in a
number of such discussions and we have retained outside advisors to assist us in
identifying and contacting other significant opportunities.

At the same time, management initiated efforts to reduce the overall cost of our
system and  thereby  reduce  the  investment  required  to  commence  commercial
service.

The  difficulties  facing the  satellite  industry,  as well as the broad  stock
market and technology  stocks in particular,  have also led to delays in raising
short-term  operating  capital.  The Company's right to raise capital by selling
common  shares to the  Torneaux  Fund has been  limited by the  Company's  stock
price,  which, as of March 15, 2001 is below the contractual  minimum  threshold
price of $1.00 per share.  As a result,  the Company has delayed payment to many
of its vendors and certain of its employees  have  deferred  receipt of salaries
due. As of December 31, 2000, the Company's cash and cash  equivalents  amounted
to $389,319 while its current liabilities,  including amounts owed to employees,
amounted to $3,103,019.  Throughout the year,  management has continued to focus
on reducing operating expenses while  concentrating its efforts on raising short
term and strategic financing. (See "Subsequent Events").

During fiscal 2001 we will continue to seek to satisfy our cash  requirements by
raising  new equity and debt  capital,  as well as by seeking  the  exercise  of
previously issued third-party warrants and stock options. During our fiscal year
ending  December  31, 2000 we issued  35,897  shares of the  Company's  Series A
preferred  stock

<PAGE> 27

in  exchange  for gross  proceeds  of  $1,076,910  in cash and the  Company  has
received  $254,530  in options  and  warrants  exercised.  The  Company has also
received  $416,040  through the private sale of common  stock.  During the final
four months of fiscal 2000, our preferred shareholders converted 9,998 shares of
preferred  stock into  179,103  shares of common  stock.  The  Company  accreted
dividends of $31,510  payable to Series A preferred  stockholders as of December
31, 2000.

Also during fiscal 2000 we issued 440 shares of the Company's Series B Preferred
Stock in exchange of gross  proceeds of $400,000 in cash.  The Company  accreted
dividends of $10,511 to Series B preferred stockholders as of December 31, 2000.

Revenues

The Company  remains in the development  stage and did not generate  revenues in
either the year ending December 31, 2000 or the year ending December 31, 1999.

Operating Expenses

Total  operating  expenses for fiscal 2000 and fiscal 1999,  were $6,496,009 and
$6,027,229  respectively.  These  costs  are  related  to  marketing  and  sales
expenses,  general and  administrative  expenses,  and research and  development
expenses.

     Marketing and Sales Expenses

Marketing and sales  expenses are  primarily  the costs of personnel  (including
non-cash  stock  compensation),  consulting  and  travel.  Marketing  and  sales
expenses totaled $1,721,725 (26.5% of operating expenses) and $922,623 (15.3% of
operating  expenses) in fiscal 2000 and fiscal 1999 respectively.  This increase
in expenses is due to the  establishment  of our  dedicated  marketing and sales
group in June 1999. The marketing  group was terminated in the fourth quarter of
fiscal 2000 in order to reduce our cash expenditures.

     General and Administrative Expenses

General  and  administrative  expenses  include  the  costs of  finance,  legal,
administrative   and  general   management   functions  of  DBSI.   General  and
administrative  expenses  for  fiscal  2000 and 1999 were  $4,037,509  (62.2% of
operating expenses), and $4,059,310 (67.4% of operating expenses) respectively.

     Research and Development Expenses

Research and development  expenses represent  non-capitalized  costs incurred to
develop our system. Research and development expenses for fiscal 2000 and fiscal
1999 were  $736,775  (11.3% of operating  expenses),  and  $1,045,296  (17.3% of
operating expenses) respectively. Our research and development staff was located
in Toulouse,  France. During the fourth quarter of fiscal 2000 we terminated our
research  and  development  office in France  in order to reduce  our  operating
expenses.

     Non-Cash Stock Compensation

In order to attract and retain qualified  personnel,  we have granted options to
purchase  Common Stock to several  employees.  Some of the exercise  prices were
below the fair market value of the Common Stock at the time of grant,  resulting
in  deferred  stock  compensation.  The  deferred  stock  compensation  is being
amortized  over  the  vesting  periods  of  the  granted  options.  The  Company
recognized  a total of  $1,078,857  as non-cash  stock  compensation  expense in
fiscal 2000 compared to $957,755 in fiscal 1999.

     Other Income (Expense)

<PAGE> 28

The Company  experienced a  non-operating  loss of $59,940 during fiscal 2000 as
compared to a gain of $113,336 during fiscal 1999. The loss incurred in 2000 was
a result of increased  interest expense due to ongoing cash shortages during the
year.

     Net Loss

The Company's net loss for fiscal 2000 was $6,557,549 compared to $5,915,493 for
fiscal 1999.


Liquidity and Capital Resources

The Company has been in the  development  stage since its  inception and has not
recognized any  significant  revenues.  Our monthly cash  expenditures  averaged
approximately  $309,000 per month during  fiscal 2000.  However,  expenses  will
increase  during  fiscal  2001 with the  demands  of  increased  efforts in both
systems and business development. Additional capital will be necessary to expand
operations or continue current operations, which will result in further dilution
to our  stockholders.  We cannot be  certain  that  additional  funding  will be
available on acceptable terms or at all.

Traditionally,  we have  relied on equity and debt  placements  to  finance  our
operations.  This  financing was  supplemented  from the sale of our interest in
entities that held direct broadcast  satellite  licenses.  We no longer have any
interest in direct broadcast satellite licensees.

During fiscal 2000,  we received  proceeds from the sale of common and preferred
stock  totaling  $3,225,442  before  stock  issuance  costs of  $636,576.  These
transactions included:

     -    a  private  placement  of  35,897  shares  of the  Company's  Series A
          preferred stock at $30 per share for an aggregate amount of $1,076,910
          before  stock  issuance  costs of $226,809;

     -    a private placement of 166,298 shares of the Company's common stock at
          $1.00 per share for an  aggregate of $166,298  before  stock  issuance
          costs of $11,641;

     -    a private placement of 133,333 shares of the Company's common stock at
          $0.75 per share for an aggregate of $100,000;

     -    a draw down of Equity 1-A for 84,490  shares of the  Company's  common
          stock at $0.9863 for an aggregate of $83,333;

     -    a draw down of Equity 1-B for 63,092  shares of the  Company's  common
          stock at $0.88 for an aggregate  of $55,556;

     -    proceeds  in the  amount of  $254,530  from the  exercise  of  271,870
          options and warrants.


In addition to the above,  the Company  also  received  $10,851 from the sale of
7,451 shares of common stock to employees  pursuant to the 1999  Employee  Stock
Purchase  Plan for the  offering  periods  ended  December 31, 1999 and June 30,
2000.

We had cash and cash  equivalents  of $389,320  and  $282,945 as of December 31,
2000 and December 31, 1999  respectively.  We had  negative  working  capital of
$2,216,321 as of December 31, 2000,  compared to a negative  working  capital of
$941,527 as of December 31, 1999.  Until we are able to develop,  construct  and
operate the NewStar System and derive  revenues  therefrom,  we must continue to
raise cash from outside  sources for operations  and for the  development of the
NewStar System.

Net cash used in operating  activities  during  fiscal 2000 was  $2,385,941,  as
compared to $3,681,956 for fiscal 1999.  The $2,385,941  results from a net loss
of $6,557,549 offset primarily by:

     -    non-cash stock  compensation  of $1,078,857

<PAGE> 29

     -    non cash  warrants  issues of  $1,694,718

     -    an increase in accounts payable and accrued  liabilities of $1,324,107
          due primarily to  difficulties  in raising  capital  financing and

     -    a decrease in accounts  receivable and other current assets of $57,061
          due to a reduction in prepaid insurance and employee receivables.

Net cash used in investing  activities  for fiscal 2000 was $96,551  compared to
$12,413,265  for fiscal 1999.  This decrease of $14,316,714 was as a result of a
decrease in satellite construction costs. Approximately $157,000 of the net cash
used in  investing  activities  during  fiscal  2000 was  related  to  satellite
construction payments made to our satellite contractors in Europe.

Net cash  provided by  financing  activities  for fiscal  2000,  was  $2,588,867
compared  to  $15,086,455  for  fiscal  1999.  Net cash  provided  by  financing
activities during fiscal 2000 was related primarily to the net proceeds from the
sale of units of preferred stock and the exercise of options and warrants by our
stockholders.

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

Risks and Uncertainties Affecting Future Operating Results

A number of  factors  could  cause  future  results  to differ  materially  from
historic  results.  We are a  development  stage  company and as of December 31,
2000,  we had no  customers.  Given our  limited  operating  history and lack of
revenues,  no  assurances  can be given  that we will be able to  construct  and
implement  our system,  and, if  implemented,  to develop a  sufficiently  large
customer base to be profitable.

While we continue the strategic  fund-raising efforts (see "Plan of Operations")
that are necessary to our ultimate  success,  our  continued  cost of operations
significantly exceeds our short-term capital. In addition, we currently estimate
that we will  require  approximately  $120  million  in  capital  related to the
construction  and launch costs  associated with our system.  No assurance can be
given that capital will be available to us on commercially  acceptable  terms to
meet development  costs or on terms acceptable to us. The issuance of additional
equity  securities  by us will  result in  significant  dilution  of the  equity
interests of the current  stockholders.  Selling debt  securities  such as bonds
will increase our  liabilities and future cash  commitments.  In order to comply
with development  milestones  required by the FCC license,  we have entered into
various development contracts including a satellite  construction contract and a
satellite launch contract. All of these contracts require that we have available
capital which is not currently available.

Other  factors,  in addition to those  identified  in this  filing,  which could
affect future results would include the  dependence  and  uncertainty of utility
companies or other commercial  customers to utilize such data messaging service,
the reliance on third parties for the  advancement of the design,  manufacturing
and  marketing of the E-SAT  System,  satisfying  the  milestones of E-SAT's FCC
license and construction  contracts,  the fulfillment of contract obligations by
suppliers and other third parties,  the availability of qualified  personnel and
equipment, delays in the receipt of or failure to receive necessary governmental
approvals,  obtaining  permits  and  licenses  or  renewals  thereof,  risks and
uncertainties  relating  to general  economic  and  political  conditions,  both
domestically and internationally,  changes in the law and regulations  governing
the Company's  activities in the Little LEO  satellite  technology,  unscheduled
delays  or  technological   difficulties,   satellite  launch  risks,

<PAGE> 30

potential satellite malfunction,  limited availability of insurance,  results of
the Company's financing efforts and marketing conditions, competition, and other
risk  factors  related to the  Company's  business.  Readers of this  filing are
cautioned not to put undue reliance on "forward looking" statements that are, by
their nature, uncertain as reliable indicators of future performance.


ITEM 7. FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA

The  response  to this item is being  submitted  in a  separate  section of this
report beginning on page F-1.

ITEM  8.  CHANGES  IN AND  DISAGREEMENTS  WITH  ACCOUNTANTS  ON  ACCOUNTING  AND
FINANCIAL DISCLOSURE

None.

PART III

ITEMS 9-12.

     The  information  called  for in  Items  9-12  is  hereby  incorporated  by
reference  into  the  Company's  Proxy  Statement  for  its  annual  meeting  of
shareholders, to be filed in 120 days of our fiscal year end.

ITEM 13. FINANCIAL STATEMENTS, EXHIBITS AND REPORTS ON FORM 8-K

Financial Statements

The following Financial  Statements  pertaining to the Company are filed as part
of this report:

Report of Independent Accountants                                   F-1

Consolidated Balance Sheets                                         F-2

Consolidated Statements of Operations                               F-3


Consolidated Statements of Stockholders' Equity                     F-4


Consolidated Statements of Cash Flows                               F-13

Notes to Consolidated Financial Statements                          F-14 to F-29

<PAGE> 31

Exhibits

The following  Exhibits are filed with or  incorporated  by reference  into this
report:

     (2.1)   Plan and  Agreement of Reorganization, dated  September  30,  1992,
             entered into with DBS Industries, Inc.,  Network, Inc,  and certain
             of its shareholders which was previously filed in,  and  is  hereby
             incorporated by reference to, the Company's Current  Report on Form
             8-K, date of report, December 2, 1991.(1)

     (3.0)   Restated Certificate of Incorporation, effective May 28, 1997.(1)

     (3.1)   Bylaws, effective February 19, 1999.(1)

     (3.2)   Certificate of Amendment of Certificate of Incorporation, effective
             April 28, 1999.(1)

     (3.3)   Certificate  of  Designations,  creating the Series  A  Convertible
             Preferred Stock effective January 25, 2000.(8)

     (3.4)   Certificate of Designations,  creating  the  Series  B  Convertible
             Preferred Stock effective September 25, 2000. (10)

     (3.5)   Certificate of Correction to Certificate of  Designations of Series
             B Convertible Preferred Stock, effective October 10, 2000.

     (3.6)   Certificate of  Amendment  to  the  Certificate  of Designations of
             Series A Convertible Preferred Stock effective March 6, 2001.

     (3.7)   Certificate of Amendment to the Articles of Incorporation of E-SAT,
             Inc. dated December 29,2000

     (4.1)   Form of Unit Warrant Agreement,  which was previously filed in, and
             is hereby incorporated by reference to,  the Company's Registration
             Statement on Form S-18, No. 33-31868-D, effective May 11,  1990.(1)

     (4.2)   Specimen Stock Certificate.(1)

     (4.3)   Form of Warrant issued to SJ Capital.(8)

     (10.6)  1993 Incentive Stock Option Plan for DBS Industries, Inc.(1)

     (10.7)  1993 Non-Qualified Stock Option Plan for Non-Employee  Directors of
             DBS Industries, Inc.(1)

     (10.8)  1993  Non-Qualified  Stock  Option  Plan  for  Consultants  of  DBS
             Industries, Inc.(1)

     (10.9)  Commercial Lease  and  Sublease  and  Consent  pertaining  to  Mill
             Valley, CA office space.(1)

     (10.20) AXION Royalty Agreement  incorporated by reference to the Company's
             Current Report on Form 8-K dated May 16, 1994.(1)

     (10.24) DBS Industries,  Inc. $3,000,000,  Three-Year Convertible Debenture
             Series B due January 12, 1999,  incorporated  by  reference  to the
             Company's Current Report on Form 8-K dated February 1, 1996.(1)

     (10.25) Memorandum of Understanding between ABB Power T&D Company, Inc. and
             Global Energy Metering Service, Inc. dated February 9, 1996.(1)

     (10.26) Stock Purchase Agreement between Seimac Limited and DBS Industries,
             Inc., comprised of Common Stock Exchange Agreement and Shareholders
             Agreement both dated December 13, 1995.(1)

<PAGE> 32

     (10.30) DBS Industries,  Inc,. $640,000 Three-Year  Convertible  Debenture,
             Series C. due December 31, 1999.(1)

     (10.31) Employment  Agreement  between  Fred W.  Thompson  and the Company,
             dated April 18, 1996.(1)

     (10.32) Employment  Agreement  between  Randall  L.  Smith  and  GEMS  (the
             Company's Subsidiary), dated March 1, 1996.(1)

     (10.33) Employment  Agreement  between  E.A.  James  Peretti  and GEMS (the
             Company's subsidiary) dated April 18, 1996.(1)

     (10.34) 1996 Stock Option Plan.(1)

     (10.36) 1998 Stock Option Plan.(1)

     (10.37) Memorandum of Understanding Between DBS Industries,  Inc. and Matra
             Marconi Space.(2)

     (10.38) Letter of Intent with SAIT-Radio Holland SA.(2)

     (10.39) Purchase   Agreement  with  Astoria  Capital,   L.P.  and  Microcap
             Partners, L.P.(2)

     (10.40) Warrant Agreement with Astoria Capital, L.P. and Microcap Partners,
             L.P.(2)

     (10.41) Employment  Agreement  between Gregory T. Leger and DBS Industries,
             Inc. dated March 1, 1998.(3)

     (10.42) Unit Purchase Agreement with Michael Associates.(4)

     (10.43) Unit Purchase  Agreement with Lodestone  Capital Fund LLC, Fourteen
             Hill Capital, LP, High Peak Limited and Michael Fitzsimmons.(3)

     (10.44) Launch Services  Agreement with Eurockot Launch Services GmbH dated
             March 31, 1999.(4) (Redacted per Confidential Treatment Request)

     (10.45) Satellite  Construction  Agreement with Surrey Satellite Technology
             Limited dated March 31,1999.(4)(Redacted per Confidential Treatment
             Request)

     (10.46) Amendment to Employment  Agreement between Fred W. Thompson and DBS
             Industries, Inc. dated September 1, 1999.(5)

     (10.47) Amendment to Employment  Agreement between Gregory T. Leger and DBS
             Industries, Inc., dated September 1, 1999.(5)

     (10.48) Employment  Agreement between  Frederick R. Skillman,  Jr., and DBS
             Industries, Inc., dated July 28, 1999.(5)

     (10.49) Amendment to Employment  Agreement  between  Frederick R. Skillman,
             Jr., and DBS Industries, Inc. dated September 1, 1999.(5)

     (10.50) Employment Agreement between H. Tate Holt and DBS Industries,  Inc.
             dated June 1, 1999.(5)

     (10.51) Employment  Agreement between Stanton C. Lawson and DBS Industries,
             Inc. dated October 18, 1999.(5)

     (10.52) Employment Agreement between Randy Stratt and DBS Industries,  Inc.
             dated November 8, 1999.(5)

     (10.53) Prime  Contract  for  E-SAT  Communications   System  between  DBS
             Industries,  Inc.  and  Alcatel Space  Industries  dated October 8,
             1999,  and  as  amended  on  December 22,  1999.(5)  (Redacted  per
             Confidential Treatment Request)

<PAGE> 33

     (10.54) Share Purchase  Agreement  between EchoStar DBS Corporation and DBS
             Industries, Inc. dated July 30, 1999.(5)(Redacted per  Confidential
             Treatment Request)

     (10.55) 2000 Stock Option Plan.(6)

     (10.56) Common  Stock  Purchase  Agreement  between  Torneaux  Ltd. and DBS
             Industries, Inc. dated June 2, 2000.(7)

     (10.57) Amendment to Common Stock purchase  Agreement between Torneaux Ltd.
             and DBS Industries, Inc. dated June 30, 2000. (9)

     (10.58) Stock   Purchase   Agreement   between   Courtney  Benham  and  DBS
             Industries, Inc. dated June 2, 2000. (10)

     (10.59) Stock Purchase Agreement between Codera Wine Group Pension Plan and
             DBS Industries, Inc. dated June 2, 2000. (10)

     (10.60) Stock Purchase  Agreement  between  Patrick Watt House Living Trust
             and DBS Industries, Inc. dated June 2, 2000. (10)

     (10.61) Stock   Purchase   Agreement   between  Barbara  J.  Drew  and  DBS
             Industries, Inc. dated July 25, 2000. (10)

     (10.62) Registration  Rights Agreement between EchoStar DBS Corporation and
             DBS Industries, Inc. dated December 29, 2000.

     (10.63) Voting   Agreement   between  EchoStar  DBS   Corporation  and  DBS
             Industries, Inc. dated December 29, 2000.

     (21.1)  List of Subsidiaries of DBS Industries, Inc.

     (23.1)  Consent of PricewaterhouseCoopers, LLP.

     (1)  Previously filed in, and incorporated by reference to, Form 10-KSB for
          Fiscal Years July 31, 1993,  July 31, 1994, July 31, 1995 and December
          31, 1995, December 31, 1996, December 31, 1997, December 31, 1998, and
          December 31, 1999 or Form 8-K where indicated.

     (2)  Previously  filed with  Registration  Statement  on Form SB-2 filed on
          September 16, 1998.

     (3)  Previously  filed with  Registration  Statement  on Form SB-2 filed on
          November 30, 1998.

     (4)  Previously filed with Registration Statement on Form SB-2 filed on May
          3, 1999.

     (5)  Previously filed in the Form 10-KSB for the Fiscal Year ended December
          31, 1999.

     (6)  Previously filed in the Proxy Statement on Schedule 14A filed on April
          11, 2000.

     (7)  Previously  filed  in the  Form  8-K  filed  on  June  15,  2000.

     (8)  Previously  filed with  Registration  Statement  on Form SB-2 filed on
          August 11, 2000.

     (9)  Previously  filed with Form 10-Q for period ended June 30, 2000.

     (10) Previously filed with Form 10-Q for period ended September 30, 2000.


Reports on Form 8-K

On June 2, 2000, the Company filed a Form 8-K  announcing  the Company's  common
stock purchase agreement and related agreements with Torneaux Ltd.

<PAGE> 34
                                   SIGNATURES

In accordance  with Section 13 or 15(d) of the Securities  Exchange Act of 1934,
the  Registrant  caused  this  Annual  Report to be signed on its  behalf by the
undersigned, thereunto duly authorized.


Dated:   March 30, 2001                   DBS INDUSTRIES, INC.


                                          By:  /s/ Fred W. Thompson
                                               --------------------
                                               FRED W. THOMPSON, President






In accordance  with the Securities  Exchange Act of 1934, this Annual report has
been signed below by the following  persons on behalf of the  Registrant  and in
the capacities and on the dates indicated.


Name                        Title                          Date


FRED W. THOMPSON            President, Chairman            March 30, 2001
Fred W. Thompson            Principal Executive Officer

MICHAEL T. SCHIEBER         Director                       March 30, 2001
Michael T. Schieber


JEROME W. CARLSON           Director                       March 30, 2001
Jerome W. Carlson


H. TATE HOLT                Director                       March 30, 2001
H. Tate Holt

JESSIE J. KNIGHT, JR.       Director                       March 30, 2001
Jessie J. Knight, Jr.

STANTON C. LAWSON           Director                       March 30, 2001
Stanton C. Lawson           Principal Financial Officer

ROY T. GRANT
Roy T. Grant                Director                       March 30, 2001


<PAGE> F-1


                        Report of Independent Accountants



To the Board of Directors and Stockholders of
DBS Industries, Inc. and Subsidiaries:


In our opinion,  the  accompanying  consolidated  balance sheets and the related
consolidated  statements of operations,  of  stockholders'  equity,  and of cash
flows present fairly, in all material  respects,  the financial  position of DBS
Industries,  Inc. and Subsidiaries (a development  stage company) as of December
31, 2000 and 1999, and the results of their  operations and their cash flows for
the three years ended  December  31, 2000 and for the period from April 25, 1990
(date of  inception)  to  December  31,  2000,  in  conformity  with  accounting
principles  generally accepted in the United States of America.  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 of these  statements  in  accordance  with
auditing  standards  generally  accepted in the United  States of America  which
require that we plan and perform the audit 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 the financial  statements,  assessing the accounting principles used
and  significant  estimates  made by  management,  and  evaluating  the  overall
financial  statement  presentation.   We  believe  that  our  audits  provide  a
reasonable basis for our opinion.

The accompanying  financial  statements have been prepared  assuming the Company
will  continue as a going  concern.  As discussed in Note 1 to the  consolidated
financial  statements,  the Company has incurred  losses and negative cash flows
from operating activities since inception and will require additional financing.
These factors raise substantial doubt about the Company's ability to continue as
a going  concern.  Management's  plans as to these matters are also described in
Note 1. The  financial  statements  do not  include any  adjustments  that might
result from the outcome of this uncertainty.



/s/ PricewaterhouseCoopers LLP


San Francisco, California
March 15, 2001


<PAGE> F-2


DBS Industries, Inc. and Subsidiaries
(A Development Stage Company)
Consolidated Balance Sheets

                                                    December 31,
                                         ---------------------------------
                                              2000              1999
Assets
Current assets
    Cash and cash equivalents               $ 389,319         $ 282,945
    Prepaid and other current assets           57,378           114,439
                                        -------------     -------------
      Total current assets                    446,698           397,384
                                        -------------     -------------
Furniture and equipment, net                   32,393            48,211
Investments, advances and other             2,369,088         2,370,618
Satellite construction costs               12,229,907        12,072,873
Deferred stock offering costs                       -           673,500
                                        -------------     -------------
                                           14,631,387        15,165,202
                                        -------------     -------------
        Total assets                     $ 15,078,085      $ 15,562,586
                                        =============     =============

Liabilities and Stockholders' Equity
Current liabilities
    Accounts payable                       $1,482,476         $ 478,334
    Customer advances                         400,000           400,000
    Accrued compensation                      601,132           207,008
    Other liabilities                         179,410           253,569
                                        -------------     -------------
        Total current liabilities           2,663,019         1,338,911
                                        -------------     -------------
Commitments (Notes 4 and 7)

Stockholders' equity

 Series A Convertible Preferred stock,
  $0.0004 par value; 35,897 shares
  authorized; 25,899 issued and
  outstanding at December 31, 2000
  (liquidation preference $1,076,910)              10                 -
 Series B Convertible Preferred stock,
  $0.0004 par value; 550 authorized;
  440 issued and outstanding at
  December 31, 2000                                 -                 -

 Common stock, $0.0004 par value;
  50,000,000 shares authorized;
  15,601,143 and 14,354,911 issued
  and outstanding at December 31, 2000
  and 1999, respectively                        6,260             5,762
    Capital in excess of par value         29,552,935        26,968,174
    Warrants                                2,911,654         1,890,436
    Note receivable from stockholder                -           (60,000)
    Deferred stock compensation              (450,129)       (1,532,582)
    Deficit accumulated during the
     development stage                    (19,605,664)      (13,048,115)
                                        -------------     -------------
        Total stockholders' equity         12,415,066        14,223,675
                                        -------------     -------------
           Total liabilities and
             stockholders' equity        $ 15,078,085      $ 15,562,586
                                        =============     =============


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

<PAGE> F-3
DBS Industries, Inc. and Subsidiaries
(A Development Stage Company)
Consolidated Statements of Operations

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

                                                                                                      April 25, 1990
                                                                        December 31,                  (Inception) to
                                                        -------------------------------------------    December 31,
                                                             2000            1999            1998          2000

Revenue                                                     $     -         $     -         $     -      $  161,420
                                                        ------------    ------------    ------------   -------------
Cost and operating expenses
    Cost of revenue                                               -               -               -         127,580
    Marketing and sales                                   1,721,725         922,623               -       2,644,348
    General and administrative                            4,037,509       4,059,310       2,198,701      16,758,508
    Research and development                                736,775       1,045,296         797,147       4,748,789
                                                        ------------    ------------    ------------   -------------
                                                          6,496,009       6,027,229       2,995,848      24,279,225
                                                        ------------    ------------    ------------   -------------
      Loss from operations                               (6,496,009)     (6,027,229)     (2,995,848)    (24,117,805)
                                                        ------------    ------------    ------------   -------------
Other income (expense)
    Interest, net                                           (59,940)        113,336          32,421        (656,063)
    Equity in loss of investees, net                              -               -        (100,143)       (512,920)
    Gain (loss) on sale of investments                            -               -        (228,323)      5,829,218
    Other, net                                                    -               -               -         (56,634)
                                                        ------------    ------------    ------------   -------------
                                                            (59,940)        113,336        (296,045)      4,603,601
                                                        ------------    ------------    ------------   -------------
Loss before provision for income taxes
    and minority interest                                (6,555,949)     (5,913,893)     (3,291,893)    (19,514,204)
Provision for income taxes                                   (1,600)         (1,600)         (1,600)       (100,035)
                                                        ------------    ------------    ------------   -------------
      Loss before minority interest                      (6,557,549)     (5,915,493)     (3,293,493)    (19,614,239)

Minority interest in income of consolidated
    subsidiaries                                                  -               -               -           8,575
                                                        ------------    ------------    ------------   -------------
        Net loss                                       $ (6,557,549)   $ (5,915,493)    $(3,293,493)   $(19,605,664)
                                                        ============    ============    ============   =============
Basic and diluted net loss per share                      $   (0.44)      $   (0.45)      $   (0.47)
                                                        ============    ============    ============   =============
Weighted average number of shares of common
    stock, basic and diluted                             14,832,155      13,088,723       6,979,818
                                                        ============    ============    ============
</TABLE>

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



<PAGE> F-4

DBS Industries, Inc. and Subsidiaries
(A Development Stage Company)
Consolidated Statements of Stockholders' Equity
<TABLE>
<S>                      <C>      <C>     <C>      <C>     <C>          <C>      <C>         <C>           <C>


                                                                                                              Deficit
                         Preferred Stock   Common Stock                                                     Accumulated    Total
                         ---------------   --------------   Capital in                          Deferred    During the     Stock-
                                    Par              Par    Excess of               Notes     Stock-Based   Development    holders'
                          Shares   Value   Shares   Value   Par Value   Warrants  Receivable  Compensation     Stage       Equity

Balance at December
 31, 1990, of DBSN
 as restated
 pursuant to the
 merger on
 December 2, 1992                         301,000  $ 120    $ 46,375   $     -     $     -      $      -     $(219,990)  $ (173,495)
Issuance of common
 stock for
 professional
 services at $1.01
 to $2.14 per share                       520,000    208      47,542         -           -             -             -       47,750
Issuance of common
 stock for cash
 at $.01 to $1.00
 per share                                244,500     98     124,507         -           -             -             -      124,605
Stock issue costs
 for the twelve
 months ended
 December 31, 1991                              -      -     (15,774)        -           -             -             -      (15,774)

Net loss for the
 twelve months
 ended
 December 31, 1991                              -      -           -         -           -             -      (115,339)    (115,339)
------------------------------------------------------------------------------------------------------------------------------------
Balance at
 December 31, 1991                      1,065,500    426     202,650         -           -             -      (335,329)    (132,253)
------------------------------------------------------------------------------------------------------------------------------------
Issuance of common
 stock for cash
 at $.01 to $1.00
 - per share                            1,317,290    527     538,998         -           -             -             -      539,525
Issuance of common
 stock for
 professional
 services at
 $.01 to $.10
 - per share                              214,240     86      12,338         -           -             -             -       12,424
Issuance of common
 stock in payment
 of stockholder
 loans: June 1992
 at $.01 per share                        230,000     92       2,208         -           -             -             -        2,300
Net loss for the
 seven months ended
 July 31, 1992                                  -      -           -         -           -             -       (90,750)     (90,750)
------------------------------------------------------------------------------------------------------------------------------------
Balance at
 July 31, 1992                          2,827,030  1,131     756,194         -           -             -      (426,079)     331,246
------------------------------------------------------------------------------------------------------------------------------------
Shares of Fi-Tek IV,
 Inc. from
 August 3, 1989
 (inception) through
 December 2, 1992                         817,540    327     155,450         -           -             -             -      155,777
Issuance of common
 stock for cash at
 $.01 to $3.20 per
 share                                  1,313,926    527     998,088         -           -             -             -      998,615
Issuance of common
 stock for interest
 at $5.00 per share                        10,000      4       4,996         -           -             -             -        5,000
Issuance of common
 stock for JPS
 common stock on
 September 11, 1992
 at $.80 per share                         61,447     24      49,134         -           -             -             -       49,158
Issuance of common
 stock for
 professional
 services on
 September 11, 1992
 at $.10 per share                          6,679      3         665         -           -             -             -          668


<PAGE> F-5

DBS Industries, Inc. and Subsidiaries
(A Development Stage Company)
Consolidated Statements of Stockholders' Equity

                                                                                                              Deficit
                         Preferred Stock   Common Stock                                                     Accumulated    Total
                         ---------------   --------------   Capital in                          Deferred    During the     Stock-
                                    Par              Par    Excess of               Notes     Stock-Based   Development    holders'
                          Shares   Value   Shares   Value   Par Value   Warrants  Receivable  Compensation     Stage       Equity

Issuance of common
 stock in exchange
 for DBSC common
 stock on
 October 9, 1992,
 at $2.00 per share                         6,375      2      12,748         -           -             -             -       12,750
Redemption of 97,450
 common stock
 warrants on
 October 2, 1992, at
 $8.00 per share                                -      -     (19,490)        -           -             -             -      (19,490)

Issuance of common
 stock
 December 2, 1992,
 at closing of
 acquisition of DBSN
 as a finder's
 fee at $.0004 per
 share                                     25,000     10          -          -           -             -             -           10
Issuance of common
 stock for Axion
 common stock during
 March 1993 at
 $1.60 per share                           50,000     20      79,980         -           -             -             -       80,000
Issuance of common
 stock for DBSC
 common stock on
 July 2, 1993, at
 $1.60 per share                          133,306     53     213,238         -           -             -             -      213,291
Stock issue costs for
 the period from
 August 1, 1992
 through July 31, 1993                          -      -      (6,374)        -           -             -             -       (6,374)
Net loss for the
 twelve months ended
 July 31, 1993                                  -      -           -         -           -             -      (755,040)    (755,040)
------------------------------------------------------------------------------------------------------------------------------------
Balance at
July 31, 1993                           5,251,303  2,101   2,244,629         -           -             -    (1,181,119)   1,065,611
------------------------------------------------------------------------------------------------------------------------------------
</TABLE>

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

<PAGE> F-6

DBS Industries, Inc. and Subsidiaries
(A Development Stage Company)
Consolidated Statements of Stockholders' Equity


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

                                                                                                                Deficit
                           Preferred Stock   Common Stock                                                     Accumulated  Total
                           ---------------   ------------    Capital in                          Deferred     During the   Stock-
                                 Par                Par      Excess of               Notes      Stock-Based   Development  Holder
                         Shares Value   Shares      Value    Par Value  Warrants  Receivable   Compensation      Stage     Equity
------------------------------------------------------------------------------------------------------------------------------------
Balance at July 31, 1993      -     -   5,251,303   2,101    2,244,629         -           -              -   (1,181,119)  1,065,611
------------------------------------------------------------------------------------------------------------------------------------
Issuance of common
 stock for cash
 at $4.00 per
 share(August 1993
   through April 1994)                    102,256      41      411,943         -           -              -            -    411,984
Stock issued in
 exchange for 46%
 of JPS stock on
  November 19, 1993                         3,379       1       10,137         -           -              -            -     10,138
Stock issued for
 professional
 services:
 January 28, 1994,
  at $3.60
    per share                               5,331       2       19,188         -           -              -            -     19,190
 July 29, 1994,
  at $2.00
    per share                               3,833       2        7,663         -           -              -            -      7,665
Stock issued due
 to exercise of
 warrants, at $2.00
 per share
  (March and April 1994)                    2,500       1        4,999         -           -              -            -      5,000
Stock issued for
 interest on
 July 31, 1994,
  at $2.00
  per share                                 1,000       -        2,000         -           -              -            -      2,000
Purchase of shares
 of common
 stock on
 January 28, 1994,
  at $3.20 per share                       (1,563)      -       (5,000)        -           -              -            -     (5,000)
Reacquisition of
common stock
 pursuant to sale of
 investment in Axion
 in May 1994, at $1.60
  per share                               (50,000)      -      (80,000)        -           -              -            -    (80,000)
Net loss for the twelve
 months
  ended July 31, 1994                           -       -            -         -           -              -      (26,909)   (26,909)

------------------------------------------------------------------------------------------------------------------------------------
Balance at July 31, 1994                5,318,039   2,148    2,615,559         -           -              -   (1,208,028)  1,409,679
------------------------------------------------------------------------------------------------------------------------------------

Stock issued for services:
  November 30, 1994,
  at $1.88
  per share                                10,000       4       18,796         -           -              -       18,800
  May 15, 1995,
  at $2.00
  per share                                10,724       4       21,443         -           -              -       21,447     -
  July 15, 1995,
  at $1.60
  per share                                11,373       5       18,192         -           -              -       18,197
Net loss for the
  twelve months ended
  July 31, 1995                                 -       -            -         -           -              -   (1,284,558)(1,284,558)

------------------------------------------------------------------------------------------------------------------------------------
Balance at July 31, 1995                5,350,136   2,161    2,673,990         -           -              -   (2,492,586)   183,565
------------------------------------------------------------------------------------------------------------------------------------

Issuance of common
 stock for 1%
 JPS common stock on
 September 21, 1995
 at $1.20 per share                         9,450       4       11,336         -           -              -            -     11,340


<PAGE> F-7

DBS Industries, Inc. and Subsidiaries
(A Development Stage Company)
Consolidated Statements of Stockholders' Equity


                                                                                                                Deficit
                           Preferred Stock   Common Stock                                                     Accumulated  Total
                           ---------------   ------------    Capital in                          Deferred     During the   Stock-
                                 Par                Par      Excess of               Notes      Stock-Based   Development  Holder
                         Shares Value   Shares      Value    Par Value  Warrants  Receivable   Compensation      Stage     Equity
Issuance of common
 stock for 20%
 Seimac Limited
 common stock on
 December 13, 1995
 at $4.00 per share                       165,519      66      662,010         -           -              -            -    662,076
Issuance of common
 stock for
 professional services
 at $5.60 per share                         2,934       1       16,427         -           -              -            -     16,428
Net loss for the twelve
 months ended
 December 31, 1995                              -       -            -         -           -              -     (662,877)  (662,877)

------------------------------------------------------------------------------------------------------------------------------------
Balance at
December 31, 1995                       5,528,039   2,232    3,363,763         -           -              -   (3,155,463)   210,532
------------------------------------------------------------------------------------------------------------------------------------
</TABLE>

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

<PAGE> F-8

DBS Industries, Inc. and Subsidiaries
(A Development Stage Company)
Consolidated Statements of Stockholders' Equity
<TABLE>
<S>                          <C>      <C>       <C>       <C>    <C>       <C>       <C>         <C>          <C>           <C>


                                                                                                                    Deficit
                             Preferred Stock     Common Stock                                                   Accumulated   Total
                             ---------------     --------------  Capital in                         Deferred    During the    Stock-
                                        Par                Par   Excess of              Notes     Stock-Based  Development  holders'
                              Shares   Value     Shares   Value  Par Value  Warrants  Receivable  Compensation    Stage      Equity

------------------------------------------------------------------------------------------------------------------------------------
Balance at
December 31, 1995                  -       -  5,528,039   2,232  3,363,763         -           -           -  (3,155,463)   210,532
------------------------------------------------------------------------------------------------------------------------------------
Warrants issued on
 January 13, 1996,
 to purchase 75,000 shares
 of common stock for
 services rendered at an
 exercise price of $7.30
 per share                                            -       -          -   112,500           -           -           -    112,500
Issuance of common stock
 for cash January 15, 1996,
  at $4.00 per share, less
  noncash issuance cost of
  $63,900                                       200,000      80    736,020         -           -           -           -    736,100
 February 15, 1996, at $5.20
  per share, less noncash
  issuance cost of $19,999                       38,462      15    179,988         -           -           -           -    180,003
Stock issued for services
 January 1 - June 30, 1996,
  at $3.75 per share                             22,743       9     85,277                                                   85,286
 August 15, 1996, at $4.80
  per share                                       6,018       2     28,884                                                   28,886
 September 21, 1996, at
  $5.60 per share                                 4,821       2     26,996                                                   26,998
 July 1 - December 31, 1996,
  at $2.00 per share                              7,605       3     15,207                                                   15,210
 Placement fee associated
  with January 15 and
  February 15, 1996,
  issuances settled through
  issuance                                       19,821       8     83,891                                                   83,899
  of common stock
Net loss for the twelve months
 ended December 31, 1996                              -       -          -         -           -           -  (3,752,583)(3,752,583)
------------------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1996                  5,827,509   2,351  4,520,026   112,500           -           -  (6,908,046)(2,273,169)
------------------------------------------------------------------------------------------------------------------------------------
Stock issued for services
 January 31, 1997, at $1.69
  per share                                       5,088       2      8,586                                                    8,588
 February 14, 1997, at $1.75
  per share                                       4,701       2      8,225                                                    8,227
 February 28, 1997, at $2.00
  per share                                       7,918       3     15,834                                                   15,837
 March 31, 1997, at $1.63
  per share                                         302       -        491                                                      491
 April 10, 1997, at $2.00
  per share                                       7,500       3     14,997                                                   15,000
 April 30, 1997, at $1.50
  per share                                         332       -        498                                                      498
 June 30, 1997, at $1.13
  per share                                      14,578       6     16,394                                                   16,400
 July 9, 1997, at $0.75
  per share                                      15,000       6     11,244                                                   11,250

Net income for the twelve
months ended December 31, 1997                        -       -          -         -            -          -   3,068,917  3,068,917
------------------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1997                  5,882,928   2,373  4,596,295   112,500            -          -  (3,839,129)   872,039
------------------------------------------------------------------------------------------------------------------------------------
</TABLE>

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

<PAGE> F-9

DBS Industries, Inc. and Subsidiaries
(A Development Stage Company)
Consolidated Statements of Stockholders' Equity
<TABLE>
<S>                       <C>             <C>         <C>     <C>        <C>       <C>        <C>            <C>           <C>



                             Preferred                                                                         Deficit
                                Stock        Common Stock                                                     Accumulated   Total
                          --------------   -----------------  Capital in                          Deferred    During the    Stock-
                                    Par                Par    Excess of               Notes     Stock-Based   Development   holders'
                           Shares  Value   Shares      Value  Par Value   Warrants Receivable  Compensation      Stage      Equity
------------------------------------------------------------------------------------------------------------------------------------
Balance at
December 31, 1997               -      -   5,882,928   2,373  4,596,295    112,500           -             -  (3,839,129)    872,039
------------------------------------------------------------------------------------------------------------------------------------
Common stock issued for
 cash, on April 16, 1998,
 at $2.00 per share                          102,000      41    203,959          -           -             -           -     204,000
Common stock issued upon
 exercise of options, on
 June 11, 1998, at $1.44
 per share                                    12,500       5     17,964                                                      17,969
Common stock issued (voided)
 in connection with
 services rendered
 February 12, 1998, at $0.53
  per share                                   26,209      10     13,906                                                      13,916
 April 1, 1998, at $3.25
  per share                                   10,000       4     32,496                                                      32,500
 May 14, 1998, at $3.75
  per share                                   13,646       6     51,168                                                      51,174
 May 14, 1998, at $3.75
  per share                                  (22,743)     (9)   (85,277)                                                    (85,286)
Common stock issued for cash
 in August and September 1998
 at $2.00 per share net of
 issuance costs of $485,826                2,800,000   1,120  5,113,054                                                   5,114,174
Common stock issued upon
 exercise of options at $0.53
 per share                                    17,202       6      9,128                                                       9,134
Fair value of Common Stock
 warrants committed to
 representing stock issuance
 costs                                                         (973,000)   973,000                                                 -
Fair value of options granted
 in connection with services
 rendered                                                       159,000                                                     159,000

Common stock issued for
 exercise of options $0.60 per
 share 10/1/98                                37,500      15     22,485                                                      22,500
Common stock returned to
 investees at $2.00 per share
 in October 1998                            (400,000)   (160)  (799,840)                                                   (800,000)
Common stock issued upon
 exercise of options $0.531 per
 share in October 1998                        94,375      38     50,075                                                      50,113
Common stock issued representing
 stock issuance costs                          7,500       3     14,997                                                      15,000
Net loss for the year ended
 December 31, 1998                                 -       -          -          -           -             -  (3,293,493)(3,293,493)
------------------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1998               8,581,117   3,452  8,426,410  1,085,500           -             -  (7,132,622) 2,382,740
------------------------------------------------------------------------------------------------------------------------------------
</TABLE>

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

<PAGE> F-10
DBS Industries, Inc. and Subsidiaries
(A Development Stage Company)
Consolidated Statements of Stockholders' Equity
<TABLE>
<S>                       <C>    <C>       <C>       <C>     <C>         <C>       <C>          <C>          <C>           <C>


                            Preferred                                                                          Deficit
                              Stock         Common Stock                                                      Accumulated    Total
                         -------------    ---------------    Capital in                         Deferred      During the     Stock-
                                  Par                 Par     Excess of               Notes     Stock-Based   Development   holders'
                         Shares  Value     Shares    Value    Par Value   Warrants  Receivable  Compensation     Stage       Equity
------------------------------------------------------------------------------------------------------------------------------------
Balance at
December 31, 1998             -      -   8,581,117   3,452    8,426,410  1,085,500           -            -  (7,132,622)  2,382,740
------------------------------------------------------------------------------------------------------------------------------------

Common stock issued for
 cash February 1999 at
 $2.50, net of issuance
 costs of $2,104                            50,000      20     122,876                                                      122,896
February 1999 at $3.00,
 net of issuance costs
 of $25,246                                500,000     200   1,474,554                                                    1,474,754
April 1999 at $3.00 per
 share                                   1,666,667     667   4,999,333                                                    5,000,000
Common stock issued upon
 exercise of options
 January, March, August,
 and December 1999
 at $0.53 per share                        195,227      78     103,557                                                      103,635
February 1999 at $0.58                      12,625       5       7,368                                                        7,373
January and February 1999
 at $0.60                                   26,667      11      15,990                                                       16,001
February 1999 at $1.44                      37,500      15      53,891                                                       53,906
February and March 1999
 at $1.45                                  200,000      80     289,920                                                      290,000
January, February, and
 March 1999 at $1.50                       195,084      78     292,548                                                      292,626
January 1999 at $2.80                        8,125       3      22,747                                                       22,750
Common stock issued upon
 exercise of warrants
 January 1999 at $0.50
  per share                                200,000      80      99,920                                                      100,000
 January 1999 at $1.44
  per share                                 11,080       4      15,923                                                       15,927
 January and February 1999
  at $1.50 per share                        64,380      26     183,251     (86,707)                                          96,570
 March 1999 at $2.00
  per share                                  7,500       2      24,673      (9,675)                                          15,000
 February and March 1999
  at $2.10 per share                        33,700      13     111,534     (40,777)                                          70,770
 January - March 1999 at
  $3.00 per share, net of
  issuance costs of $123,80              2,452,000     983   7,239,689      (8,475)                                       7,232,197
 March 1999 at $3.50
  per share net of issuance
  costs of $3,344                           50,000      20     172,035                                                      172,055

Expiration of warrants                                          15,730     (15,730)
Deferred stock compensation                                  2,490,337                           (2,490,337)                      -
Options issued in connection
 with services rendered                                        751,497                                                      751,497
Amortization of deferred stock
 compensation                                                                                       957,755                 957,755
Warrants issued in connection
 with services rendered in
 November and December 1999                                                 22,800                                           22,800
Issuance of common stock in
 connection with Litigation
 settlement in March 1999
 at $5.00 per share                         63,239      25     324,391                                                      324,416
Fair value of Common Stock
 warrants committed to
 representing deferred stock
 issuance costs                                                            673,500                                          673,500
 in December 1999                                                                                                                 -
Warrant issued in connection
 with stock issuance costs                                                (270,000)    270,000                                    -
Note Receivable from
 Stockholder                                                                                        (60,000)                (60,000)
Retirement of Treasury Stock                                                                                                      -
Net loss for the year ended
 December 31, 1999                                                                                            (5,915,493)(5,915,493)
------------------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1999            14,354,911   5,762  26,968,174   1,890,436     (60,000)  (1,532,582) (13,048,115) 14,223,675
------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The  accompanying  notes are an integral  part of these  consolidated  financial
statements.

<PAGE> F-11
DBS Industries, Inc. and Subsidiaries
(A Development Stage Company)
Consolidated Statements of Stockholders' Equity
<TABLE>
<S>                     <C>     <C>       <C>       <C>     <C>         <C>       <C>         <C>           <C>            <C>
                          Preferred                                                                           Deficit
                            Stock           Common Stock                                                    Accumulated    Total
                        -------------     ----------------- Capital in                          Deferred    During the     Stock-
                                 Par                 Par    Excess of               Notes     Stock-Based   Development    holders'
                        Shares  Value     Shares    Value   Par Value   Warrants  Receivable  Compensation     Stage       Equity
------------------------------------------------------------------------------------------------------------------------------------
Balance at
 December 31, 1999           -      -   14,354,911  5,762   26,968,174  1,890,436  (60,000)   (1,532,582)  (13,048,115)  14,223,675
------------------------------------------------------------------------------------------------------------------------------------
Common stock issued
 for cash
 January 2000
  under Employee
  Stock Purchase
  Plan at $1.83                                490                 900                                                          900
 July 2000
  under Employee
  Stock Option
  Plan at $1.43                              6,961      3        9,951                                                        9,954
 June 2000
  at $1.00                                 166,298     67      166,231                                                      166,298
 July 2000
  at $.75                                  133,333     53       99,946                                                      100,000
 September 2000
  at $.9863                                 84,490     34       83,299                                                       83,333
 October 2000
  at $.8805                                 63,092     25       55,531                                                       55,556
Common stock issued
 upon exercise of options
 February 2000
  at $2.1875                                15,000      6       32,807                                                       32,813
 March 2000
  at $.531                                  15,000      6        7,959                                                        7,965
 March 2000
  at $1.45                                  50,000     20       72,480                                                       72,500
 March 2000
  at $1.50                                  10,000      4       14,996                                                       15,000
 April 2000
  at $.5840                                  5,500      2        3,210                                                        3,212
 June 2000
  at $.60                                   37,500     15       22,485                                                       22,500
 June and August 2000
   at $.7235                                10,000      4        7,231                                                        7,235
 December 2000
   at $.584                                  1,375      1          802                                                          803

Cash received for
 common stock to
 be issued                                                     600,000                                                      600,000

Common stock issued
 upon exercise of
 warrants
 March 2000
  at $1.50                                   2,495      1        5,001                                                        5,002
 September 2000
  at $.70                                  125,000     50       87,450                                                       87,500
Common stock issued
 in connection with
 services rendered
 January 2000
  at $2.2937                                 4,687      2       10,748                                                       10,750
 June 2000
  at $1.50                                  66,667     26       99,974                                                      100,000
 September 2000
  at $1.25                                 200,000     80      249,920                                                      250,000
 December 2000
  at $0.5625                                65,569     26       36,856                                                       36,883
 July 2000
  at $2.5875                                 3,672      1        9,500                                                        9,501

Series A Preferred
 Shares issued
 January - July
 2000 at $30.00         35,897     14                        1,076,896                                                    1,076,910
Series B Preferred
 share issued  in
 October, 2000 at
 $1,000                    440      0                          440,000                                                      440,000

Stock issuance costs -
 January to December 2000                                     (636,576)                                                    (636,576)
</TABLE>
The  accompanying  notes are an integral  part of these  consolidated  financial
statements.

<PAGE> F-12
DBS Industries, Inc. and Subsidiaries
(A Development Stage Company)
Consolidated Statements of Stockholders' Equity
<TABLE>
<S>                    <C>     <C>      <C>     <C>    <C>         <C>       <C>         <C>              <C>          <C>


                        Preferred          Commmon                                                          Deficit
                           Stock            Stock                                                         Accumulated
                       -------------    -------------  Capital in                         Deferred         During the      Total
                                Par              Par   Excess of                Notes    Stock-Based      Development  Stockholders'
                       Shares  Value    Shares  Value  Par Value   Warrants  Receivable  Compensation        Stage        Equity
Series A Preferred
 Shares converted
 September 2000
  at $1.6812           (1,666)   (1)    29,728     12       (11)
Series A Preferred
 Shares converted
 October 2000
  at $1.6812           (1,666)   (1)    29,728     12       (11)
Series A Preferred
 Shares converted
 November 2000
  at $1.70             (3,333)   (1)    58,817     24       (23)
Series A Preferred
 Shares converted
 November 2000
 at $1.6438            (3,333)   (1)    60,830     24       (23)

Options and Warrants
 issued in connection
 with services rendered                                  30,828     693,919                                                 724,747
Warrants issued in
 connection with
 stock issuance costs                                               327,299                                                 327,299

Amortization of
 deferred stock
 compensation                                                                              1,078,856                      1,078,856

Cancellation of
 deferred stock
 compensation                                            (3,597)                               3,597                              -

Repayment of Note
 Receivable from
 Stockholder                                                                     60,000                                      60,000

Net loss for the
 year ended
 December 31, 2000                                                                                        (6,557,549)    (6,557,549)

------------------------------------------------------------------------------------------------------------------------------------
Balance at
 December 31, 2000     26,339    10 15,601,143  6,260 29,552,935  2,911,654            -    (450,129)    (19,605,664)    12,415,066
------------------------------------------------------------------------------------------------------------------------------------
</TABLE>

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

<PAGE> F-13

DBS Industries, Inc. and Subsidiaries
(A Development Stage Company)
Consolidated Statements of Cash Flows
<TABLE>
<S>                                                        <C>           <C>            <C>            <C>


                                                                                                      April 25, 1990
                                                                    Year Ended December 31,           (Inception) to
                                                           ----------------------------------------     December 31,
                                                                2000          1999           1998           2000
Cash flows from operating activities
   Net loss                                                $(6,557,549)  $(5,915,493)   $(3,293,493)   $(19,605,664)

   Adjustments to reconcile net loss to net cash
     used in operating activities:
     Depreciation and amortization                              16,866        15,719         73,122         463,841
     Minority interest's share of net loss                           -             -              -          (8,575)
     Noncash charges                                           673,500             -        573,999       1,758,045
     Amortization of deferred stock-based compensation       1,078,857       957,755              -       2,036,612
     Issuance of options and warrants for services rendered  1,021,218       774,298              -       1,795,516
     Issuance of common stock in connection
      with litigation settlement                                     -       324,391              -         324,391
     Equity in loss of investees, net                                -             -        100,143         529,972
     Loss (gain) on sale of investments                              -             -        228,323      (5,829,218)
     Allowance for losses on advances                                -             -        216,932         216,932
     Common stock issued as payment for interest                     -             -              -           7,000
     Decrease (increase) in accounts receivable and                                                               -
      other assets                                              57,060       (43,301)        48,127         (38,175)
     Increase (decrease) in accounts payable and
      accrued liabilities                                    1,324,107       204,675       (108,264)      1,934,022
     Increase in customer advances                                   -             -              -         400,000
        Net cash used in operating activities               (2,385,941)   (3,681,956)    (2,161,111)    (16,015,301)
Cash flows from investing activities
   Proceeds from sale of investment                                  -             -        199,940       1,099,940
   Proceeds from Loral settlement                                    -             -              -       3,573,677
   Purchase of fixed assets                                          -       (34,394)        (5,523)       (145,441)
   Satellite construction payments                            (157,034)  (10,800,790)    (1,272,083)    (12,229,907)
   Organization costs                                                -             -              -         (28,526)
   Repayment (issuance) of note receivable from stockholder     60,000       (60,000)             -         (31,187)
   Purchase of interest in Continental                               -             -              -      (2,292,409)
   Investments and advances                                        482    (1,518,081)      (407,292)     (2,726,325)
   Net assets of purchased subsidiaries                              -             -              -        (147,500)
   Cash transferred from Fi-Tek IV, Inc. pursuant to the
     merger and reorganization                                       -             -              -         156,648
   Cash of divested subsidiary                                       -             -              -            (277)
   Purchase of patents                                               -             -              -         (18,251)
   Proceeds from repayment of advances to affiliate                  -             -              -         152,500
   Restricted cash on credit line                                    -             -              -         300,000
        Net cash used in investing activities                  (96,551)  (12,413,265)    (1,484,958)    (12,337,057)
Cash flows from financing activities
   Repayment of borrowing under credit line                          -             -              -        (300,000)
   Issuance of debentures                                            -             -              -       4,817,501
   Issuance of common stock                                  2,008,472    15,240,555      4,997,226      25,399,769
   Issuance of Preferred Stock                               1,216,970
   Redemption of common stock warrants                               -             -              -         (19,490)
   Stock issuance costs                                       (636,576)     (154,100)      (442,500)     (1,290,411)
   Purchase of shares                                                -             -              -          (5,000)
   Issuance (Payment) of debentures                                  -             -              -      (1,168,445)
   Proceeds from stockholders' loans                                 -             -              -         442,750
   Payment of stockholders' loans                                    -             -              -        (351,967)
        Net cash provided by financing activities            2,588,867    15,086,455      4,554,726      27,524,708




Net increase (decrease) in cash                                106,374    (1,008,766)       908,657         389,319

Cash and cash equivalents, beginning of period                 282,945     1,291,711        383,054               -



Cash and cash equivalents, end of period                     $ 389,319     $ 282,945     $1,291,711      $  389,319

Supplemental disclosures of cash flow information
   Interest                                                  $  59,940     $   4,672        $     -      $   84,832
   Income taxes                                              $   1,600     $   1,600      $   1,600      $   23,420

</TABLE>

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

<PAGE> F-14

DBS Industries, Inc. and Subsidiaries
(A Development Stage Company)
Notes to Consolidated Financial Statements

1. Organization and Basis of Presentation

     These  consolidated  financial  statements  include  the  accounts  of  DBS
     Industries, Inc. (the "Company"), and its wholly-owned subsidiaries, Global
     Energy Metering Service,  Inc. ("GEMS"),  and NewStar Limited  ("NewStar").
     Intercompany   transactions   and   balances   have  been   eliminated   in
     consolidation.

     The  Company was  organized  as a Delaware  corporation  on August 3, 1989.
     Since  inception  the  Company  has  been  in the  development  stage.  The
     Company's current business plan is to develop a data communication  service
     using a constellation of low earth orbit  satellites and the Internet.  The
     Company's financial statements have been prepared assuming the Company will
     continue  as a going  concern.  Since  inception,  the  Company has devoted
     substantially  all of its efforts to developing  its business.  The Company
     has  therefore  incurred  substantial  losses and negative  cash flows from
     operating   activities  as  reflected  in  these   consolidated   financial
     statements.  Accordingly,  the Company has relied  primarily upon obtaining
     equity  capital and debt financing to support its  operations.  The Company
     does  not  expect  revenue  to  exceed  costs  and  expenses  in 2001  and,
     accordingly,  will  continue to incur losses and  negative  cash flows from
     operating  activities.  To address financing needs, the Company is pursuing
     various financing alternatives. These circumstances raise substantial doubt
     about the Company's ability to continue as a going concern.

      During fiscal 2000, the Company raised  approximately $2.5 million, net of
     stock issuance costs,  from warrant  exercises and sale of shares of common
     and preferred stock. However, the Company will need substantial  additional
     capital,  at least  $120  million,  to  construct  its  proposed  satellite
     constellation. Such financing is likely to result in a significant dilution
     in the equity  interests of the current  stockholders.  The construction of
     the first two of the six  planned  satellites  was  required to commence by
     April 1999 pursuant to the terms of the Federal  Communications  Commission
     (FCC) license  granted to E-SAT.  The Company  notified the FCC that it has
     achieved this milestone by entering into a  construction  contract on March
     31, 1999.  These financial  statements do not reflect any adjustments  that
     might result from the outcome of this uncertainty.

     GEMS is a Delaware  corporation  in the  development  stage  whose  primary
     activity has been the development of satellite and radio systems for use in
     automating  the  control  and  distribution  of gas and  electric  power by
     utility companies. GEMS had no significant activity during fiscal 2000.

     In January  1998,  the Company  created  NewStar  Limited,  a  wholly-owned
     subsidiary  organized  under the Laws of the  Republic of Bermuda to market
     and sell our service to international customers.

     The Company's investments in E-SAT Corporation, in which the Company has an
     ownership interest of 80.1%, are accounted for using the equity method. The
     Company's  interest in Seimac Limited was disposed of during 1998 (see Note
     3).


<PAGE> F-15

2. Summary of Significant Accounting Policies

     Hereafter,  unless  otherwise  specified,  all  references to the "Company"
     include DBS Industries, Inc. and its wholly-owned subsidiaries.

          Use of estimates

          The  preparation of financial  statements in conformity with generally
          accepted  accounting  principles requires management to make estimates
          and  assumptions  that  affect  the  reported  amounts  of assets  and
          liabilities  and  disclosures of contingent  assets and liabilities at
          the date of the  financial  statements  and the  reported  amounts  of
          revenues and expenses  during the  reporting  period.  Such  estimates
          include the  recoverability  of satellite  construction  costs and the
          investment in ESAT. Actual results could differ from those estimates.

          Cash equivalents

          The Company  considers all money market  instruments  and other highly
          liquid investments with original maturities of three months or less to
          be cash equivalents.

          Depreciation

          Furniture  and  equipment are  depreciated  over the estimated  useful
          lives of the  assets  ranging  from  five to  seven  years  using  the
          straight-line method of depreciation. When assets are disposed of, the
          related cost and accumulated  depreciation  are removed from the books
          and the resulting gain or loss is recognized in the year of disposal.

          Satellite construction costs

          Satellite  construction  costs  will be  depreciated  over the  useful
          economic lives of the satellites once they enter into service.

          The  Company  adopted  Statement  of  Financial  Accounting  Standards
          ("SFAS") No. 121,  "Accounting for Impairment of Long-Lived Assets and
          Long-Lived  Assets to be Disposed of". The Company  reviews  satellite
          construction costs and other long-lived assets for impairment whenever
          events or changes in  circumstances  indicate that the carrying amount
          of an asset may not be recoverable. The amount of the impairment loss,
          if any, would be calculated based on the excess of the carrying amount
          of the assets over their fair market value.

          Goodwill

          Goodwill is amortized using the straight-line  method over five years.
          Amortization  expense  charged  to  operations  for  the  years  ended
          December 31, 2000,  1999,  and 1998,  was $1,047,  $2,515,  and $5,564
          respectively.

          Income taxes

          Income  taxes  are  accounted  for in  accordance  with  Statement  of
          Financial Accounting Standards ("SFAS") No. 109, Accounting for Income
          Taxes.  Under SFAS No. 109, deferred income tax liabilities and assets
          are determined based on the difference between the financial reporting
          amounts  and tax bases of assets and  liabilities  that will result in
          taxable or deductible amounts in


<PAGE> F-16

          the  future.  Such  amounts are based on enacted tax laws and rates in
          effect for the years in which the  differences  are expected to affect
          taxable  income,  net  operating  loss and tax  credit  carryforwards.
          Valuation allowances are established when necessary to reduce deferred
          tax assets to the amounts expected to be realized.  Income tax expense
          is the tax payable for the period and the change  during the period in
          deferred tax assets and liabilities.

          Stock-Based Compensation

          The company accounts for stock-based employee compensation  agreements
          in  accordance  with the  provisions of  Accounting  Principles  Board
          Opinion  No.25,  Accounting  for Stock Issued to Employees (APB No.25)
          and complies with the disclosure  provisions of Statement of Financial
          Accounting Standards No.123,  Accounting for Stock-Based  Compensation
          (SFAS  123).  Under APB  No.25,  compensation  expense is based on the
          difference,  if any, between the fair value of the Company's stock and
          the exercise  price of the option on the  measurement  date,  which is
          typically the date of grant.


          In March of 2000, the Financial  Accounting  Standards  Board ("FASB")
          issued FIN 44,  "Accounting for Certain  Transactions  Involving Stock
          Compensation",  an  interpretation  of APB No.25. Fin 44 was effective
          July 1,  2000.  The  implementation  of FIN 44 did not have a material
          impact on the Company's financial statements.

          The Company accounts for options granted to  non-employees  under SFAS
          No.123. Under SFAS No.123, options are recorded at their fair value on
          the measurement date, which is typically the date of grant.


          Net loss per share

          In February 1997, the Financial Accounting Standards Board issued SFAS
          No. 128, Earnings per Share, which establishes standards for computing
          and presenting earnings (loss) per share. Under these standards, basic
          earnings per share is computed based on the weighted average number of
          common shares outstanding and excludes any potential dilution; diluted
          earnings per share reflects diluted effects of all outstanding  common
          stock  equivalents.  Options and warrants  are  excluded  from the EPS
          calculation in loss years due to their  antidilutive  effect.  Diluted
          net loss per  share  does not  include  the  effect  of the  following
          potential common shares:

                                              Year Ended December 31,
                                       ------------------------------------
                                          2000         1999         1998
          Shares issuable persuant
          to options and warrants:      8,103,582    6,150,994    6,220,695


          Recently issued accounting pronouncements

          In June 1998, the Financial Accounting Standards Board issued SFAS No.
          133,  "Accounting for Derivative  Instruments and Hedging Activities".
          SFAS No.  133  established  accounting  and

<PAGE> F-17

          reporting standards for derivative  instruments,  including derivative
          instruments  embedded in other contracts,  and for hedging activities.
          SFAS No. 133, as amended by SFAS No. 137,  "Deferral of the  Effective
          Date of FASB  Statement  No.  133",  is  effective  for  fiscal  years
          beginning  after June 15,  2000.  The  adoption of this  statement  on
          January  1,  2001  did not have a  material  effect  on our  financial
          position or results of operations.

          Reclassifications

          Certain prior period balances have been reclassified to conform to the
          current year's presentation.

          Segment reporting

          We have determined that we have a single reportable  operating segment
          as  defined  by  SFAS  No.  131  "Disclosures  about  Segments  of  an
          Enterprise and Related Information".

          Comprehensive income

          In June  1997,  the FASB  issued  Statement  of  Financial  Accounting
          Standards No. 130, "Reporting  Comprehensive Income" ("SFAS No. 130").
          SFAS No.  130  established  standards  for  reporting  and  display of
          comprehensive  income and its  components and is effective for periods
          beginning   after   December  15,  1997.  The  Company  had  no  other
          comprehensive income for all periods presented.

3. Investments In and Advances to Affiliated Companies

          Following  is  a  summary  of  the  Company's  significant  investment
          activities:

          E-SAT, Inc. (E-SAT)

          In October 1994, the Company and EchoStar formed E-SAT for the purpose
          of filing  with the FCC for a  license  to  operate a low earth  orbit
          satellite  system.  E-SAT filed with the FCC on November 16, 1994. The
          Company  holds  an  80.1%  interest  in  E-SAT.  The  Company's  total
          investments  in, and  advances  to,  E-SAT as of December 31, 2000 and
          1999 was  $851,490 for both years.  The  investment  is accounted  for
          using the equity method.  The Company's  equity in losses of E-SAT for
          the years ended December 31, 2000 and 1999, were $0.

          On March 31,  1998,  the Federal  Communications  Commission  approved
          E-SAT's application for a low earth orbit satellite license.  E-SAT is
          required to meet certain  milestones  and other  covenants in order to
          maintain its license.

          On April 8, 1999,  the  Company  notified  the FCC that it had entered
          into a construction contract for the first two satellites of the E-SAT
          system on March 31, 1999.

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

<PAGE> F-18

          negotiations  of the  share  purchase  agreement  with  EchoStar,  the
          Company paid  $1,517,187 to a consultant  during 1999 and  capitalized
          such costs in the E-SAT investment account.

          Seimac Limited

          On November 30, 1995, the Company acquired 232,829 shares representing
          20% of the voting shares of common stock of Seimac Limited, a Canadian
          company,  pursuant  to a stock  purchase  and  exchange  agreement  in
          exchange for 165,519 shares of common stock of the Company,  valued at
          $662,010. The Company's investments of $662,010 was $464,255 in excess
          of the Company's  proportionate  share of the net book value of Seimac
          as of November 30, 1995.  This excess was  amortized  over a period of
          five years.  The  amortization  of this excess book value  amounted to
          $30,949 for the year ended  December 31,  1998.  This  investment  was
          accounted for using the equity method.

          For the year ended  December  31,  1998,  the Company has recorded its
          proportionate share of Seimac Limited's net income of $34,381.

          On April 30, 1998, the Company sold its entire interest  consisting of
          232,829  Seimac shares in exchange for $200,000 in cash and $51,417 in
          forgiven debt. The Company recorded a loss of  approximately  $228,000
          in connection with this transaction.

4. Satellite Construction Costs

          During the construction of the System, the Company is capitalizing all
          design,  engineering,   launch  and  construction  costs.  Such  costs
          amounted to approximately $12.2 million as of December 31, 2000.

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

          In January and February 1999, the Company made additional  payments to
          Alcatel  totaling $1 million.  On March 31, 1999,  the Company  signed
          construction  and launch  contracts with Surrey  Satellite  Technology
          Limited  ("Surrey")  and  Eurockot,  respectively,  and  made  advance
          payments of $7.8  million in April 1999 and $2.0 million in July 1999.
          Total  payments  under  these  cancelable  contracts  will  amount  to
          approximately  $47 million  through  January 2001.  In July 1999,  the
          Company,  Surrey and  Eurockot  reached  agreements  under  which $3.2
          million of the required  milestone  payments due in July 1999 totaling
          $4.8 million were deferred to yet to be agreed upon dates.

          On October 8, 1999, the Company and Alcatel  entered into an agreement
          under  which   Alcatel  will  serve  as  prime   contractor   for  the
          construction of the Company's low earth orbit satellite communications
          system. This agreement becomes effective upon the Company's payment of
          $14.1 million to Alcatel.

5. Customer Advances

          The  Company's   wholly-owned   subsidiary,   Global  Energy  Metering
          Services,  Inc.  (GEMS),  is party to a  contract  to  deliver  10,000
          satellite  radio  units.  The  purchase  order is for $1.2 million and
          under the terms

<PAGE> F-19

          of the  purchase  order,  GEMS would  receive a total of  $500,000  in
          advance  payments  on  the  contract,   based  on  certain   milestone
          achievements.  As of December 31, 1998,  this purchase  order had been
          suspended by both parties  when the Argos System  became  unavailable.
          The  $400,000 in milestone  payments  received is reported as customer
          advances on the accompanying  balance sheet.  These milestone payments
          could be subject to refund in whole or in part.

6. Commitments

          Operating leases

          The Company and its wholly-owned  subsidiaries  lease their facilities
          under noncancelable operating leases which run concurrently and expire
          in July 2003.  Minimum future rental  payments under the leases are as
          follows:

          Year Ending December 31,

                               2001          $ 148,234
                               2002            148,234
                               2003             86,470
                                        ---------------

                                             $ 382,938
                                        ===============


          Total rent expense was $226,268,  $150,084,  and $82,615 for the years
          ended December 31, 2000, 1999 and 1998, respectively.

          Other

          Refer to Note 4 for certain contract commitments.

7. Stockholders' Equity

          Preferred stock

          The  Company's  Certificate  of  Incorporation,  as  amended  in 1999,
          authorizes  the issuance of 5,000,000  shares of preferred  stock with
          par value of $0.0004 per share.  The Board of Directors of the Company
          is authorized to issue preferred stock from time to time in series and
          is further  authorized to establish such series,  to fix and determine
          the variations in the relative  rights and  preferences as between the
          series, and to allow for the conversion of preferred stock into common
          stock.

          Common stock

          The  Company's  Certificate  of  Incorporation,  as  amended  in 1999,
          authorizes  the issuance of  50,000,000  shares of common stock with a
          par value of $0.0004 per share.  Each record holder of common stock is
          entitled  to one vote  for each  share  held on all  matters  properly
          submitted to the

<PAGE> F-20

          stockholders  for their  vote.  Cumulative  voting of the  election of
          directors is not permitted by the Certificate of Incorporation.

          Equity transactions with non-employees

          Preferred Stock Transactions

          During  fiscal  2000,  the Company  sold to  accredited  investors  an
          aggregate of 35,897 shares of its Series A Convertible Preferred Stock
          at $30 per share, for an aggregate placement of $1,076,910. The shares
          of preferred  stock have a liquidation  preference of $30.00 per share
          and were initially convertible,  at the option of the holder, into ten
          shares of our common  stock,  or at a rate of $3.00 per common  share.
          Per the conversion  terms, the conversion rate was adjusted to a range
          between $1.6438 to $1.8625, based upon the 5-day average closing price
          of the  Company's  common  stock  three  months  after the shares were
          issued, because the Company's common stock was trading below $3.00 per
          share.  Commissions  were paid to one placement agent in the aggregate
          amount of approximately $7,000, plus a warrant was issued in July 2000
          to the  placement  agent to purchase  57,586 shares of common stock at
          the exercise price of $3.00 per share. As of December 31, 2000, 25,899
          shares of  Series A  Preferred  Shares  remain  outstanding.  Accreted
          dividends totaled $31,510, based upon a 5% dividend rate per annum.

          On October 6, 2000,  the Company  received from  accredited  investors
          proceeds of $400,000  from the sale in a private  placement of (1) 400
          shares  of Series B  Convertible  Preferred  Stock,  (2)  warrants  to
          purchase  83,660  shares of Common  Stock  with an  exercise  price of
          $1.052 per share and (3) warrants to purchase  83,660 shares of Common
          Stock with an exercise price of $1.434 per share. During the first 180
          days following  October 6, 2000, the Series B Preferred  Stock may not
          be converted;  and the Company has the right to redeem these shares if
          the  Company  repays  the  purchase  price  plus  an  additional  5-7%
          depending  on  repayment  date,  plus  dividends  at a rate of 10% per
          annum.  After  180  days  following  October  6,  2000,  the  Series B
          Preferred Stock are convertible into Common Stock at the lesser of (1)
          approximately  $.96 per share  which was the  closing bid price at the
          time of the  purchase  or (2) 80% of the  average of the three  lowest
          closing bid prices of the Common Stock for the 20-day  trading  period
          prior to the  conversion  date. The Company also has the obligation to
          register the Common Stock underlying the warrants and, after 180 days,
          Common Stock  underlying any redeemed  Series B Preferred  Stock.  For
          this  transaction,  an agent  received  a fee of 40 shares of Series B
          Preferred  Stock and  warrants  to purchase  120,000  shares of Common
          Stock of the Company with an exercise price of $1.052 per share. As of
          December  31,  2000,  440 shares of Series B Preferred  Shares  remain
          outstanding. During fiscal 2000 accreted dividends totaled $10,511.

               Common Stock Transactions

          On January 13, 1996, the Company  issued  warrants for the purchase of
          75,000  shares of the Company's  Common Stock at an exercise  price of
          $7.30.  On December  31,  1997,  the Company  replaced  these with new
          warrants to purchase  100,000 shares of the Company's  Common Stock at
          an exercise  price of $1.44.  These  warrants were issued for services
          rendered and are exercisable  through January 2006. As of December 31,
          2000, none of these warrants have been exercised.

          On July 9, 1997,  the  Company  issued  warrants  for the  purchase of
          200,000  shares of the Company's  Common Stock at an exercise price of
          $0.50 per share.  These  warrants  were  issued in  connection  with a
          $100,000  short-term loan made by a stockholder of the Company.  As of
          December  31,  1997,  the loan had been repaid.  These  warrants  were
          exercised during 1999.

<PAGE> F-21

          In April 1998, the Company granted options to two consulting  firms to
          purchase  400,000 and 233,334 shares of the Company's  Common Stock at
          prices of $1.45 and $1.50 per share, respectively.  These options have
          terms of five years and vest over a one-year period.

          In June 1998, the Company issued 102,000 shares of its Common Stock at
          a price of $2.00 per share.  In connection  with this stock  offering,
          the  Company  issued  warrants  to  purchase  102,000  shares  of  the
          Company's Common Stock at an exercise price of $3.00 per share through
          June 30, 2001.

          In July 1998,  the  Company's  president was named as a defendant in a
          lawsuit filed by a firm  claiming  that it was promised  shares of the
          Company's Common Stock. In March 1999, the Company settled this matter
          by issuing  63,239  shares of the Company's  Common  Stock,  valued at
          approximately $324,000, and paying $15,000 in cash to the plaintiff.

          During the six months  ended  December 31,  1998,  the Company  issued
          2,800,000  units each consisting of a share of Common Stock at a price
          of $2.00 per share and a warrant to  purchase a share of Common  Stock
          at an exercise price of $3.00. In connection with this stock offering,
          the Company  incurred the following  stock  issuance  costs:  (i) cash
          payments of  $442,500,  (ii) 7,500  shares of Common Stock with a fair
          value of $15,000, and (iii) warrants to purchase 728,000 shares of the
          Company's Common Stock at exercise prices varying from $1.50 to $3.00.
          The fair value of such warrants  amounted to $973,000 and was recorded
          as a separate element of the Company's equity.

          In October 1998, at the request of two  stockholders due to changes in
          their  financial  condition,  the  Company  rescinded  stock  purchase
          agreements relating to 400,000 units and refunded $800,000 in proceeds
          to the two stockholders.

          In February 1999, the Company issued (a) 500,000 units each consisting
          of a share of Common Stock at a price of $3.00 per share and a warrant
          to purchase a share of Common Stock at an exercise price of $4.00, (b)
          50,000 units consisting of a share of common stock at a price of $2.50
          per share  and a warrant  to  purchase  a share of Common  Stock at an
          exercise  price  of  $3.50.  Sale of  these  units  resulted  in gross
          proceeds to the Company of approximately  $1.6 million.  In connection
          with this offering,  the Company  granted  warrants to purchase 75,000
          shares of the  Company's  Common Stock at an exercise  price of $3.75.
          Such grant  represented  stock issuance costs and therefore,  its fair
          value of $270,000  was  recorded as an offset  against the proceeds of
          the offering.

          In March 1999, the Company  received  proceeds of  approximately  $7.5
          million from the  exercise of warrants to purchase 2.5 million  shares
          of the Company's Common Stock.

          During April 1999, Surrey and Eurockot  purchased  1,666,667 shares of
          the Company's Common Stock for a total $5 million in cash.

          During  1999,  the Company  granted  options and  warrants to purchase
          347,273  shares  of the  Company's  Common  Stock at  exercise  prices
          ranging  from $0.79 to $2.75 to several  service  providers.  The fair
          value of such options and warrants,  which  amounted to  approximately
          $774,000,  was  recorded  as an expense  during  1999.  The  following
          variables  were used to determine  the fair value of such  instruments
          under the  Black-Scholes  option  pricing  model:

<PAGE> F-22

          volatility  of 100%,  expected life of 10 years for options and 2 to 3
          years for  warrants,  risk free  interest  of 5% to 6% and  underlying
          stock prices equal to fair market value at the time of grant.

          In December 1999,  the Company  granted  warrants to purchase  500,000
          shares of the Company's Common Stock at an exercise price of $2.81 per
          share to a financial  institution as consideration  for its efforts to
          help raise  capital.  The fair value of such  warrants of $674,000 was
          originally  recorded as a long term asset and  expensed  in 2000.  The
          fair value of the  warrants  was  estimated on the date of grant using
          the  Black-Scholes  model with volatility of 100%,  expected life of 3
          years,  risk-free  interest  rate of 5% and fair  market  value of the
          Common  Stock of $2.25 per share.  As of December  31, 2000 a total of
          400,000  of  these  warrants  had  been  cancelled  and  100,000  were
          outstanding.

          During  1999,  the Company  received  proceeds  of  $598,526  from the
          exercise of options to purchase 425,084 shares of the Company's Common
          Stock,  and  proceeds  of  $320,768  from the  exercise of warrants to
          purchase 324,160 shares of the Company's Common Stock.

          On June 2, 2000, the Company  entered into an agreement to sell shares
          of its Common Stock,  at the  Company's  option,  to Torneaux  Ltd., a
          corporation  organized in the Bahamas,  an  accredited  investor.  The
          Company  issued a Warrant  to  purchase  250,000  shares of its Common
          Stock at an  exercise  price of $1.01 per share as a finder's  fee. In
          September  2000,  warrants  for  125,000  shares of Common  Stock were
          exercised at the reduced  price of $.70 per share and a new warrant to
          purchase an additional  125,000  shares of Common Stock at an exercise
          price of $1.1875 per share was issued. The transaction was exempt from
          registration  in reliance upon Section 4(2) of the Securities  Act. In
          September  2000,  the Company  sold 84,490  shares of Common  Stock to
          Torneaux Ltd. in  accordance  with the  agreement,  resulting in gross
          proceeds  to the  Company of $83,333  and issued a warrant to purchase
          42, 245 shares of Common  Stock at an  exercise  price of $1.1342  per
          share. In October 2000, the Company sold 63,092 shares of Common Stock
          to Torneaux Ltd. in accordance with the agreement,  resulting in gross
          proceeds  to the  Company of $55,556  and issued a warrant to purchase
          31,546  shares of Common  Stock at an  exercise  price of $1.0126  per
          share.

          On June 2, 2000,  the Company sold an  aggregate of 166,298  shares of
          its Common Stock to three accredited investors. The stock was sold for
          $1.00  per  share  resulting  in  gross  proceeds  to the  Company  of
          $166,298.  A  finder's  fee  of  approximately  $11,641  was  paid  in
          connection  with these  transactions.  The offers and sales during the
          three  month  period  ended June 30,  2000 were made by the Company in
          reliance upon the exemption from registration provided by Section 4(2)
          of the Securities Act.

          In May 2000, the Company granted a warrant to purchase  300,000 shares
          of its Common Stock to a consultant for past services.  No commissions
          were paid. The warrant has an exercise price of $0.6749 per share. The
          transaction was exempt from registration in reliance upon Section 4(2)
          of the Securities Act.

          In  July  2000,  the  Company  received  from an  accredited  investor
          $100,000  from a private  placement of 133,333  shares of Common Stock
          and granted a warrant to purchase  10,000  shares of Common  Stock per
          previous agreement.  The warrants are exercisable through July 2004 at
          an exercise price of $0.75 per share.  No  commissions  were paid. The
          transaction was exempt from registration in reliance upon Section 4(2)
          of the Securities Act.

<PAGE> F-23

          In August 2000, the Company granted warrants to purchase 49,000 shares
          of Common Stock to a consultant  for services  rendered.  The warrants
          are  exercisable  through  August 2003 at an exercise price of $0.9062
          per share. The fair value of such warrants of $36,309 was expensed and
          was  estimated on the date of grant using the Black Scholes model with
          volatility of 150%,  expected life of 3 years, risk free interest rate
          of 6% and a fair market  value of the Common Stock of $0.90 per share.
          The transaction was exempt from  registration in reliance upon Section
          4(2) of the Securities Act.

          In September  2000,  the Company issued 200,000 shares of Common Stock
          and a  warrant  to  purchase  200,000  shares  of  Common  Stock  to a
          consultant for services rendered. The warrants are exercisable through
          September  2003 at an exercise  price  ranging from $1.50 to $2.50 per
          share.  The fair value of such  warrants of $194,500  was expensed and
          was  estimated on the date of grant using the Black Scholes model with
          volatility of 150%,  expected life of 3 years, risk free interest rate
          of 6% and a fair market  value of the Common Stock of $1.25 per share.
          The transaction was exempt from  registration in reliance upon Section
          4(2) of the Securities Act.

          In October  2000,  the Company  granted a warrant to purchase  500,000
          shares of the Company's Common Stock at an exercise price of $1.31 per
          share to a financial  institution as consideration  for its efforts to
          help raise capital. Warrants to purchase the first 50,000 vested as of
          the grant date and will expire in October 2004. The remaining warrants
          to purchase 450,000 shares shall vest upon the closing of transactions
          that provide cash to the Company based on the success of the financial
          institution's efforts. The transaction was exempt from registration in
          reliance upon Section 4(2) of the Securities Act.

          In December 2000,  options to purchase  70,571 shares of the Company's
          Common  Stock  that were  previously  issued to a  Director  at prices
          ranging  from  $0.060  to $2.19,  were  transferred  to his  spouse in
          connection  with his  divorce  settlement.  These  warrants  are fully
          vested and have expiration dates ranging between December 18, 2004 and
          May 22, 2008.

          In December  2000,  the Company  received  from  accredited  investors
          proceeds  of  $100,000  in  exchange  for  100,000  units,  each  unit
          consisting of two shares of Common Stock at a price of $0.50 per share
          and a warrant to purchase  one-quarter of one share of Common Stock at
          an  exercise  price  of $1.00  per  share.  In  connection  with  this
          transaction,  a finder's fee of  $7,000.00  was paid and a warrant was
          issued to purchase 10,000 shares of Common Stock  exercisable at $1.00
          per share.  The 200,000 shares of Commons Stock were issued in January
          2001. The  transaction  was exempt from  registration in reliance upon
          Section 4(2) of the Securities Act.

          In  December  2000 the  Company  received  from  accredited  investors
          proceeds  of  $500,000  in exchange  for  2,000,000  units,  each unit
          consisting  of one share of Common Stock at a price of $0.25 per share
          and a warrant to  purchase  one share of Common  Stock at an  exercise
          price of $0.50. In connection with this transaction, a finder's fee of
          $35,000.00  was paid and a  warrant  was  issued to  purchase  100,000
          shares of Common Stock  exercisable at $0.50 per share.  The 2,000,000
          shares of Commons Stock were issued in January 2001.  The  transaction
          was exempt from  registration  in reliance  upon  Section  4(2) of the
          Securities Act.


<PAGE> F-24

          During fiscal 2000, the Company received  proceeds of $87,500 from the
          exercise of options to purchase 60,000 shares of the Company's  Common
          Stock,  and  proceeds  of $5,805  from the  exercise  of  warrants  to
          purchase 3,870 shares of the Company's Common Stock.

          During 1999, for services rendered, three consultants who served in an
          advisory  capacity to NewStar Ltd. were issued fully vested options to
          purchase 22,000 shares of Common Stock of the Company. The transaction
          was exempt from  registration  in reliance  upon  Section  4(2) of the
          Securities Act.

          During 2000, a total of 136,923 shares of Common Stock were issued for
          services  rendered  to three  consultants  for a total  fair  value of
          $147,634  which was  expensed  during  the  course  of the  year.  The
          transaction was exempt from registration in reliance upon Section 4(2)
          of the Securities Act.


          Equity transactions with employees

               Employee Stock Purchase Plan

          The Company has established the 1999 Employee Stock Purchase Plan (the
          "1999 Plan"),  which was approved by the  stockholders in June 1999 to
          serve as a vehicle to attract and retain the services of key employees
          and to help such key employees realize a direct  proprietary  interest
          in the Company.  Under the 1999 Plan,  employees,  including officers,
          who do not  beneficially  own stock and/or options totaling 5% or more
          of the voting power of the Company,  will be eligible to  participate.
          However,  no  participant  may be granted rights to purchase more than
          $25,000 worth of Common Stock  (valued at the time the purchase  right
          is granted) for each calendar  year in which such purchase  rights are
          outstanding  under any other stock  purchase  plans.  An  aggregate of
          50,000  shares  of  Common  Stock of the  Company  were  reserved  for
          issuance  under  the  1999  Plan  of  which  17,295  were  issued  and
          outstanding as of December 31, 2000. Employees electing to participate
          in the  1999  Plan  are  allowed  to  deduct  from 1% to 10% of  their
          compensation  to purchase  shares of Common Stock.  Twice a year,  the
          employees'  accumulated  payroll  deductions  will be used to purchase
          shares of Common Stock at a price equal to 85% of the closing price of
          the Common Stock on either the first business day or last business day
          of the offering period, whichever is lower.

               Employee Stock Option Plans

          In February 1996, the Company  adopted the 1996 Stock Option Plan (the
          1996 Plan) to consolidate  its three existing  plans. In May 1998, the
          Company  adopted the 1998 Stock Option Plan (the "1998  Plan"),  which
          provides  for the  issuance  of a  maximum  of  500,000  shares of the
          Company's  Common  Stock.  In May 2000,  the Company  adopted the 2000
          Stock Option Plan (the "2000 Plan"),  which  provides for the issuance
          of a maximum  of  1,750,000  shares  of the  Company's  Common  Stock.
          Provisions of the 1996, 1998, and 2000 Plans are substantially similar
          to those of the earlier plans.  The overall purpose of the 1996, 1998,
          and 2000 Plans is to advance the long-term  interest of the Company by
          attracting,  motivating  and  retaining its  employees,  directors and
          consultants  with the  opportunity to obtain an equity interest in the
          Company.

          Eligible  employees,  directors and consultants can receive options to
          purchase shares of the Company's Common Stock at a price generally not
          less than 100% of the fair  market  value of the  Common  Stock on the
          date of the grant of incentive stock options. Nonqualified and nonplan
          options may be granted at a price lower than fair  market  value.  The
          options  granted under the 1996,  1998 and 2000 Plans are  exercisable
          over a maximum term of ten years from the date of

<PAGE> F-25

          grant and  generally  vest over (i) one year in the case of  directors
          and  consultants,  and (ii) up to a  five-year  period  in the case of
          employees. Shares sold under the 1996, 1998 and 2000 Plans are subject
          to various restrictions as to resale.

          In addition, the Company granted non-plan options to certain employees
          in connection with their employment agreements.

          Information  with respect to plan and  non-plan  activity is set forth
          below:

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


                                                                                              Weighted
                                                                                               Average
                                             Number of     Price per          Aggregate       Exercise
                                               Shares        Share              Price           Price

          Balance, December 31, 1998         2,044,156   $0.40 - $5.60      $  1,741,255         0.85

              Granted                        2,149,700   $0.39 - $5.50         2,759,768         1.28
              Exercised                       (280,144)  $0.53 - $2.80          (203,695)        0.73
              Terminated                       (10,340)      $0.53                (5,491)        0.53
                                             ----------                     -------------
          Balance, December 31, 1999         3,903,372   $0.40 - $5.60         4,291,837         1.10

              Granted                          218,461   $0.91 - $2.59           268,302         1.23
              Exercised                        (84,375)  $0.60 - $2.19           (74,527)        0.88
              Terminated                       (95,571)  $0.60 - $2.19          (145,065)        1.52
                                             ----------                     -------------
          Balance, December 31, 2000         3,941,887                      $  4,340,547         1.10
                                             ==========                     =============
</TABLE>


          The  following  table  summarizes  information  with  respect to stock
          options outstanding at December 31, 2000:

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


                                                                                       Options
                                            Options Outstanding                      Exercisable
                                   ---------------------------------------     --------------------------
                                                   Weighted
                                                    Average
                                                   Remaining    Weighted                      Weighted
                                                  Contractual    Average                       Average
             Range of                 Number          Life       Exercise        Number        Exercise
          Exercise Price           Outstanding      (years)       Price       Exercisable       Price

          $0.53 - $0.75             1,683,867         7.30      $  0.59        1,540,690      $  0.57
          $1.08 - $1.67             2,054,449         9.49         1.31        1,401,115         1.31
          $2.00 - $2.86               147,287         8.22         2.40          147,287         2.40
          $5.50 - $5.60                56,284         8.07         5.51           56,284         5.51
                                    ---------                                  ---------
                                    3,941,887                                  3,145,376
                                   ==========                                  =========

</TABLE>



<PAGE> F-26

          The stock based  compensation for the twelve months ended December 31,
          2000 and  1999  has been  allocated  across  the  relevant  functional
          expense categories within operating expense as follows:


                                                Year Ended December 31,
                                        ------------------------------------
                                           2000           1999       1998
Marketing and sales                     $ 358,332      $153,324     $   -
General and administrative                593,871       756,035         -
Research and development                  126,654        48,396         -

    Total stock based compensation    $ 1,078,857      $957,755     $   -





          The Company  accounts for employee and board of director stock options
          in accordance  with the provisions of APB No. 25 and complies with the
          disclosure provisions of SFAS No. 123.

          Under APB No.  25,  compensation  expense is  recognized  based on the
          amount by which the fair value of the underlying  Common Stock exceeds
          the exercise price of the stock options at the measurement date, which
          in the case of employee  stock options is typically the date of grant.
          For financial reporting purposes,  the Company has determined that the
          deemed  fair  market  value on the date of grant of  certain  employee
          stock options was in excess of the exercise price of the options. This
          amount is recorded as deferred  compensation  and is  classified  as a
          reduction  of  stockholders'  equity and is  amortized  as a charge to
          operations  over the vesting  period of the  applicable  options.  The
          vesting period is generally four years.  The fair value per share used
          to  calculate  deferred  compensation  was derived by reference to the
          preferred stock values and the Company's initial public offering price
          range. Consequently,  the Company recorded deferred stock compensation
          of $0 and $2,490,337 during the year ended December 31, 2000 and 1999,
          respectively. Amortization recognized for the years ended December 31,
          2000, 1999 and 1998 totaled $1,078,857, $957,755 and $0 respectively.

          The weighted average fair value of the options granted or modified for
          the years ended December 31, 2000, 1999 and 1998 were $1.37, $0.90 and
          $0.68  respectively.  The fair value of each stock option is estimated
          on the date of grant using the Black-Scholes option-pricing model with
          the following weighted average assumptions:

                                          2000           1999           1998

          Risk free interest rate          6.0%           5.5%           5.7%
          Expected life                 4 years         4 years        4 years
          Volatility                       150%           100%           227%
          Dividend yield                      -              -              -




<PAGE> F-27

          The  following  pro  forma  net loss  information  has  been  prepared
          following the provisions of SFAS No. 123:

                                                  December 31,
                                -----------------------------------------------
                                     2000              1999              1998

          Net loss
            As reported         $ (6,557,549)    $ (5,915,493)    $ (3,293,493)
            Pro forma           $ (7,226,245)    $ (6,252,010)    $ (3,713,942)

          Net loss per share
            As reported             $  (0.44)        $  (0.45)        $  (0.47)
            Pro forma               $  (0.49)        $  (0.48)        $  (0.53)



8. Related Party Transactions

     In October  1998,  the Company  paid its  president  the amount of $246,000
     related to his deferred  compensation through September 1998. The president
     also  received a cash bonus of $20,000 in  connection  with his  efforts in
     securing the E-SAT license.

     In fiscal 2000, several executives of the Company deferred receipt of their
     salaries due. The executives included the President  ($125,000),  the Chief
     Financial Officer ($45,000), the Chief Legal Counsel ($41,250) and the Vice
     President of Operations ($33,750).

9. Income Taxes

     The provision for income taxes for all periods presented relates to current
     minimum taxes.

     The  estimated  tax  effect  of  significant   temporary   differences  and
     carryforwards  that gave rise to deferred  income tax assets as of December
     31, 2000 and 1999, is as follows:
<TABLE>
<S>                                        <C>              <C>           <C>              <C>


                                                       2000                           1999
                                           --------------------------     --------------------------
                                              Federal         State          Federal         State

     Deferred tax assets:
       Net operating loss carryforwards    $  5,325,000     $ 936,000     $  3,439,000     $ 602,000
       Research and development credit
        carryforwards                           177,000             -          147,000             -

       Deferred compensation and other           35,000         6,000           64,000        12,000
                                           -------------    ----------    -------------    ----------
     Deferred tax assets                      5,537,000       942,000        3,650,000       614,000
     Valuation allowance                     (5,537,000)     (942,000)      (3,650,000)     (614,000)
                                           -------------    ----------    -------------    ----------
       Net deferred tax assets             $       -        $     -       $       -        $     -
                                           =============    ==========    =============    ==========
</TABLE>



<PAGE> F-28

     Due to the  uncertainty  of  realization,  a valuation  allowance  has been
     provided  to offset  the net  deferred  tax  assets.  The  increase  in the
     valuation  allowance was $2,215,000  and $2,047,500  during the years ended
     December 31, 2000 and 1999,  respectively.  The  provision for income taxes
     differs  from the  amount  which  would  arise  by  applying  the  combined
     statutory  income  tax  rate of  approximately  40% due to  changes  in the
     deferred tax valuation allowance.

     As of December 31, 2000, the Company has net operating  loss  carryforwards
     of  approximately  $15,660,000  and  $15,350,000  for  federal  income  tax
     purposes and California  state  franchise tax purposes,  respectively.  The
     Company  also has  research  and  development  credit  carryforwards.  Such
     carryforwards expire in varying amounts between 2000 and 2020.

     As a result of changes  enacted by the 1986 Tax Reform Act,  utilization of
     net  operating  loss and tax credit  carryforwards  may be  limited  due to
     equity transactions occurring on or after May 6, 1986.

10. Risks and Uncertainties

     The Company periodically  maintains cash balances at banks in excess of the
     Federal Deposit Insurance Corporation insurance limit of $100,000.

11. Supplemental Disclosures of Non Cash Investing and Financing Activities

     During  fiscal 2000 the Company  issued  132,236  shares of Common Stock in
     lieu of cash for services  rendered by two vendors.  The total value of the
     services provided was $ 138,882.

12. Subsequent Events

     In January  2001, we received  proceeds in a private  placement of $100,000
     from an accredited  investor in exchange for 290,000 shares of Common Stock
     and a warrant to purchase  36,250  shares of Common  Stock  exercisable  at
     $0.70 per share. No commissions  were paid. The transaction was exempt from
     registration in reliance upon Section 4(2) of the Securities Act.

     In January  2001, we received  proceeds in a private  placement of $200,000
     from an accredited  investor in exchange for 400,000 shares of Common Stock
     and a warrant to purchase  100,000  shares of Common Stock  exercisable  at
     $1.00 per share.  In connection  with this  transaction,  a finder's fee of
     $14,000 was paid and a warrant was issued for 40,000 shares of Common Stock
     exercisable  at  $1.00  per  share.   The   transaction   was  exempt  from
     registration in reliance upon Section 4(2) of the Securities Act.

     In January  2001,  we received  proceeds in a private  placement of $50,000
     from three  accredited  investors in exchange for 100,000  shares of Common
     Stock and warrants to purchase 12,500 shares of Common Stock exercisable at
     $1.00 per share.  In connection  with this  transaction,  a finder's fee of
     $3,500 was paid and a warrant was issued for 5,000  shares of Common  Stock
     exercisable  at  $1.00  per  share.   The   transaction   was  exempt  from
     registration in reliance upon Section 4(2) of the Securities Act.

     On March 6, 2001, we received  proceeds in a private  placement of $250,000
     from an accredited  investor in exchange for 568,000 shares of Common Stock
     and a warrant to purchase  113,636  shares of Common Stock  exercisable  at
     $.90 per share. In connection with this transaction, a finder's fee of

<PAGE> F-29

     $17,500 was paid and a warrant was issued for 56,818 shares of Common Stock
     exercisable at $.90 per share. The transaction was exempt from registration
     in reliance upon Section 4(2) of the Securities Act.