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, 1998

                                       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
 incorporation or organization)                      Identification No.)
    

100 Shoreline Highway, Suite 190AMill 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 not contained  herein,  and will not 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 19,  1999,  the  aggregate  market  value for the  8,169,420
shares of the common stock, par value $.0004 per share,  held by  non-affiliates
was approximately $38,294,156.

        The number of shares  outstanding of  registrant's  only class of Common
Stock,  as of March 19, 1999,  was  10,117,060  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
Statement on Form S-18.

        Exhibit Index is located at Pages 27-28.



<PAGE>3



                                     PART I

        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.

ITEM 1.     BUSINESS

General

        DBS  INDUSTRIES,  INC.  ("DBSI" or the  "Company")  was formed August 3,
1989,  under the laws of the State of  Delaware.  The  Company  is  involved  in
designing  and  developing a data  messaging  service  utilizing low earth orbit
("LEO")  satellites.  DBSI is developing its business  primarily through its 20%
interest  in E-SAT,  Inc.,  a Colorado  corporation  ("E-SAT")  and  through its
subsidiary,  Newstar  Limited  ("Newstar")  and to a lesser  extent  through its
second subsidiary, Global Energy Metering Service Inc. ("GEMS").

        DBSI,  through  its  wholly-owned  subsidiary,   Newstar,   proposes  to
construct,  launch and  operate a system  (the  "E-SAT  System")  utilizing  six
non-voice,   non-geostationary  mobile  ("Little  LEO")  satellites  to  provide
two-way,  low-cost data messaging services  worldwide.  In March 1998, E-SAT was
granted a license by the Federal  Communications  Commission  ("FCC") to develop
and  operate  the  E-SAT  System.  (See  "FCC  Regulations".)   DBSI's  proposed
development  of the E-SAT System is intended to utilize the FCC license  granted
to E-SAT.

        With the Company's  technology,  these Little LEO satellites are capable
of collecting and transmitting data at regular intervals from fixed devices such
as meters (i.e.,  electric/gas meters, vending machines, stream gauges, etc.) at
a cost  substantially  less than manually  retrieving  the  information.  Meters
equipped with the Company's  Remote Terminal Units ("RTU") will allow Little LEO
satellites  to retrieve data from the meters,  store such data,  and forward the
data at specified  times to the earth  station to be  processed,  validated  and
delivered  to the  customer.  The  Company  intends  to provide  data  messaging
services for the energy  industry  including  gas and  electrical  utilities and
water agencies,  as well as for vending  machines,  heavy equipment  usage,  and
environmental monitoring, worldwide.

        The  Company's  goal is to provide a low-cost  data  messaging  services
using Little LEO  satellites to enable  businesses to  economically  gather data
from fixed  devices  located in remote and  hard-to-access  locations.  With the
emergence of automatic meter reading ("AMR") and the deregulation of the utility
industry,  one of the Company's  target  markets is the electric and natural gas
utilities,   particularly   their   high-cost-to-read   metering  segment  which
historically required such "meter reading" to be conducted by utility personnel.
This labor intensive activity presents logistical issues such as (i) significant
travel time to a meter site;  (ii) rugged  terrain;  (iii) physical  risk;  (iv)
restricted  sites;  (v)  environmental  issues;  and  (vi)  mis-reads  requiring
additional  site  visits,  all of which  can  contribute  to  higher  costs  for
utilities.



<PAGE>4



        Other target markets include vending  machines,  where numerous machines
could be monitored for stock and coin levels; heavy equipment usage, where heavy
equipment could be monitored  worldwide for in-use time, mileage and maintenance
scheduling; and environmental monitoring, where plant waste discharge,  streams,
lakes or air could be continuously monitored for pollutants, volume, etc.

        The Company began its business  operations  by  purchasing  interests in
direct  broadcast  satellite  licensees.  The  Company had an interest in Direct
Broadcast  Satellite  Corporation  which was  subsequently  acquired by EchoStar
Communications  Corporation  ("EchoStar").  In  addition,  the  Company  had  an
equitable  interest in  Continental  Satellite  Corporation.  During  1997,  the
Company sold its last indirect interest in a direct broadcast satellite licensee
and settled  litigation  involving  its  equitable  interest  in another  direct
broadcast satellite licensee.

        Prior to its involvement with E-SAT the Company was developing  hardware
and software for data  collection  and  transmission.  The Company has conducted
proof-of-concept   demonstrations   with  utility  companies  to  determine  the
effectiveness  and  viability of Little LEO  satellites  to collect and transmit
data from  fixed  devices.  The  Company  has also been  evaluating  rocket  and
satellite  vendors in  anticipation  of  acquiring  an FCC  license to operate a
Little LEO System.  As a result of these  efforts,  the  Company has  identified
several potential prime contractors to construct the LEO satellites and a launch
service  provider  to lift  the  satellites  into  their  intended  orbit.  (See
"Satellite Constellation".)

Ownership Interest in E-SAT

        E-SAT was  incorporated  in 1994 and is owned 20% by the Company and 80%
by  EchoStar.  E- SAT was formed for the purpose of  acquiring an FCC license to
develop,  construct  and  operate  its E-SAT  satellite  system.  Since  E-SAT's
formation,  the Company has had conversations with EchoStar to restructure E-SAT
in order to allow the Company to acquire a majority  interest in E-SAT.  Another
structure under consideration is to have the Company's wholly-owned  subsidiary,
Newstar,  lease a portion  or all of  E-SAT's  licensed  transmission  capacity.
Newstar would then assume full responsibility for the development, launching and
operation of the E-SAT System and the  marketing of such  transmission  capacity
through joint  ventures with other  partners.  In light of the recent  satellite
construction  and launch services  agreements  entered into by the Company,  the
Company  has been  actively  negotiating  with  EchoStar  regarding  the  future
development  rights of the FCC license and the E-SAT  System.  However,  at this
time,  no agreement  has been entered  into.  No assurance can be given that the
Company  will be able to  purchase a majority  interest in E-SAT or enter into a
leasing or other arrangement with E-SAT.  Further, any proposed acquisition of a
majority  interest in E-SAT will be subject to FCC  approval.  In the event that
the Company cannot acquire a majority interest in E-SAT or otherwise acquire the
rights to utilize  E-SAT's  FCC  license,  the Company  will  continue to have a
minority interest in E-SAT and be subjected to the limitations  inherent in such
a position.  Furthermore,  the Company's percentage of ownership in E-SAT may be
subject to dilution if the Company cannot meet future funding  requirements.  No
assurance can be given that the Company will have  sufficient  resources to meet
the financial  requirements  of E-SAT to maintain its current equity interest in
E-SAT.

        The total  capital  requirements  for the E-SAT  System's  proposed data
transmission system, including the anticipated six satellites and other start up
costs,  is  estimated  to be  approximately  $111  million.  For the years ended
December 31, 1998 and 1997,  the Company  funded E-SAT  expenses of $407,292 and
$385,671,  respectively.  These  amounts  represent  greater than 20% of E-SAT's
total  expenditures  for those  years and  includes  advances  made on behalf of
EchoStar.


<PAGE>5



Little LEO Satellite Technology Development

        The  technology of using Little LEO satellites has been in existence for
over 40 years and has been used  extensively in weather  satellite  applications
worldwide.  The commercial  use of Little LEO  satellites is in its  development
stage.

        GEMS, a  wholly-owned  DBSI  subsidiary,  was formed in December 1994 to
develop   commercial  service   applications   utilizing  Little  LEO  satellite
technology.  A previous company,  JPS Systems,  Inc. ("JPS") had been working on
this technology and, in 1995, the business of JPS was consolidated with GEMS and
JPS was  dissolved  as a  corporate  entity.  During  the  two  years  prior  to
consolidation, JPS developed the basic technology of collecting and transmitting
data remotely by Little LEO satellites.  JPS conducted a proof-of-concept  trial
for Pacific Gas & Electric Co. in California, 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 and led to the development
of  a  plan  for  GEMS  to  provide   automatic  meter  reading   solutions  for
hard-to-access  meters  owned by utility  companies  as well as  collection  and
transmission of data from other fixed devices.  This plan is intended to provide
utility and  petroleum  industries  worldwide  with remote data  collection  and
transmission   capabilities   utilizing   Little   LEO   satellite   technology.
Subsequently,  a series of  proof-of-concept  demonstrations  were  conducted in
conjunction  with ABB  Power  T&D  Company,  Inc.  ("ABB"),  in which  prototype
satellite  radios  (RTUS) and  electric  meters  were  installed  at 34 electric
utilities in the continental  U.S. 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 ("NOAA").

        The  Company  also  had an  agreement  with  North  American  CLS,  Inc.
("NACLS"),  which  provided  access to a limited  amount of Little LEO satellite
capacity  for  trials of the  Company's  AMR  applications  utilizing  the Argos
System. In 1996, GEMS received a purchase order for Little LEO transmitters that
could be used with the  Argos  System as part of its  overall  development  of a
satellite transmitter  integrated with an electronic utility meter from ABB. The
Company's  agreement  for use of the Argos System  expired on December 31, 1997,
and in March 1998, NOAA established new criteria which limits future  commercial
use of the Argos System which, effectively, prohibits the Company from using the
Argos System. The expiration of the NACLS agreement and the future limits on use
of the Argos  System have caused  GEMS and ABB to suspend  the  purchase  order.
Although  the  Company  and ABB  intend to pursue  the use of the LEO  satellite
technology for use in ABB's meters, no assurances can be given that the purchase
order will be reinstated or whether the terms of any future  purchase order will
be acceptable to the Company.

The E-SAT System

        The Company is focusing its technology  development on the E-SAT System.
The E-SAT System will consist of the  following:  six Little LEO  satellites;  a
Mission  Control  Center (to manage data flow);  a Satellite  Control Center (to
handle  telemetry,  tracking and control of the  satellites);  an Earth  Station
(serving as the network control center); a Ground Support Network (to distribute
data to customers);  and numerous RTU's  (transmitting  data to the satellites).
The E-SAT  System has been  designed  to  provide  low cost  messaging  services
worldwide for use primarily by industrial/commercial customers. The E-SAT System
is  optimized  for the  projected  service  markets  and is  intended to provide
low-cost and reliable service for those markets.



<PAGE>6



        The primary  service of collection and  transmission  of data from fixed
devices such as meters located in remote  locations is  accomplished by periodic
readings of utility  company meters over a wide  geographical  region by E-SAT's
satellites.  An RTU,  integrated  with the utility  meter,  will  electronically
transmit the relevant data in digital form to E-SAT's satellite which stores the
collected data to be forwarded to the Earth Station.  The Mission Control Center
will provide  overall  operational  control of the  collection  and retrieval of
data, and will interface with the Earth Station and the Satellite Control Center
which will provide overall operational  control of the satellites.  Based on the
current design, E-SAT estimates that its satellites will operate for a period of
five years.  Although  metropolitan and urban or suburban areas can benefit from
the E-SAT System, the E-SAT System will be especially  advantageous in providing
meter  reading  functions in remote,  rural and low  population  density  areas,
eliminating  the costly  need of routine  visits by utility  personnel.  Similar
advantages could be realized with numerous vending machines, residential propane
gas tanks or remote environmental monitoring.

        The E-SAT  System  will be  transmitting  non-voice  data in short  data
transmissions  and will not be  designed  for  transmitting  data that  requires
real-time or near real-time communications. As a result, E- SAT's infrastructure
is expected to be simpler and less costly than those Little LEO systems offering
real-time  data  information  services.  The E-SAT System will also  incorporate
emergency back-up systems.

CDMA/DSSS Technology

        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 the communication  system transmit data reliably
and accurately.  This objective is harder to achieve with conventional solutions
because of numerous  wireless systems creating more noise in the frequency bands
of operation. To minimize the impact of noise and interference on the data being
transmitted,   the  E-SAT  System  will   implement   Code   Division   Multiple
Access/Direct  Sequence Spread  Spectrum  ("CDMA/DSSS")  modulation  techniques.
CDMA/DSSS will enable the E-SAT 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, RTU's operating in a narrowband
technique must have relatively high power capability. CDMA/DSSS spreads the data
signal  over the entire band of  operations  reducing  the power  required by an
E-SAT  RTU to  transmit  data  to a  satellite.  E-SAT  is  presently  the  only
commercial  Little  LEO  system to  implement  CDMA/DSSS  in its  communications
protocol. The Company believes CDMA/DSSS is a strategic advantage over competing
systems to effectively transmit data messages.

        In operation, the E-SAT System would assign each RTU with a unique and a
group identification  number. All individual and group transmissions between the
RTU and the LEO  satellite  would be managed by the  Mission  Center  based on a
predetermined  schedule.  The  receiver on each E-SAT  satellite  will store the
incoming  code stream over the entire  frequency  band of operation  and forward
that code  stream to the Earth  Station  as it passes  over.  Signal  processing
performed at the Mission  Center  regenerates  the original RTU data messages by
digitally  rejecting unwanted  background noise signals.  This schedule would be
synchronized  with the  Satellite  Control  Center  so that each  satellite  can
download collected data and receive new instructions as it passes over the Earth
Station. The total time of connectivity scheduled between a group of RTU's and a
satellite will be optimized by the number of RTU's in any particular group.

<PAGE>7



Satellite Constellation

        The  initial  constellation  to be  launched  in the E-SAT  System  will
consist  of  six  satellites.  The  Company  plans  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. 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.  The Little LEO  satellites  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.

        In August 1998, the Company and Matra Marconi Space France s.a.  ("MMS")
entered into a non-binding memorandum of understanding to engage and appoint MMS
as prime  contractor for the design,  construction,  delivery and launch support
services of six Little LEO satellites.  Further, in August 1998, the Company and
SAIT Radio Holland SA ("SAIT")  entered into a  non-binding  letter of intent to
explore  an  arrangement  dealing  with  SAIT  as the  main  contractor  for the
engineering,  development  and  provision  of hardware  and software for E-SAT's
RTU's. In the latter part of September 1998, the Company and MMS mutually agreed
to terminate  their  non-binding  memorandum of  understanding.  The Company has
engaged SAIT to perform  studies on antennas for the proposed  RTU,  develop and
test RTU prototypes,  and assist in RTU design in anticipation of  manufacturing
RTU's for the Company. The letter of intent with SAIT expired under its terms on
November  23,  1998.  No  assurance  can be given that the Company and SAIT will
enter into a contract to manufacture the RTU.

     On December 15, 1998, the Company and Alcatel Space Industries  ("Alcatel")
entered into a Memorandum of  Understanding  ("MOU") and an Authority to Proceed
("ATP")  pursuant to which  Alcatel  would become the prime  contractor  for the
design, construction and delivery into orbit of the E-SAT System satellites. The
Company  and  Alcatel  are  currently  negotiating  a  definitive   construction
agreement.  Upon signing the MOU and ATP, the Company paid $1,000,000 to Alcatel
to commence  project  work.  Subsequent  to the 1998 year end,  the Company made
additional payments of $500,000 each to Alcatel in January and February of 1999.
The MOU expired on March 15,  1999 while the ATP has been  extended to April 15,
1999. In addition,  both companies are continuing to negotiate a final contract.
Although  the  Company  believes a  definitive  agreement  will be reached  with
Alcatel, there can be no assurance that such will be the case.

     On March  31,  1999,  the  Company  entered  into a  contract  with  Surrey
Satellite Technology Ltd. of the U.K. to design and construct the six satellites
for the E-SAT System.

        The Company  entered into a launch  reservation  agreement with Eurocket
Launch Services GmbH ("Eurockot"). The first three satellites, when constructed,
are expected to be launched on a single Eurockot launch vehicle. Under the terms
of the  launch  reservation  agreement,  Eurockot  reserved  for  E-SAT a launch
opportunity  on a launch  vehicle at the  Plesetzk,  Russia  launch site for two
dedicated,  triple  satellite  launches.  On March 31, 1999, the Company entered
into a formal launch service agreement with Eurockot.

Investment in Seimac Limited

        In November 1995, the Company purchased a 20% equity ownership  interest
in Seimac Limited ("Seimac"),  a privately-held  Canadian satellite radio design
and manufacturing  company.  On April 30, 1998, the Company sold its interest in
Seimac.


<PAGE>8



FCC Regulations

        All commercial  non-voice,  non-geostationary  mobile-satellite  service
"NVNG-MSS" or "Little LEO" such as E-SAT's satellites in the U.S. 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 (the "Joint  Proposal")
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  Joint  Proposal,   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 which,  ultimately,  resulted
in the FCC's approval of E-SAT's application.

        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  U.S.  in the  148-148.905  MHz for  service  and  feeder  uplinks,  and the
137.0725-137.9725  MHz frequency band for service and feeder downlinks.  For its
uplink,  E-SAT is  licensed  to utilize  500 kHz of  contiguous  spectrum in the
148-148.855 MHz band that is not shared with the other U.S. licensees.  However,
some of this  spectrum  may be  required to be  operated  co-frequency  with the
French S-80 system, based on prior agreements between the U.S. and France. E-SAT
is  licensed  to  utilize  148.855-148.905  MHz for feeder  uplinks.  E-SAT will
operate  in the other  355 kHz of the 148-  148.905  MHz band on a  co-frequency
basis with LEO One, Final Analysis and ORBCOMM. In the downlink direction, E-SAT
will  operate  in  the  band   137.0725-137.9275   MHz  co-frequency  with  NOAA
satellites,  ORBCOMM and Final  Analysis.  E-SAT is obligated to coordinate with
the other U.S.  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.

        Pursuant to E-SAT's license,  unless extended by the FCC for good cause,
E-SAT must  commence  construction  of the first two  satellites  by March 1999,
complete  construction by March 2002 and launch by September 2002. The remaining
four satellites must commence  construction by March 2001, complete construction
by March 2004 and launch by March 2004.  The Company  believes that the contract
with Surrey Satellite Technology,  Ltd. represents the commencement of satellite
construction   and  satisfies  the  initial  FCC   requirement   that  satellite
construction  commence on or before  March 31,  1999.  The Company is  currently
negotiating with Alcatel for the design and development of the E-SAT satellites,
however, no contract has yet been entered into. (See "Satellite Constellation".)
In the event E-SAT fails to meet these and other  specified  conditions,  absent
any  modification  of terms by the FCC, E-SAT could  jeopardize its license with
the FCC.

International Regulations

        The E-SAT  System  operates  in  frequencies  that are  allocated  on an
international basis under the authority of the International  Telecommunications
Union  ("ITU").  The U.S.,  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


<PAGE>9



coordination  with respect to other satellite  systems under the auspices of the
ITU. Further,  E-SAT must receive operational  authority called "landing rights"
from each of the foreign countries in which it proposes to provide services. The
Company  intends to utilize  international  distributors  or  licensees  of each
country  to  obtain  such  authority.  In the  event  E-SAT is  unable to obtain
authority to offer its service in a particular country or region,  this may have
a material adverse affect on the Company's business plans and operations.

Potential Markets

        The  Company's  goal is to  provide  low cost data  messaging  satellite
services  worldwide  using the  Little Leo  satellite  technology.  The  Company
believes  that E-SAT's  two-way,  low cost data  messaging  services will reduce
costs for customers by providing a more efficient and reliable retrieval of data
because the E-SAT System (i) has a lower  infrastructure cost and (ii) transmits
data using CDMA/DSSS technology which provides greater capacity than channelized
systems  and  allows  transmissions  within  the  background  noise in the radio
frequency  environment.  The Company  should be able to offer its data messaging
services  at a cost  lower than  manual  retrieval  systems or other  Little LEO
satellite operators who may have much greater capital cost structures.

        The  Company's  utility  customer  base is expected to be  comprised  of
investor   owned   utilities,    rural   electric   membership    co-operatives,
municipalities  and other publicly owned utilities,  electric holding companies,
meter data management agents, meter  manufacturers,  local public works agencies
and others that have  dispersed  operations  and may require  aggregate  billing
services.  This would  include  utility  meter  reading,  tracking  pipeline and
wellhead  assets for the oil and gas industry and monitoring  environmental  and
agricultural  effects  on air and  water.  In  particular,  it is the  rural and
hard-to-access  meter  segment  that  the  Company  will  initially  market  its
services.  The E-SAT System is also designed to provide remote communications to
stand-alone equipment,  such as vending machines or heavy equipment. The Company
will develop  communication  products to integrate  into metering  equipment and
will  provide  a  variety  of  services  to  include  remote  data   collection,
validation, formatting and electronic delivery to the customer.

Competition

        Competition in the  communications  industry is  characterized  by rapid
change with new  technologies  and  entrants  vying for a  currently  increasing
customer  base.  Industry  participants  are forming  alliances and  integrating
networks  to  provide  a  broad  range  of  services  to  the  marketplace.  The
communications  capabilities  provided by the Little LEO industry  will create a
low-cost source of global mobile data services.  In addition to E-SAT, there are
three other FCC licensed  commercial  Little LEO satellite  operators  (Orbcomm,
LeoOne,  and Final  Analysis).  A fifth  Little LEO  operator is  Volunteers  In
Technical Assistance ("VITA"), a non-profit organization established to transmit
humanitarian/emergency data and is not deemed to be a competitor to the Company.

        The Company's  competitors are all attempting to serve multiple  markets
such as cargo and vehicle mobile asset  tracking,  monitoring and remote control
personal communications services, emergency services and transaction processing.
By choosing to address  markets  requiring  near real time inter-  connectivity,
E-SAT's  competitors  (excluding VITA) will launch a constellation of between 26
to 48 Little LEO satellites and will have many earth stations located throughout
the U.S.  and the world.  These  Little  LEO  systems  are much more  costly and
complex as compared to the E-SAT  System.  The RTU designed for other Little LEO
operators are more expensive and require more power to operate than E-SAT's RTU.
The Company believes that a lower uplink power requirement for an E-SAT RTU will
give  E-SAT  a  cost   competitive   advantage  when   targeting   fixed  device
applications.


<PAGE>10



        A number of competitors are currently  developing proposals to implement
AMR services at electric and natural gas  utilities  throughout  the U.S.  Other
proposed  AMR   technology   solutions   include   terrestrial   wireless  radio
technologies  such as Specialized  Mobile Radio,  Cellular and Multiple  Address
Service  licenses,  unlicenced  radios  operating  under  Part  15  of  the  FCC
Regulations,  and hard wired technologies such as telephone, fiber optics, cable
and power line  carriers.  While  terrestrial  wireless  technology  may be cost
effective  in densely  populated  urban areas,  it may not be cost  effective to
implement  in rural and  hard-to-access  areas;  and it is in these niche market
locations that the Company intends to compete  effectively by utilizing  E-SAT's
Little LEO satellite technology.

Employees

        As of December 31, 1998, the Company had nine full-time  employees.  The
Company considers its relationship with its employees to be good.

Risks Associated with Company's Developing Business

        Due to the fact that the  Company  is in its  development  stage,  there
exists a number of risks and challenges which will affect the Company's  ability
to execute its business plans. These risks include the following:

     The  Company's  primary  business  interests  are reflected in its minority
interest (20%) in E-SAT, INC. The Company is currently negotiating with EchoStar
to  restructure  its  interest  in  E-SAT's  business.  Unless  and  until  this
restructuring is completed,  the Company's business  investments will be subject
to its  minority  interest in E-SAT and the control  disadvantages  which such a
minority position represents.  In addition, if the Company were unable to obtain
a  controlling  interest in E-SAT's FCC license,  the Company might be unable to
proceed  with its current  satellite  construction  and launch  agreements.  Any
cancellation  of  these  contracts  could  result  in  substantial  costs to the
Company.

        The  Company  is in a  development  stage in which it is  attempting  to
design, construct and launch six (6) satellites utilizing a Little LEO satellite
constellation  to service a customer base,  neither of which is yet established.
Consequently,  there is no  assurance  that the  Company can  overcome  the many
technical  challenges  to establish  the E-SAT System or that it will be able to
develop a sufficiently large customer base to be profitable.

        The Company has yet to generate any gross revenue from operations, while
at the same time incurring  substantial  costs and expenses for  development the
E-SAT System. Consequently, the Company will have to fund its capital needs from
outside sources, such as additional equity investments, loans, joint partnering,
etc. There is no assurance that such sources of capital will be available in the
future or will  provide  the  levels  of  financing  necessary  to  sustain  the
Company's  operations.  A substantial shortfall in funding will delay or prevent
the completion and commercial  operation of the E-SAT System,  which will have a
material adverse effect on the Company's future success.

        The construction,  launch and implementation of the E-SAT satellites and
the E-SAT  System are  susceptible  to  numerous  risks,  including  unscheduled
delays,  technical  problems,  launch  risks and  potential  malfunction  or low
performance of the E-SAT System. The inability to successfully develop,  deploy,
and operate the E-SAT System as planned would have a material  adverse effect on
the Company's financial condition and results of operations.



<PAGE>11



        The  Company's  business  is  subject  to both  U.S.  and  international
regulations  and licensing.  The Company is currently  utilizing the FCC license
granted to E-SAT to operate the Little LEO  satellite  system.  This license has
several conditions, including the need to commence construction of the first two
(2)  satellites by March 1999,  and the remaining  four (4)  satellites by March
2001. At year end, the Company had entered into  preliminary  agreements  with a
prime contractor to build the Little LEO satellites, but no definitive agreement
had been  reached.  On March 31,  1999,  the  Company  entered  into a satellite
construction  contract which the Company believes  satisfies the first satellite
construction milestone under the FCC license. By letter dated April 8, 1999, the
Company notified the FCC of this achievement. Furthermore, the Company will need
to secure "landing  rights' in various  countries where it hopes to do business.
Failure to secure such foreign  rights would  preclude the Company from offering
its  services in such  countries  which  would  adversely  effect the  Company's
anticipated results of operation.

ITEM 2.     PROPERTIES

     The Company and its  subsubsidiaries  have  leased  3,287  square feet at a
monthly rate of $8,574,  for their principal  offices at 100 Shoreline  Highway,
Suite 190A,  Mill  Valley,  California,  on a three year lease which  expires on
March 1, 2000.

ITEM 3.     LEGAL PROCEEDINGS

        The  Company is not a party to any legal  proceedings.  In July 1998,  a
complaint was filed in the Superior  Court of  California,  County of Marin,  by
Bridge Group (HK) International, Ltd. (the "Bridge Group") against the Company's
president,  alleging that the Bridge Group was promised  shares of the Company's
common stock.  The Company  agreed to indemnify its president for any damages or
settlement related to this lawsuit. Subsequent to the fiscal year end, this case
was settled by issuing  63,239 shares of the  Company's  common stock and paying
$15,000 to the Bridge Group.

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

        None  during  the  fourth  quarter  of  the  Registrant's  fiscal  year.
Subsequent to the 1998 year end, the Company solicited  stockholder  approval to
increase  the number of  authorized  shares of common stock from  20,000,000  to
50,000,000. The requisite stockholder approval was achieved.


 

<PAGE>12



                                     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 for the Company's
Common  Stock during each quarter for the past two fiscal year ends as quoted on
the OTC Bulletin  Board.  The  Company's  trading  symbol is "DBSS."  Subject to
meeting The Nasdaq Stock Market, Inc. requirements, the Company intends to apply
to list its Common Stock on The Nasdaq SmallCap Market.



                                                                   Common Stock
                                                                   ------------



Quarter Ended                                                        High  Low
--------------------                                                 ---- ----
                                                                     4.25  4.00
December 31, 1998                                                    4.63  1.88
September 30, 1998                                                   2.88  1.50
June 30, 1998                                                        2.32   .50
March 31, 1998



December 31, 1997                                                    1.38   .38
September 30, 1997                                                   1.00   .53
June 30, 1997                                                        1.94   .75
March 31, 1997                                                       1.94  1.50


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

        As of December  31,  1998,  the Company had  8,581,117  shares of Common
Stock outstanding and approximately 487 stockholders of record. This number does
not include stockholders who hold the Company's securities in street name.

Dividend Policy

        The  Company  has not  declared  or paid any cash  dividends  since  its
inception.  The Company currently intends to retain future earnings, if any, for
use in the operation and expansion of the business.  The Company does not intend
to pay any cash dividends in the foreseeable future.

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

General

        The Company has historically recognized its operating costs and expenses
primarily through its twenty percent interest (20%) in E-SAT. However, effective
March 31, 1998, the Company started recognizing the expenditures for development
of the E-SAT System through the Company's


<PAGE>13



wholly-owned  subsidiary,  Newstar  Limited.  Newstar Limited will be the entity
primarily  responsible for the  construction,  launch and operation of the E-SAT
Satellite System on behalf of the Company.

Plan of Operation

        Throughout  1999,  the Company plans to advance the  development  of the
E-SAT license by negotiating  vendor agreements with the objectives of beginning
construction  of the LEO  satellites,  securing a launch service  provider,  and
developing  the  ground  support  network.  The plan  includes  a  Research  and
Development  program to produce a low cost ASIC chip  CDMA-DSSS RTU. The Company
plans to  satisfy  all  milestone  conditions  expressed  within  the Little Leo
license issued by the FCC.

        The Company plans to attract  partners to the E-SAT project who would be
engaged in technical and  marketing  aspects to  effectuate  the business  plan.
Technical and marketing  personnel resources may be increased and will depend on
those resources provided by E-SAT partners.

     The Company expects to satisfy its 1999 cash  requirements by supplementing
its present cash base with the potential  future  exercise of previously  issued
warrants and other outside  sources of capital,  in addition to  attracting  new
equity partners in the E-SAT project.

Results of Operations

Revenues

        The Company  remains in the  development  stage and did not generate any
revenues  in either of the last two fiscal  years  ended  December  31,  1998 or
December 31, 1997.

Cost and Operating Expenses

        Cost and operating  expenses for the year ended December 31, 1998,  were
$2,995,848  as compared to  $1,682,277  for the year ended  December  31,  1997.
General and  administrative  expenses  increased  by  approximately  $726,500 to
$2,198,701 during the year ended December 31, 1998, compared to $1,472,162 spent
in the  year  ended  December  31,  1997.  This  50%  increase  in  general  and
administrative expenses was due primarily to approximately $350,000 in stock and
cash  as  settlement  of  a  lawsuit  against  an  officer  of  the  Company,  a
compensation  expense of $159,000  relating to options for services  provided by
consultants, and the expansion of the Company's business interests in Europe and
the U.S.

        Research and development  expenditures increased  approximately $587,000
to $797,147 during the year ended December 31, 1998,  compared to $210,115 spent
in the year ended December 31, 1997. This  significant  increase in research and
development was due primarily to the issuance of the E-SAT license in April 1998
and those increased  engineering and design costs not capitalized by the Company
and associated  with meeting the terms of the FCC license and the development of
the satellite system.

Other Income (Expense)

        The Company  experienced a  non-operating  loss of $296,045 for the year
ended  December 31, 1998,  compared to a gain of  $4,831,994  for the year ended
December 31, 1997.  During 1998,  earned  interest income was recognized on cash
received in connection with the sale of  approximately  2.8 million units of the
Company at $2.00 per unit. Each unit consists of one share of Common Stock and a
warrant


<PAGE>14



to purchase  one share of Common Stock at $3.00 per share.  The interest  income
was more than offset by losses in 1998 of $328,466  from the sale of  investment
in Seimac and its equity  interest in the results of  operations  of E-SAT.  The
Company  sold its  interest in Seimac  during  1998.  During  1997,  the Company
incurred interest expense of $308,094 relating to certain outstanding debentures
owed to EchoStar.  During 1997,  these  debentures  were  exchanged for EchoStar
Common Stock that  EchoStar  held as  collateral  against such  debentures.  The
Company  experienced  a loss  of  approximately  $1  million  relating  to  this
exchange.  The Company also incurred a loss of $80,975  attributed to its equity
interest in the results of operations of E-SAT and Seimac. These expenses/losses
were more than  offset by a gain of  approximately  $6.2  million in the sale of
marketable securities.

Net Loss and Income

        The  Company's  net loss for the  year  ended  December  31,  1998,  was
$3,293,493  compared to a net income of $3,068,917  for the year ended  December
31, 1997.  During 1997, the Company's net income was due primarily to a one-time
gain on sale of  marketable  equity  securities  of  approximately  $6.2 million
offset by operating and non-operating expenses.

Liquidity and Capital Resources

        The Company has been in the  development  stage since its  inception and
has not recognized any significant revenues or capital resources.  The Company's
monthly expenses averaged  approximately $325,000 per month during calendar year
1998 which included  approximately  $25,000 per month for  operating,  legal and
consulting  expenses,  and  $70,000  per  month  for  GEMS &  E-SAT  research  &
development.  However,  expenses will continue to increase  during 1999 with the
demands  of  developing  the  satellites  for  the  E-SAT  System  and  business
applications  and additional  capital will be necessary to expand  operations or
continue current operations. Subsequent to the 1998 year end, the Company raised
$1.5 million in gross proceeds from a private  placement of its Common Stock and
$7.5 million from the exercise of  outstanding  warrants.  Further,  the Company
made approximately $5.4 million in payments to several contractors subsequent to
December 31, 1998.

        Traditionally,  the Company has relied on equity and debt  financings to
finance its  operations.  This financing was  supplemented  from the sale of the
Company's  interest in entities that held direct broadcast  satellite  licenses.
The Company no longer has any interest in direct broadcast satellite  licensees.
On April 30,  1998,  the Company  sold its  interest  in Seimac in exchange  for
$200,000 in cash and $51,417 in forgiven debt.

        During  1998,  the  Company  conducted  a private  placement  of up to 3
million units at $2.00/unit for an aggregate amount of $6 million with each unit
consisting of one share of Common Stock and one warrant to purchase one share of
Common Stock at $3.00 per share.  The offering  closed in October 1998, with the
Company  selling 2.4 million  units for gross  proceeds of $4.8  million  before
stock issuance  costs of $442,500.  However,  the Company will need  substantial
additional  capital,  an  estimated  $111  million  over the next 24 months,  to
construct and launch the satellites  comprising the E-SAT System.  Further,  the
construction  of the first two of the six  planned  satellites  is  required  to
commence  by March  1999  pursuant  to the terms of the FCC  license  granted to
E-SAT. (See"FCC Regulations.")

        The Company had cash and cash  equivalents of $1,291,711 and $383,054 as
of December 31, 1998 and 1997, respectively.  The Company had working capital of
$233,078 as of December 31, 1998. The Company had a negative  working capital of
$411,185  as of  December  31,  1997.  Until  the  Company  is able to  develop,
construct  and  operate  its E-SAT  System and derive  revenues  therefrom,  the



<PAGE>15



Company will continue to use cash obtained from outside  sources for its 
operations and development of the E-SAT System.

     Net cash used in operating  activities  was  $2,161,111  for the year ended
December 31, 1998,  as compared to  $2,972,153  for the year ended  December 31,
1997.  Net cash used in operating  activities  during 1998 as compared  with the
prior  year was a result of the 1998  loss of  $3,293,493  as offset by  certain
non-cash charges, a loss on sale of investment in Seimac and the equity in E-SAT
losses.  Cash  expenditures  accelerated  in the  fourth  quarter of 1998 as the
Company increased its level of development activity relating to the E-SAT System
which  included  a  $1,000,000  payment  to  Alcatel.   An  increased  level  of
development  costs is  expected  to  continue  into  1999.  Also,  in the fourth
quarter,  the  Company  granted a request by two  previous  investors  to refund
$800,000  of  invested  capital.  Net  cash  used in  operating  activities  was
$2,972,153  for the year ended  December  31, 1997,  which  reflects an increase
compared to 1996,  due to the payment of accounts  payable which accrued  during
1996 and were paid in 1997.

     Net cash used in investing activities for the year ended December 31, 1998,
was  $1,484,958.  This net cash  used  represents  the  difference  between  the
proceeds from the divestiture of Seimac of $199,940 less the Company's  advances
to E-SAT of  $407,292  and  approximately  $1.2  million  in  progress  payments
reflecting  to  satellite  construction  costs.  Net cash  provided by investing
activities was $4,183,565 in 1997 as the Company received proceeds of $3,573,677
in connection  with its  divestiture  of its interest in  Continental  Satellite
Corporation.

        Net cash provided by financing  activities  for the year ended  December
31, 1998, was $4,554,726 compared to $1,230,994 used in financing activities for
the year ended  December 31,  1997.  Net cash  provided by financing  activities
during 1998 related to the net proceeds  from the sale of units of common stock.
Net  cash  used in  financing  activities  of  $1,230,994  during  1997  related
primarily  to the  repayment  of  debentures  in the  amount of  $1,043,445  and
stockholder's loans of $149,750.

        In July 1996, the Company began to receive milestone  payments under the
terms of a $1.2 million purchase order for 10,000  satellite radio units.  Under
this  agreement,  the  Company was  eligible  to receive up to $500,000  towards
development costs upon meeting the milestone  requirements of the contract.  The
Company met the first four milestones of the contract and has received  $400,000
in cash.  Currently,  the Company and ABB have suspended their 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.

Factors Affecting Future Operating Results

        Factors  that  could  cause  future  results to differ  materially  from
historic  results,  include,  in addition to other  factors  identified  in this
report,  the  Company's  ability to raise  significant  additional  capital from
outside  sources for the  development of the E-SAT System,  the  availability of
capital on  commercially  acceptable  terms,  the  completion of a  commercially
viable E-SAT System,  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,  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,  results of the Company's financing efforts and
marketing conditions, and other risk factors


<PAGE>16



related to the Company's  business.  Readers of this report are cautioned not to
put undue reliance on "forward  looking"  statements which are, by their nature,
uncertain as reliable indicators of future performance.

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

Impact of the Year 2000 Issue

        The Year 2000 Issue is the result of  computer  programs  being  written
using two digits  rather  than four to define the  applicable  year.  Any of the
Company's,  or  its  suppliers'  and  customers'  computer  programs  that  have
date-sensitive  software may recognize a date using "00" as the year 1900 rather
than the year 2000.  This could  result in system  failures  or  miscalculations
causing  disruptions of operations  including,  among other things,  a temporary
inability to process  transactions,  send invoices,  or engage in similar normal
business activities. In the Company's assessment,  because the Company's and its
subsidiaries'  information systems are primarily comprised of recently purchased
personal computers and software, the Company does not believe that the Year 2000
Issue will materially affect its operations.

        In addition, in developing the E-SAT System, the Company will be relying
on vendors to, among other things, manufacture the Little LEO satellites, launch
the  Little   LEO   satellites,   manufacture   the  RTU  and  build  the  E-SAT
infrastructure  including  the control  stations  which are Y2K  compliant.  The
Company has entered into  contracts  with  several  vendors to develop the E-SAT
System,  and, an assessment has been made as to their Year 2000  compliance.  As
part of ongoing  contract  negotiations,  the Company will request and determine
the vendors' Year 2000 readiness.  In the event that it is determined that a key
vendor will not be Year 2000  compliant,  this may have an adverse effect on the
Company's business plans.

            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.




<PAGE>17



                                           PART III

          ITEM 9.  DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
                   COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT

Directors, Executive Officers and Key Employees of the Company

        The present  directors,  executive  officers,  and key  employees of the
Company, their ages, positions held in the Company, and duration as such, are as
follows:

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


Name                    Position                              Age               Period
----------------------- ------------------------------------  --------- --------------------------


Fred W. Thompson        Chairman of the Board, President,     56        December 1992 - present
                        Chief Executive Officer, and
                        Chief Financial Officer                         November 1993 - present



Michael T. Schieber     Director, Secretary                   59        December 1992 - present



E. A. James Peretti     Director, Chief Operating Officer     56        February 1996 - present



H. Tate Holt            Director                              47        February 1996 - present



Jerome W. Carlson       Director                              62        May 1997 - present

Jessie J. Knight, Jr.   Director                              48        February 1999 - present

Gregory T. Leger        Executive Vice President                        March 1998 - present
                        Engineering
                                                              43



Frederick R.            Vice President, Business              37        August 1995 - present
Skillman, Jr.           Development
</TABLE>


        The Company  adopted  staggered  terms for its Board of Directors at its
1996 Annual  Stockholders  Meeting.  Messrs.  Thompson,  Peretti and Knight will
serve until the 1999 annual meeting of  stockholders  or until their  successors
have been  elected;  Mr.  Carlson  will serve until the 2000  annual  meeting of
stockholders or until his successor has been elected;  and Messrs.  Schieber and
Holt will serve until the 2001  annual  meeting of  stockholders  or until their
successors  have been elected.  The Board of Directors  does not have a standard
arrangement for compensation,  but has previously received, and will continue to
receive, stock options as compensation.



<PAGE>18



Business Experience

        The  following  is  a  brief  account  of  the  education  and  business
experience  during  at least  the past five  years of each  director,  executive
officer,  and key employee,  indicating the principal  occupation and employment
during that period,  and the name and principal  business of the organization in
which such occupation and employment were carried out.

        Fred W. Thompson, serves as Chairman of the Board, President, and CEO of
the  Company.  He has over thirty  years  experience  in the  telecommunications
industry.  From 1983 to 1986, Mr. Thompson  managed Inter Exchange  Consultants,
Inc.,  a company  he  founded,  providing  management,  design  and  engineering
services  for  initial  cellular  telephone  operations  in New York  City,  San
Francisco, Los Angeles and other major cities in the U.S. From 1986 to 1990, Mr.
Thompson devoted his time to consulting on various  telecommunication matters as
an  independent  contractor.  His  career of over 20 years  with  AT&T  included
various  management  positions in the Long Lines  Department,  Western  Electric
Company, Bell Labs and with several operating telephone companies.  Mr. Thompson
received a BS degree in Electrical Engineering from California Polytechnic.

        Michael T. Schieber,  Director,  has served as a Director of the Company
since December 1992.  From 1987 to December 1992, Mr.  Schieber was the Managing
Partner  of  Amador  Telecommunications  and since  1990 has been a  partner  in
Columbia  Communications,  both investors in nation-wide  paging  licenses.  Mr.
Schieber  also holds  minority  interests  in two  Illinois  cellular  telephone
licenses.  He  retired  from the  Department  of  Fisheries  with  the  State of
Washington in May 1993 where he had served as a civil engineer since 1984. He is
also a retired Air Force Major and Command Pilot.  Mr.  Schieber  received an MA
degree in  International  Relations and Government  from the University of Notre
Dame, a BS in Engineering from the Air Force Academy,  and a BA in Business from
The Evergreen State College.

        E. A. James Peretti,  Director,  has served as Chief  Operating  Officer
since August 1998,  and was  appointed in February  1996, as President and Chief
Executive  Officer of Global  Energy  Metering  Service,  Inc.,  a  wholly-owned
subsidiary of DBSI. Previously,  Mr. Peretti served as President of Westinghouse
Electric Supply Company (WESCO), a business unit of Westinghouse  Electric Corp.
He also served as a Vice  President and officer of  Westinghouse  Electric Corp.
During his 30 year tenure with WESCO,  Mr.  Peretti also held  positions as Vice
President and General  Manager of its Pacific  Division.  Mr. Peretti holds a BS
degree from  Purdue  University  in  Electrical  Engineering  and a MBA from the
University of Hawaii.

        H. Tate  Holt,  Director,  appointed  in  February  1996,  is  currently
President of Holt & Associates,  a growth  management  consulting  firm, and has
held that position since July 1990. Previously,  from 1987 to 1990, Mr. Holt was
a Senior Vice  President at Automatic  Data  Processing,  Inc. in Roseland,  New
Jersey and Santa Clara, California. Mr. Holt has over twenty years of experience
in various senior sales,  marketing and general  management  positions with IBM,
Triad Systems, and ADP. He has participated in major restructuring and strategic
planning  in these  and other  companies.  Since  1990,  Holt &  Associates  has
assisted its clients in developing and achieving aggressive growth targets, both
domestically as well as internationally.  Mr. Holt is also an active director of
several private and publicly traded companies  including Onsite Energy. Mr. Holt
holds an AB from Indiana University.

     Jerome W. Carlson, Director,  appointed in May 1997, is currently President
of Raljer,  Inc.,  management  consulting firm, and has held that position since
January 1995. Previously, from 1984 to 1995, Mr. Carlson was the Chief Financial
Officer,  Vice  President of Finance and  Corporate  Secretary for Triad Systems
Corporation  in  Livermore,  California.  Mr.  Carlson  has  over  twenty  years
experience


<PAGE>19



in both finance and general  management  positions with Hewlett  Packard.  Since
1995 he has assisted a number of businesses in developing and achieving  certain
strategic and tactical goals in their  industries.  Mr. Carlson is a director of
Valley Community Bank and Tri-Valley  Business Council,  as well as director and
advisor for several private companies.  He holds a BS degree from the University
of California at Davis and an MBA from the Stanford Graduate School of Business.

        Jessie J.  Knight,  Jr.,  Director,  appointed in February  1999,  was a
Commissioner  of the California  Public  Utilities  Commission from 1993 through
December 1998.  Appointed by former  Governor  Peter Wilson,  he was one of five
individuals  responsible  for economic and regulatory  oversight of California's
$52 billion  telecommunications,  utility, trucking and rail industries.  Before
his appointment to the Commission,  he was Executive  Vice-President  of the San
Francisco  Chamber  of  Commerce,   responsible  for  international  operations,
economic development and attracting businesses to San Francisco.  He also served
as  Vice-President,  Marketing for the San Francisco  Newspaper  Agency,  a $400
million publishing  operation  encompassing the San Francisco  Chronicle and the
San  Francisco  Examiner.  Mr. Knight is a director of Blue Shield of California
and has been  nominated to serve on the board of  directors of Avista,  Inc. Mr.
Knight  holds  a BA  degree  from  St.  Louis  University  and an MBA  from  the
University of Wisconsin.

        Gregory T.  Leger,  Executive  Vice  President  Engineering,  joined the
Company in March 1998. Mr. Leger is responsible for the design and  construction
of the E-SAT System.  Mr. Leger has over nine years'  experience in  engineering
systems, management,  business planning, marketing and proposal preparation with
strong  analytical and negotiating  skills.  Most recently and for the past five
years,  Mr. Leger was  employed by Seimac  Limited,  as its Product  Development
Manager,  where he combined business  development  activities with technical and
project leadership to provide customers with solutions encompassing  electronics
data  telemetry,  software and  packaging.  Mr. Leger  received his BS degree in
Physics  at  Dalhousie  University,  Canada,  his MS degree in  Oceanography  at
Dalhousie  University,  and a degree  in Master  Space  Systems  Engineering  at
Technical University of Delft, Netherlands.

        Frederick R. Skillman, Jr., Vice President Business Development,  joined
the Company in August 1995. Mr. Skillman  manages the business case  development
and  oversees  the  marketing  and the sales  activities  for the  Company.  Mr.
Skillman has been working in the utility  industry for 14 years,  with extensive
utility operating  experience,  contract  administration,  product  development,
project  management and direct line  supervision.  Prior to joining the Company,
Mr. Skillman worked for Pacific Gas & Electric ("PG&E") for eleven years. During
his tenure at PG&E, Mr. Skillman was an electrical  engineer for the initial AMR
system installed for PG&E in Marin County,  California.  Mr. Skillman holds a BS
degree in Electrical Engineering from California Polytechnical State University,
and an MBA degree from the University of San Francisco.

Key Employees

        While the  following  person  did not serve as a director  or  executive
officer of the Company,  he did serve as an executive  officer of the  Company's
subsidiary  during 1998 and was considered to be a significant  employee of that
subsidiary.


<PAGE>20



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


Name
                        Position                              Age               Period
----------------------- ------------------------------------  --------- --------------------------


Randall L. Smith        Executive vice-president, Chief       43        January 1996 - July 1998
                        Engineer,
                        Director of GEMS
                        President and Director of GEMS                  July 1995 - January 1996
                        President of JPS                                July 1993 - June 1995

</TABLE>

     Randall L. Smith,  Executive  Vice  President and Chief  Engineer of Global
Energy  Metering  Service,  Inc. joined the Company in July 1993 as President of
JPS Systems, Inc. Mr. Smith resigned from GEMS effective July 31, 1998.
Committees of the Board

     The Board has an audit committee consisting of Messrs.  Schieber,  Carlson,
and Peretti,  a nominating  committee  consisting of Messrs.  Holt,  Carlson and
Thompson,  and a compensation committee consisting of Messrs. Holt, Schieber and
Carlson.

        The primary  functions of the audit committee is to review the scope and
results of audits by the Company's independent auditors,  the Company's internal
accounting controls, non-audit services performed by the independent accountants
and the cost of accounting services.

        The nominating  committee assists in the process of officer and director
nominations.

        The  compensation  committee  administers  the  Company's  various stock
option plans and approves compensation,  remuneration and incentive arrangements
for officers of the Company.

Family Relationships

        There  are no  family  relationships  between  any  director,  executive
officer.

Section 16(a) Beneficial Ownership Reporting Compliance

        Section  16(a)  of the  Securities  Exchange  Act of 1934,  as  amended,
requires the Company's  executive  officers and  directors,  and persons who own
more than 10% of the  Company's  Common  Stock,  to file reports of ownership on
Form 3 and changes in ownership on Form 4 or 5 with the  Securities and Exchange
Commission (the "SEC"). Such executive officers,  directors and 10% stockholders
are also required by SEC rules to furnish the Company with copies of all Section
16(a)  forms they  file.  Based  solely  upon its review of copies of such forms
received by it, or on written  representations  from certain  reporting  persons
that no other filings were required for such persons, the Company believes that,
during the year ended December 31, 1998, its executive  officers,  directors and
10% stockholders complied with all applicable Section 16(a) filing requirements.





<PAGE>21



            ITEM 10.     EXECUTIVE COMPENSATION

Executive Compensation

        The following  table provides  certain  summary  information  concerning
compensation of the Company's  Chief Executive  Officer and each employee of the
Company or its  subsidiaries who earned in excess of $100,000 for the year ended
December 31, 1998.



                                      SUMMARY COMPENSATION TABLE

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

                                                                          Long-Term        
                                         Annual Compensation             Compensation
                                                                                        


                                                             Other        Securities
Name and                                                    Annual        Underlying     All Other
Principal Position     Year      Salary       Bonus    Compensation(1)     Options       Compensation
--------------------- ------ ---------------- -------- ---------------- -------------- ---------------


Fred W. Thompson        1998    $ 180,000     $20,000           $ 8,005         - 0 -      $235,691(2)
Chief Executive         1997    $ 180,000(3)  -  0  -           $ 6,705     185,000
Officer                 1996    $ 180,000(4)  -  0  -           $ 4,245     312,500
                                                     


E.A. James Peretti      1998    $ 155,000     -  0  -           $ 2,576         - 0 -
Chief Operating         1997    $ 155,000     -  0  -           $ 3,732     150,000
Officer                 1996    $ 155,000     -  0  -          $    971     375,000

Randall Smith           1998    $   72,917    -  0  -           $ 1,798         - 0 -      $ 52,083 (5)
Former Executive VP     1997    $ 125,000     -  0  -           $ 2,385      87,500
GEMS                    1996    $ 125,000     -  0  -           $ 2,216     125,500


Gregory T. Leger        1998    $   93,230    $20,000           $ 1,914     125,000
Executive VP

Frederick R. Skillman,  1998    $ 110,000     -  0  -           $ 2,512         - 0 -
Jr., Vice-President
-------------------------------------------------------------------------------------
</TABLE>

(1)     Consists entirely of payment of insurance premiums.
(2)     Represents $27,691 of pay in lieu of vacation and $208,000 of 
        compensation deferred in 1996 and 1997.
(3)     $80,000 paid in cash, $100,000 deferred pursuant to his employment 
        agreement.
(4)     $72,000 paid in cash, $108,000 deferred pursuant to his employment 
        agreement.
(5)     In July 1998,  the Company  agreed to a severance  package  with Mr.
        Smith  consisting  of $125,000 in cash  payments to be made through July
        1999 (of which  $52,083 was paid in 1998) and the  immediate  vesting of
        all of Mr. Smith's unvested stock options.

Employment Agreements

     Mr. Thompson entered into an employment agreement with the Company on April
18, 1996,  effective  January 1, 1996.  His annual salary under the agreement is
$180,000, and includes non-qualified stock options to purchase 312,500 shares of
the Company's Common Stock. In October 1998, the Company
mb\work\dbsi\#5form10-ksb\4-13-99
                                     

<PAGE>22



paid Mr.  Thompson  the amount of $208,000  related to his  previously  deferred
compensation  through December 31, 1997. The Company has maintained a key person
insurance policy on Mr. Thompson's life in the face amount of $2,000,000, and is
the sole beneficiary of such policy.

        The Company also entered into an  employment  contract  with E.A.  James
Peretti,  Chief Operating  Officer of the Company and CEO of GEMS. Mr. Peretti's
agreement includes an annual salary of $155,000 and non-qualified  stock options
to purchase 375,000 shares of Common Stock.

        Effective   March  1,  1998,  the  Company  entered  into  a  three-year
employment  agreement  with Mr.  Gregory  T.  Leger to serve as  Executive  Vice
President Engineering. Under the employment agreement, Mr. Leger's annual salary
is $120,000.  He also  received  $20,000 upon the execution of the agreement and
has the right to receive an  additional  $20,000 by March 31, 1999,  as a bonus.
Mr.  Leger also  received  an option to purchase  125,000  shares of DBSI Common
Stock subject to vesting requirements.

Stock Option Plans

        The Company has established the 1998 Stock Option Plan (the "1998 Plan")
which was  approved  by the  stockholders  in May 1998 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. The 1998 Plan provides for
the grant of up to 500,000 non-statutory and incentive stock options.  Under the
1998 Plan, officers, directors, consultants and employees of the Company will be
eligible for  participation.  The exercise  price of any incentive  stock option
granted  under the 1998 Plan may not be less than 100% of the fair market  value
of the Common  Stock of the Company on the date of grant.  The fair market value
for which an optionee  may be granted  incentive  stock  options in any calendar
year may not exceed $100,000.  Shares subject to options under the 1998 Plan may
be purchased for cash. Unless otherwise provided by the Board, an option granted
under the Plan is  exercisable  for a term of ten years (or for a shorter period
up to ten years).  The 1998 Plan is  administered  by the Board of Directors and
its Compensation  Committee,  which has discretion to determine  optionees,  the
number of shares to be covered by each option, the exercise schedule,  and other
terms of the options. The 1998 Plan may be amended,  suspended, or terminated by
the Board,  but no such  action may impair  rights  under a  previously  granted
option. Each option is exercisable only so long as the optionee remains employed
by the Company.  No option is transferable by the optionee other than by will or
the laws of descent  and  distribution.  As of  December  31,  1998,  options to
acquire 112,500 shares of Common Stock were outstanding.

        The Company has  established  a 1996 Stock Option Plan (the "1996 Plan")
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.
The 1996  Plan  provided  for the  grant of up to  1,650,000  non-statutory  and
incentive  stock  options of which 924,403 were  outstanding  as of December 31,
1998. Under the 1996 Plan, officers, directors, consultants and employees of the
Company are eligible for  participation.  The  exercise  price of any  incentive
stock option  granted  under the 1996 Plan may not be less than 100% of the fair
market value of the Common  Stock of the Company on the date of grant.  The fair
market value for which an optionee may be granted incentive stock options in any
calendar year may not exceed $100,000.  Shares subject to options under the 1996
Plan may be  purchased  for cash.  Unless  otherwise  provided by the Board,  an
option  granted under the 1996 Plan is  exercisable  for a term of ten years (or
for a shorter  period up to ten  years).  The 1996 Plan is  administered  by the
Board of Directors  and its  Compensation  Committee,  which has  discretion  to
determine  optionees,  the number of shares to be covered  by each  option,  the
exercise schedule, and other terms of the options. The 1996 Plan may be amended,
suspended,  or  terminated  by the Board,  but no such action may impair  rights
under a previously granted option. Each option is exercisable

<PAGE>23



only so long as the  optionee  remains  employed  by the  Company.  No option is
transferable  by the  optionee  other  than by will or the laws of  descent  and
distribution.

        The Company also has developed three stock option plans to award certain
employees,  directors,  and  consultants  with the  opportunity  to purchase the
Company's  Common Stock.  Under the Company's 1993  Incentive  Stock Option Plan
("1993 ISO Plan")  options to purchase up to 69,644  shares of Common Stock were
issued to eligible  employees.  Under the  Non-Qualified  Stock  Option Plan for
Non-Employee  Directors  ("Director's  Plan")  options to  purchase up to 48,750
shares of  Common  Stock  were  granted  to  non-employee  directors.  Under the
Non-Qualified Stock Option Plan for Consultants ("Consultant's Plan") options to
purchase  up  to  14,625   shares  of  Common  Stock  were  granted  to  certain
consultants.  As of December 31, 1998,  options to acquire 50,269,  42,500,  and
14,625  shares  of  Common  Stock  were  outstanding  under  the 1993 ISO  Plan,
Director's Plan and Consultant's Plan, respectively.


                OPTION GRANTS IN THE YEAR ENDED DECEMBER 31, 1998
                                INDIVIDUAL GRANTS
<TABLE>
<S>                       <C>            <C>                    <C>                  <C>   


                           Number of      % of Total Options
                          Securities      Granted to
                          Underlying      Employees in Fiscal   Exercise or Base
Name                    Options Granted   Year 1998             Price ($/SHARE)       Expiration
                             1998                                                     Date
--------------------- ------------------- --------------------- --------------------- ------------

Gregory T. Leger,         125,000               100%                 $.53                 3/1/08
 Executive 
 Vice-President

</TABLE>

                          FISCAL YEAR-END OPTION VALUE

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

                                      Number of Securities       Value(s) of Unexercised In-the-
                                     Underlying Unexercised      Money Options/SARs at FY
                                   Options/SARs at FY End (#)    End ($)

                                    Exercisable/Unexercisable    Exercisable/Unexercisable
Name                              Options at December 31, 1998   Options at December 31, 1998
-------------------------------- ------------------------------- --------------------------------

Fred W. Thompson,                       312,612 / 204,388             $1,328,601/ $868,649
President, CEO

E. A. James Peretti,                    350,000 / 175,000            $1,487,500 / $743,750
CEO GEMS
                                

 Gregory T. Leger                        65,000 /   60,000             $276,250 / $255,000
 Exec. VP

 Frederick R. Skillman, Jr.              50,000 /  100,000             $212,500 / $425,000
 VP
</TABLE>


(1)     The value of  unexercised  in-the-money  stock options is based on a
        per share price of $4.25 as quoted on the OTC Bulletin Board on December
        31, 1998.


<PAGE>24



Limitation of Liability and Indemnification Matters

        The  General   Corporation   Law  of  the  State  of  Delaware   permits
indemnification  of directors,  officers,  and employees of  Corporations  under
certain conditions subject to certain limitations.  Article XII of the Company's
certificate of incorporation states that the Company may provide indemnification
of its agents,  including  its officers  and  directors,  to the maximum  extent
permitted by the General  Corporation Law. Article VI of the Bylaws provide that
the Company  shall,  to the maximum  extent and in the manner  permitted  in the
Corporations  Laws.  Article VI of the Bylaws provide that the Company shall, to
the  maximum  extent  and in the  manner  permitted  in the  Corporations  Laws,
indemnify each of its agents, including its Officers,  Directors, and employees,
against expenses,  judgments, fines, settlements, and other amounts actually and
reasonably  incurred in connection with any proceeding  arising by reason of the
fact any such person is or was an agent of the Company.

Directors Compensation

        The Company  reimburses  directors  for expenses  incurred in connection
with attending  Board meetings but does not pay  directors's  fees or other cash
compensation for services  rendered as a director.  In lieu of fees, the Company
grants to each non-employee director options to purchase 37,500 shares of Common
Stock upon first  becoming a director and for each year of service  successfully
completed,  under a stock option plan as approved by a shareholder  vote in 1996
and the 1998 Plan which allows an unspecified number of options to be awarded to
directors. Options are issued at the time of the Annual Shareholders Meeting and
vest over the next 12-month period.

     Mr. Schieber was issued annual options for the purchase of 37,500 shares of
the Company's Common Stock in April, 1996, May, 1997, and May, 1998, at exercise
prices of  $1.4375*,  $0.60**  and  $2.1875,  respectively.  Mr. Holt was issued
options to purchase 37,500 shares of the Company's  Common Stock upon becoming a
director in 1996 and issued annual  options for the purchase of 37,500 shares of
the Company's  Common Stock in April 1996, May, 1997, and May, 1998, at exercise
prices of $1.4375*, $0.60**, and $2.1875,  respectively.  Mr. Carlson was issued
options to purchase 37,500 shares of the Company's  Common Stock upon becoming a
director in 1997 and issued annual  options for the purchase of 37,500 shares of
the Company's  Common Stock in May, 1997,  and May, 1998, at exercise  prices of
$0.60** and $2.1875,  respectively.  Subsequent to the 1998 year end, Mr. Knight
was issued options to purchase 37,500 shares of the Company's  Common Stock upon
becoming a director in February 1999 at the exercise price of $5.50.

-----------------------------------------------------------------------------
*       Repriced 2/13/97 from $4.75 (vesting schedule)
**      Repriced 2/23/98 from $1.00
-----------------------------------------------------------------------------

        During the early part of fiscal 1998,  the market price of the Company's
Common Stock remained depressed due, in part, to regulatory delays,  including a
delay in the approval of E-SAT's LEO satellite license application. As a result,
the Board of Directors  voted to reprice  certain  stock  options in February of
1998,  which were held by non-employee  directors.  The repricing was done in an
effort  to  retain  the  Company's  quality  outside  directors  who had  lost a
significant  portion of their  financial  interest in the Company  because their
options were "out of the money." In February  1998,  the Company  completed this
stock option repricing program for the Company's non-employee directors in which
stock  options for 150,000  shares of Common  Stock,  originally  issued with an
exercise price of $1.00 per share, were reissued with an exercise price of $0.60
per share, which approximated the fair market value on the date of repricing.
The Company maintained the original vesting schedules.


<PAGE>25



            ITEM 11.     SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
                         MANAGEMENT

Principal Stockholders

        The following table set forth certain  information as of March 19, 1999,
with respect to the beneficial  ownership of the Company's  Common Stock for (i)
each  director,  (ii) all directors and officers of the Company as a group,  and
(iii) each person known to the Company to own beneficially  five percent (5%) or
more of the outstanding shares of the Company's Common Stock.

<TABLE>

<S>                                             <C>                      <C>    


Name and Address of                                 Beneficially and
Beneficial Owner                                     Record Owned(1)      Percent of Class
------------------------------------------------ ------------------------ -----------------------

Fred W. Thompson                                        868,267(2)                 8.3%
100 Shoreline Highway, Suite 190A
Mill Valley, CA 94941


Michael T. Schieber                                     353,989(3)                 3.5%
100 Shoreline Highway, Suite 190A
Mill Valley, CA 94941


E.A. James Peretti                                      425,000(4)                 4.0%
100 Shoreline Highway, Suite 190A
Mill Valley, CA 94941


H. Tate Holt                                            156,379(5)                 1.5%
100 Shoreline Highway, Suite 190A
Mill Valley, CA 94941


Jerome W. Carlson                                       106,250(6)                 1.0%
100 Shoreline Highway, Suite 190A
Mill Valley, CA 94941


                                                        37,500(7)                  0.4%
Jessie J. Knight

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


Officers and Directors as a Group (6 persons)           _________                  _____

                                                        1,947,385                  17.2%  *



                                                       2,000,000(8)                18%
Astoria Capital Partners, L.P.

6600 Southwest 92nd Street, Suite 370

Portland, OR 97223


 
Microcap Partners, L.P.                                 500,000(8)                  4.8%
6600 Southwest 92nd Street, Suite 370
Portland, OR 97223

</TABLE>


*    Total percentage amount does not reflect rounding of individual ownership 
percentages.


<PAGE>26



        (1) The persons named in the table have sole voting or investment  power
        with respect to all of the Common Stock shown as  beneficially  owned by
        them,  subject  to  community  property  laws where  applicable  and the
        information contained in the footnotes to this table.

        (2) Includes (i) 15,418 shares held by Mr. Thompson; (ii) 474,558 shares
        held in Thompson 1996  Revocable  Trusts;  and (iii) options to purchase
        312,500 shares at $0.531 per share  expiring  January 1, 2006, and 4,125
        and 61,666  shares of Common Stock  exercisable  at $0.584 per share and
        expiring December 31, 2000 and December 31, 2002, respectively.

        (3)  Includes  (i)  215,625  shares held  jointly  with  spouse,  Arlene
        Schieber,  (ii)  6,505 held  solely by Mr.  Schieber,  (iii)  3,075 held
        solely  by  Ms.  Schieber,   of  which  shares  Mr.  Schieber  disclaims
        beneficial  ownership,  and (iv) options to purchase 13,750,  12,534 and
        37,500 shares of Common Stock all exercisable at $1.4375 per share which
        expire on February  15,  2005,  February  15,  2006 and April 30,  2006,
        respectively,  and options to  purchase  27,500  shares of Common  Stock
        exercisable at $0.60 per share which expire May 13, 2007, and options to
        purchase  37,500  shares of Common Stock at $2.1875  which expire on May
        12, 2008.

        (4)  Options  to  purchase  375,000  and 50,000  shares of Common  Stock
        exercisable  at $0.531  per  share,  and  expiring  January  1, 2006 and
        December 31, 2007, respectively.

        (5) Includes (i) 21,488 shares held solely by Mr. Holt, and (ii) options
        to purchase  7,808 and 75,000 shares of Common Stock all  exercisable at
        $1.4375 per share which  expire  December  31, 2006 and April 30,  2006,
        respectively,  and options to  purchase  20,833  shares of Common  Stock
        exercisable at $0.60 per share which expire May 13, 2007, and options to
        purchase 37,500 shares of Common Stock at $2.1875 per share which expire
        May 12, 2008.

        (6)  Includes  37,500  shares held by Mr.  Carlson,  options to purchase
        37,500  shares  of Common  Stock  exercisable  at $0.60 per share  which
        expire May 13,  2007,  and options to purchase  37,500  shares of Common
        Stock at $2.1875 per share which expire May 12, 2008.

        (7) Options to purchase 37,500 shares of Common Stock exercisable at 
        $5.50 per share which expire February 19, 2009.

        (8) Of the  shares  of  Common  Stock  beneficially  owned,  one-half  
        represent outstanding  shares of Common Stock held and the  remaining  
        one-half represent shares of Common Stock that may be acquired pursuant 
        to Warrants.

ITEM 12.     CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

        During  1997  and  1998,  the  Company  has  not  been  a  party  to any
transaction, proposed transaction, or series of transactions in which the amount
involved  exceeds  $60,000,  and in which,  to the  knowledge of the Company any
director or executive officer, nominee, five percent beneficial security holder,
or any member of the immediate family of the foregoing persons have or will have
a direct or indirect  material  interest.  Subsequent to December 31, 1998,  the
Company  indemnified  its  president  relating  to a lawsuit  filed  against the
president. (See Item 3, "Legal Proceedings.")

ITEM 13.  EXHIBITS, FINANCIAL STATEMENT SCHEDULES 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 to F-9


Consolidated Statements of Cash Flows                     F-10 to F-11

Notes to Consolidated Financial Statements
                                                          F-12 to F-25


<PAGE>27



Exhibits

        The following  Exhibits are filed with or incorporated by reference into
this report:
<TABLE>
     <S>           <C>    



      *(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, 1992.


      *(3.0)        Certificate of Incorporation, 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.

      *(3.1)        Bylaws,  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.

      *(3.2)        Restated Certificate of Incorporation, as adopted on August 8, 1996.


      *(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.


      *(4.2)        Specimen Stock Certificate.


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

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

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

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

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

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

     *(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.


<PAGE>28


     *(10.27)       DBS Industries, Inc. $1,000,000 Three Year Convertible Debenture, Series A
                    due July 1, 1998.
  
     *(10.30)       DBS Industries, Inc. $640,000 Three Year Convertible Debenture, Series C,
                    due December 31, 1999.

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

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

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

     *(10.34)       1996 Stock Option Plan.

     *(10.36)       1998 Stock Option Plan

     **(10.37)      Memorandum of Understanding Between DBS Industries and Matra Marconi Space.

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

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

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

     ***(10.41)     Employment Agreement between Gregory T. Leger and DBS Industries, Inc.

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

</TABLE>


*        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,  and December 31, 1996.

**        Submitted with this Form 10-KSB.

***       Previously filed with Registration Statement on Form SB-2 filed on 
          Novemeber 30, 1998.

Reports on Form 8-K

        None.



<PAGE>29



                                          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:      April 13, 1999                       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
-------------------------------- ------------------------------- ---------------

/s/ FRED W. THOMPSON             President, Chairman              April 13,1999
---------------------            Principal Executive Officer,
Fred W. Thompson                 Principal Financial Officer

/s/ E.A. JAMES PERETTI           Director                         April 13, 1999
----------------------
E.A. James Peretti

/s/ MICHAEL T. SCHIEBER          Director, Secretary              April 13, 1999
-----------------------
Michael T. Schieber

/s/ JEROME W. CARLSON            Director                         April 13, 1999
----------------------
Jerome W. Carlson

/s/ H. TATE HOLT                 Director                         April 13, 1999
----------------------
H.   Tate Holt

                           
Jessie J. Knight                 Director                          ____________



                                    

<PAGE>F-1




                                REPORT OF INDEPENDENT ACCOUNTANTS



February 5, 1999, except for Note 14,
as to which the date is April 8, 1999


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, 1998 and 1997, and the results of their  operations and their cash flows for
the years then ended and for the period from April 25, 1990 (date of  inception)
to  December  31,  1998,  in  conformity  with  generally  accepted   accounting
principles.  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 generally accepted auditing standards 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 in 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  expressed
above.

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
                                              

<PAGE>F-2



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

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

                                                              December 31,         December 31,
                                                                  1998                 1997
                                                            -----------------    -----------------
                          ASSETS
Current assets:
   Cash and cash equivalents                                     $  1,291,711       $      383,054
   Prepaid and other current assets                                    71,138              119,265
                                                               --------------      ---------------
     Total current assets                                           1,362,849              502,319
                                                               --------------      ---------------

Furniture and equipment (at cost)                                      65,516               73,277
Less accumulated depreciation                                          42,989               47,828
                                                               --------------      ---------------
                                                                       22,527               25,449
                                                               --------------      ---------------
Other assets:
   Investments and advances                                           851,490            1,248,649
   Goodwill, net of accumulated amortization of
     $87,428 and $81,864, respectively                                  3,562                9,126
   Satellite Construction Costs                                     1,272,083                -
                                                               --------------      ---------------
                                                                    2,127,135            1,257,775
                                                               --------------      ---------------
     Total assets                                                $  3,512,511        $   1,785,543
                                                               ==============      ===============
                    LIABILITIES AND STOCKHOLDERS' EQUITY 

Current liabilities:
   Accounts payable                                              $    240,240         $    152,485
   Customer advances                                                  400,000              400,000
   Accrued liabilities                                                489,531              145,019
   Deferred compensation                                               -                   216,000
                                                               --------------      ---------------
     Total current liabilities                                      1,129,771              913,504
                                                               --------------      ---------------

Commitments (Notes 8 and 14)
Stockholders' equity
   Common stock, $0.0004 par value; 20,000,000 shares                             
    authorized; 8,581,117 and 5,882,928 issued and outstanding at        
   December 31, 1998 and 1997, respectively                             3,452                2,373
   Capital in excess of par value                                   8,511,410            4,681,295
   Warrants                                                         1,085,500              112,500
   Deficit accumulated during the development stage                (7,132,622)          (3,839,129)
   Treasury stock (51,562 shares as of December 31, 1998 and      
    1997)                                                             (85,000)             (85,000)
                                                               --------------      ---------------
     Total stockholders' equity                                     2,382,740              872,039
                                                               --------------      ---------------
      Total liabilities and stockholders' equity                 $  3,512,511       $    1,785,543
                                                               ==============       ==============
</TABLE>

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>    
                                                                                            April 25, 1990
                                                                                            (Inception) to
                                                                      December 31,           December 31,

                                                                  1998           1997             1998
                                                                  ----           ----             -----
Revenue                                                       $      -       $      -        $       161,420
                                                              ----------     -----------     -------------
Cost and operating expenses:
   Cost of revenue                                                        -              -           127,580
   General and administrative                                     2,198,701      1,472,162         8,661,689
   Research and development                                         797,147        210,115         2,966,718
                                                               ------------      ---------     -------------
                                                                  2,995,848      1,682,277        11,755,987
                                                                -----------    -----------    --------------
      Loss from operations                                       (2,995,848)    (1,682,277)      (11,594,567)
                                                                 -----------    -----------   --------------

Other income (expense):
   Interest, net                                                     32,421       (308,094)         (709,459)
   Equity in loss of investees, net                                (100,143)       (80,975)         (512,920)
   Gain (loss) on sale of
      investments                                                  (228,323)     5,221,063         5,829,218
   Other, net                                                          -              -              (56,634)
                                                              --------------------------------   ------------
                                                                   (296,045)     4,831,994         4,550,205
                                                                ------------   -----------         ---------


Income (loss) before provision
      for income taxes and minority interests                    (3,291,893)     3,149,717        (7,044,362)
Provisions for income taxes                                           1,600         80,800            96,835
                                                               ------------  -------------   ---------------
   Income (loss) before minority
      interests                                                  (3,293,493)     3,068,917        (7,141,197)
Minority interests in income of
   consolidated subsidiaries                                            -               -              8,575
                                                              ----------------------------------------------
      Net income (loss)                                         $(3,293,493)    $3,068,917      $ (7,132,622)
                                                                ============    ==========      =============

Basic net income (loss) per share                                  $  (0.47)     $  0.527
                                                                 ===========    ==========

Diluted net income (loss) per share                                $  (0.47)      $  0.49
                                                                 ===========    ==========

Weighted average number of shares
of common stocks, basic                                          $6,979,818     $5,863,261
                                                                 ===========    ==========

Weighted average number of shares
of common stocks, diluted                                        $6,979,818     $6,235,144
                                                                 ===========    ==========
</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>


                                                    
                                                                                                         Deficit
                                                    Common Stock                                        Accumulated
                                                   ---------------   Capital in                         During the       Total
                                                             Par     Excess of              Treasury    Development    Stockholders'
                                                    Shares   Value   Par Value    Warrants    Stock       Stage          Equity
                                                    -------  -----   ---------    --------   -------   -------------   -------------

Balance at December 31, 1990, of DBSN as restated
  pursuant to the merger on December 2, 1992       301,000   $ 12    $ 46,375         -         -       $ (219,990)    $  (173,495)

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)       33,1246

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

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


</TABLE>

<PAGE>F-5


                      DBS INDUSTRIES, INC. AND SUBSIDIARIES
                          (A Development Stage Company)
                           CONSOLIDATED STATEMENTS OF
                              STOCKHOLDERS' EQUITY
<TABLE>

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


                                                    
                                                                                                         Deficit
                                                    Common Stock                                        Accumulated
                                                   ---------------   Capital in                         During the       Total
                                                             Par     Excess of              Treasury    Development    Stockholders'
                                                    Shares   Value   Par Value    Warrants    Stock       Stage          Equity
                                                    -------  -----   ---------    --------   -------   -------------   -------------

Redemption of 97,450 common stock warrants on
  October 2, 1992, at $8.00 per share                    -      -      (19,490)          -        -              -        (19,490)
 
Issuance of common stock on 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              133,307     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

Issuance of common stock for cash at $4.00 per
 share(August 1993 through April 1994              102,257     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)
</TABLE>

<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>


                                                    
                                                                                                         Deficit
                                                    Common Stock                                        Accumulated
                                                   ---------------   Capital in                         During the       Total
                                                             Par     Excess of              Treasury    Development    Stockholders'
                                                    Shares   Value   Par Value    Warrants    Stock       Stage          Equity
                                                    -------  -----   ---------    --------   -------   -------------   -------------



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  2,700,559                 (85,000)    (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  2,758,990          -      (85,000)    (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

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 five months ended December 31,
  1995                                                   -      -          -          -            -        (662,877)     (662,877)
                                       
Balance at December 31, 1995                     5,528,039  2,232  3,448,763          -      (85,000)     (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 shares   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 shares   7,605      3      15,207          -           -                -        15,210
  Placement fee associated with January 15 and   
    February 15, 1996, issuances settled through 
    issuance of common stock                       19,821      8      83,891          -           -                -       83,899

</TABLE>



<PAGE>F-7

                      DBS INDUSTRIES, INC. AND SUBSIDIARIES
                          (A Development Stage Company)
                           CONSOLIDATED STATEMENTS OF
                              STOCKHOLDERS' EQUITY

<TABLE>

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


                                                    
                                                                                                         Deficit
                                                    Common Stock                                        Accumulated
                                                   ---------------   Capital in                         During the       Total
                                                             Par     Excess of              Treasury    Development    Stockholders'
                                                    Shares   Value   Par Value    Warrants    Stock       Stage          Equity
                                                    -------  -----   ---------    --------   -------   -------------   -------------


                                                      
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   4,605,026      112,500   (85,000)     (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
                                                  -------   -----    --------      -------     ------     ----------    -----------
</TABLE>



<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>


                                                    
                                                                                                         Deficit
                                                    Common Stock                                        Accumulated
                                                   ---------------   Capital in                         During the       Total
                                                             Par     Excess of              Treasury    Development    Stockholders'
                                                    Shares   Value   Par Value    Warrants    Stock       Stage          Equity
                                                    -------  -----   ---------    --------   -------   -------------   -------------


Balance at December 31, 1997                      5,882,928  2,373   4,681,295     112,500   (85,000)   (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            -        -              -       5,114,173


Common Stock issued upon exercise of options         17,202      6      9,128            -        -              -           9,134
$0.53 per share

Fair value of Common Stock warrants committed to
representing stock issuance costs                                    (973,000)     973,000        -              -               0 

Fair value of options granted in connection with
services rendered                                                     159,000            -        -              -         159,000

Common Stock issued for exercise of options $.60 per
share 10/1/98                                        37,500    15      22,485            -        -              -          22,500

Common Stock returned to investees at $2.00 
 share in October 1998                             (400,000) (160)   (799,840)           -        -              -        (800,000)


Common Stock issued upon exercise of options 
 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


</TABLE>
                                            

<PAGE>F-9


                      DBS INDUSTRIES, INC. AND SUBSIDIARIES
                          (A Development Stage Company)
                           CONSOLIDATED STATEMENTS OF
                              STOCKHOLDERS' EQUITY (CONTINUED)
<TABLE>


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


                                                    
                                                                                                         Deficit
                                                    Common Stock                                        Accumulated
                                                   ---------------   Capital in                         During the       Total
                                                             Par     Excess of              Treasury    Development    Stockholders'
                                                    Shares   Value   Par Value    Warrants    Stock       Stage          Equity
                                                    -------  -----   ---------    --------   -------   -------------   -------------

   

                                                         -      -          -             -         -    (3,293,493)     (3,293,493)
Net loss for the year ended December 31, 1998       

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

Balance at December 31, 1998                      8,581,117  $3,452  $8,511,41   $1,085,500  $(85,000)  $(7,132,622)     $2,382,740
                                                  ========= ======= ==========   ========== ==========  ============     ==========
</TABLE>



<PAGE>F-10


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


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

                                                                                   April 25, 1990
                                                       Year Ended                  (Inception) to
                                                      December 31,                   December 31
                                                      ------------                   -----------
                                                 1998              1997                  1998
                                                 ----              ----                  ----
Reconciliation of net income 
 (loss) to net cash used in 
 operating activities:
     Net income (loss)                       $(3,293,493)         $3,068,917            $(7,132,622)
Adjustments to reconcile net income (loss)
to net cash used in operating activities:
     Depreciation and amortization                73,122             126,989                431,256
     Minority interest's share of net loss             -                   -                 (8,575)
     Noncash charges                             573,999              76,293              1,084,545
     Equity in loss of investees, net            100,143              80,875                529,972
     Loss (gain) on sale of investments          228,323          (5,221,063)            (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                48,127            (50,320)                (51,934)
     Increase (decrease) in accounts payable
       and accrued liabilities                  (108,264)        (1,053,843)                405,240
     Increase in customer advances                                         -                400,000
                                        -------------------    --------------------   -------------

Net cash used in operating activities         (2,161,111)         (2,972,153)            (9,947,404)
Cash flows from investing activities:
   Proceeds from sale of investment              199,940                   -              1,099,940
   Proceeds from Loral settlement                      -           3,573,677              3,573,677
   Purchase of fixed assets                       (5,523)                  -               (111,047)
   Satelite construction payments             (1,272,083)                  -             (1,272,083)               
   Organization costs                                  -                   -                (28,526)
   Advances to officer                                 -                   -                (31,187)
   Purchase of interest in Continental                                     -             (2,292,409)
   Investments and advances                     (407,292)            309,888             (1,208,726)
   Net assets of purchased subsidiaries                -                   -               (147,500)
   Cash transferred from Fi-Tek IV, Inc.
     pursuant to the merger and reorganization
   Cash of divested subsidiary                         -                   -                156,648
   Purchase of patents                                 -                   -                   (277)
   Proceeds from repayment of advances to              -                   -                (18,251)
   affiliate                                           -                   -
   Restricted cash on credit line                                                           152,500
Net cash provided by (used in) investing               -             300,000                300,000
                                               ----------        -----------           ------------
activities
                                             ($1,484,958)         $4,183,565              $ 172,759
                                               ----------         ----------            -----------

</TABLE>


<PAGE>F-11


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

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

                                                                                   April 25, 1990
                                                       Year Ended                  (Inception) to
                                                      December 31,                   December 31
                                                      ------------                   -----------
                                                 1998              1997                  1998
                                                 ----              ----                  ----
                                                                                
Cash flows from financing activities:
   Repayment of borrowing under credit line         -             (295,000)            (300,000)
   Issuance of debentures                           -              107,501            4,817,501
   Issuance of common stock                 4,997,226                    -            8,150,742
   Redemption of common stock warrants              -                    -              (19,490)
   Stock issue costs                         (442,500)                   -             (499,735)
   Purchase of shares                                -                   -               (5,000)
   Payment of debentures                             -           (1,043,445)         (1,168,445)
   Proceeds from stockholders' loans                 -              149,750             442,750
   Payment of stockholders' loans                    -             (149,750)           (351,967)
                                           -------------- ------------------         ------------
Net cash provided by (used in) financing
activities                                  4,554,726            (1,230,994)          11,066,356
                                            -------------      -------------           ------------
Net increase (decrease) in cash               908,657               (19,534)           1,291,711
Cash and cash equivalents, beginning of
 period                                       383,054                402,588                  -
                                          --------------  ------------------           ------------
Cash and cash equivalents, end of period  $ 1,291,711                383,054         $ 1,291,711        
                                          ==============    ================          =============
Supplemental Disclosures of Cash Flow
   information:
   Interest                               $         -         $      11,456          $    57,651
                                          ==============     ===============          =============
   Income taxes                           $     4,265         $       1,600          $    20,220
                                          ==============     ===============          =============


</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)
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



NOTE 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 low earth orbit  satellite  constellation
through its subsidiary Newstar and through proposed licensing  arrangements with
its 20% investor,  E-SAT. 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   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 1999
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 1998,
the Company  raised  approximately  $5 million from the sale of shares of Common
Stock.  During the first quarter of 1999,  the Company raised  approximately  $9
million from warrant exercises and sale of shares of common stock.  However, the
Company will need  substantial  additional  capital,  at least $100 million,  to
construct its proposed E-SAT satellite  constellation.  Such financing is likely
to result in a  significant  dilution  in the equity  interests  of the  current
stockholders. The construction of the first two of the six planned satellites is
required  to  commence  by April  1999  pursuant  to the  terms  of the  Federal
Communications  Commission  (FCC) license granted to E-SAT. As discussed in Note
14,  the  Company  notified  the FCC  that it has  entered  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 is the development of satellite and radio systems for use in automating
the control and distribution of gas and electric power by utility companies.

        The Company's investments in E-SAT Corporation, in which the Company has
an ownership  interest of 20%, are  accounted for using the equity  method.  The
Company's  investment in EchoStar  Communication Inc. (EchoStar) and interest in
Continental  Satellite Corporation were disposed of during 1997 (see Notes 3 and
6) and its interest in Seimac Limited was disposed of during 1998 (see Note 3).

        In January 1998, the Company  created  Newstar  Limited,  a wholly-owned
subsidiary organized under the Laws of the Republic of Bermuda.


<PAGE>F-13


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



NOTE 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. 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 and Amortization

        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.

        Goodwill

        Goodwill is amortized  using the  straight-line  method over five years.
Amortization expense charged to operations for the years ended December 31, 1998
and 1997, was $36,513 and $20,715, 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 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.

<PAGE>F-14


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



        Net Earnings (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 the new 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 to
purchase  2,044,156  shares of common stock with  exercise  prices  ranging from
$0.40 to $5.60 were  outstanding as of December 31, 1998, and were excluded from
the loss per share  calculation  for the year ended  December 31, 1998,  as they
have the effect of decreasing  loss per share.  Options and warrants to purchase
1,418,233  shares of common stock with  exercise  prices from $.40 to $5.60 were
outstanding as of December 31, 1997, and were included in the earnings per share
calculation for the year ended December 31, 1997.

        Recently Issued Accounting Pronouncements

     In March 1997,  SFAS No.  129,  Disclosure  of  Information  About  Capital
Structure,  was issued and has been  implemented  by the Company.  In June 1997,
SFAS No. 130, Reporting Comprehensive Income and SFAS No. 131, Disclosures About
Segments of an Enterprise and Related  Information were issued and are effective
for the year ended December 31, 1998. The Company has not implemented  SFAS Nos.
130 and 131 as their provisions are not applicable to the Company's operations.

        Reclassifications

        Certain prior period  balances have been  reclassified to conform to the
current year's presentation. Such reclassifications had no impact on net loss or
stockholders' equity as previously reported.

NOTE 3.        INVESTMENTS IN AND ADVANCES TO AFFILIATED COMPANIES

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

        Direct Broadcasting Satellite Corporation (DBSC)

        DBSC is one of nine permittees of the Federal Communications  Commission
(FCC) for Direct  Broadcast  Satellite (DBS) services.  As of December 31, 1996,
the Company  owned  approximately  25% of the common stock of DBSC.  The Company
accounted for its investment  using the equity method.  

<PAGE>F-15


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



        On December 21, 1995, DBSC and EchoStar  agreed to a merger,  subject to
government approval.  Under the terms of the merger agreement,  (1) both parties
agreed to merge DBSC into a  wholly-owned  subsidiary of EchoStar,  and (2) DBSC
stockholders  would be  entitled  to receive at their  option,  $7.99 in cash or
 .67417  shares of EchoStar  common stock for each of the 973,148 DBSC shares not
already  owned by  EchoStar.  At December 31, 1996,  the Company  owned  401,107
shares of the common stock of DBSC.  The  requisite  government  approvals  were
obtained and the merger consummated on January 8, 1997. On January 23, 1997, the
Company elected to exchange all of its 401,107 DBSC shares for 270,414 shares of
EchoStar  common  stock  which was  valued at $25.00  per share as of January 8,
1997, the effective date of the merger. In connection with this transaction, the
Company  recorded a gain of  approximately  $6.2 million in its first quarter of
1997.

     On August 29,  1997,  the Company  transferred  the 270,414  shares back to
EchoStar in exchange for the  retirement of certain  debentures and recognized a
loss on such  transfer  of  approximately  $2.3  million due to a decline in the
market value in the EchoStar stock.

        E-SAT Corporation (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 a 20%
interest in E-SAT. The Company's total  investments in E-SAT were $127,265 as of
December 31, 1998 and 1997.  The  investment  is accounted  for using the equity
method. The Company's equity in losses of E-SAT for the years ended December 31,
1998 and 1997, were $134,524 and $66,469, respectively. The equity in losses for
the year ended December 31, 1997 was recorded in December  1997,  when financial
information  became  available.  As of  December  31,  1998,  the  Company had a
receivable of $724,225 from EchoStar which  represents the excess of advances to
date to  E-SAT in  excess  of its  proportionate  20%  share  of its  investee's
financing requirements.

     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.

        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
investment  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 is
being  amortized over a period of five years.  The  amortization  of this excess
book value amounted to $30,949 and $92,851 for the years ended December 31, 1998
and 1997. This investment is accounted for using the equity method.

<PAGE>F-16


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



        For the years ended December 31, 1998 and 1997, the Company has recorded
its  proportionate  share of Seimac  Limited's  net (loss) income of $34,381 and
$(14,506), respectively.

        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.

        Continental Satellite Corporation (Continental)

        On January 12, 1996, the Company entered into a stock purchase agreement
with a third  party (the  Seller) to acquire  72,030  shares of common  stock of
Continental in exchange for approximately  $2,300,000 in cash. A $50,000 advance
was paid to the seller in December  1995.  Continental  has  received one of the
nine DBS licenses awarded by the FCC.

     In connection with this agreement, the Company issued a three-year,  Series
B  convertible  debenture  to  EchoStar  on January 12,  1996,  for  proceeds of
$3,000,000.

        On January 22, 1996,  Loral  Aerospace  Holdings,  Inc.,  a  Continental
common  shareholder (the plaintiff),  filed a complaint in the Superior Court of
the State of California against  Continental and its stockholders  alleging that
the  common  shares  purchased  by  the  Company  were  improperly  issued  and,
therefore,  should  be  voided.  On May 16,  1996,  the  Court  ruled  that  the
Continental shares were invalidly issued. However, the Court also ruled that the
Company was not without  equitable remedy and allowed the Company to commence an
action against Loral.

        On April 21, 1997,  the Superior Court of Santa Clara County awarded the
Company damages of approximately $4.1 million,  plus 50 percent annual interest.
On August 17,  1997,  the  Company and Loral  formally  completed  an  agreement
wherein the Company received a cash payment of  approximately  $3.5 million from
Loral in exchange for dismissals of appeals by both parties.

        The agreement provides that the Company return the Continental stock the
Company acquired,  that the Company  acknowledge that all Continental stock held
by the Company  owned is invalid,  and that the Company has no  objection to the
cancellation of that stock by Continental. The parties to the agreement released
one another from all present or future  claims  connected  with the  allegations
related to the action which give rise to the agreement.

        The excess of the settlement  payment over the Company's  carrying value
for its interest in  Continental  of $1.2 million was recorded as a gain on sale
of investment for the year ended December 31, 1997.

NOTE 4.        SATELLITE CONSTRUCTION COSTS

     On December 15, 1998, the Company and Alcatel Space Industries  ("Alcatel")
entered into a Memorandum of Understanding  and authorization to proceed ("MOU")
pursuant to which Alcatel would become the General

<PAGE>F-17


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



Contractor for the design,  construction  and launch  services for the Company's
planned low earth orbit  satellites.  The Company and Alcatel are  negotiating a
definitive  agreement.  Upon  signing of the MOU,  the Company made a $1 million
advance payment to Alcatel (See Note 14).

     During the  construction  of the E-SAT System,  the Company is capitalizing
all  contruction  costs.  Included in Satellite  contruction  are  approximately
$270,000 in engineering  and other costs incurred in connection  with the design
of the satellites and the $1 million advance to Alcatel for design services.

NOTE 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 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 due to the Company's  limited access to
the Argos System.  The $400,000 in milestone  payments  received are reported as
customer advances on the accompanying  balance sheet.  These milestone  payments
could be subject to refund in whole or in part.

NOTE 6.        LINE OF CREDIT

        The Company  maintained a $300,000 line of credit with a bank.  The line
was  collateralized  by a $300,000  certificate  of deposit.  As of December 31,
1996,  the Company had  outstanding  borrowings  of $295,000  under this line of
credit.  As of  December  31,  1997,  $295,000  had been  repaid  and the credit
facility was discontinued.

NOTE 7.        CONVERTIBLE DEBENTURES

     On July 1, 1995, the Company issued Convertible  Debenture 1995 Series A to
EchoStar, the majority shareholder of E-SAT, and received $1,000,000 in proceeds
in August 1995.  Interest on the debt  accrued,  and was  payable,  quarterly at
prime plus 2% for a period of three years. As collateral for the loan,  EchoStar
held a security interest in 125,000 shares of DBSC common stock and 2,000 shares
of E-SAT common stock held by the Company.

        On  January  12,  1996,  the  Company  issued  a  three-year   Series  B
Convertible  Debenture to EchoStar for proceeds of  $3,000,000.  Interest  terms
were similar to those of the Series A Convertible  Debenture discussed above. As
collateral  for the loan,  EchoStar had a security  interest in 72,030 shares of
common stock of  Continental  and 200,000 shares of common stock of DBSC held by
the Company.

        On  December  5,  1996,  the  Company  issued  a  three-year   Series  C
Convertible Debenture to EchoStar for proceeds of $640,000.  Interest terms were
similar to those of the Series A  Convertible  Debentures  discussed  above.  As
collateral  for the loan,  EchoStar  held a security  interest in the  remaining
76,107 shares of common stock of DBSC held by the Company.



<PAGE>F-18


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



     On August 29, 1997,  the Company  completed an agreement  with  EchoStar to
retire  three  convertible  debentures,  Series A,  Series B, and Series C, with
accrued  interest of $722,811 and certain legal fees and other expenses  related
to the  transaction.  In exchange for  EchoStar's  retirement  of the debt,  the
Company  transferred  back to EchoStar 270,414 shares of EchoStar Class A common
stock and made a cash payment of approximately $936,000 from the proceeds of its
settlement  with Loral (Note 3). The value of the EchoStar shares was determined
based on a per share price of $16.57 which  represented the closing bid price on
August  27,  1997,  the date the  parties  initially  agreed to the terms of the
transaction.

NOTE 8.        COMMITMENTS

        Operating Leases

        The Company and its  wholly-owned  subsidiaries  lease their facilities
under noncancelable  operating leases which run concurrently and expire in March
2000. Minimum future rental payments under the leases, are as follows:


    Year Ending December 31,
  -----------------------------
              1999                              102,891
              2000                               17,149
                                           ------------
                                            $   120,040
                                           ============

        Total rent expense was $82,615 and $66,592 for the years ended  December
31, 1998 and 1997, respectively.

        Other

        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.

        In July 1998, the Company agreed to a severance  package with one of its
former  employees which consists of $125,000 in cash payments to be made through
July  1999 and the  acceleration  of  vesting  of all of the  former  employee's
unvested options.

         Refer to Note 14 for certain contract commitments.

<PAGE>F-19


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



NOTE 9.        STOCKHOLDERS' EQUITY

        Common Stock

        The  Company's  Certificate  of  Incorporation,  as amended in May 1997,
authorizes the issuance of 20,000,000 shares of common stock with a par value of
$.0004 per share. Each record holder of common stock is entitled to one vote for
each share held on all matters properly  submitted to the stockholders for their
vote.  Cumulative  voting for the election of directors is not  permitted by the
Certificate of Incorporation.

        Preferred Stock

        The  Company's  Certificate  of  Incorporation,  as amended in May 1997,
authorizes the issuance of 5,000,000 shares of preferred stock with par value of
$.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.  No preferred  stock has been issued by the
Company as of December 31, 1998.

        Equity Transactions With Non-Employees

        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 at an exercise
price of $1.44.  These  warrants  were  issued  for  services  rendered  and are
exercisable  through  January  2006.  As of  December  31,  1997,  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.

        In April 1998, the Company  granted  options to two consulting  firms to
purchase  400,000 and 300,000 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.

        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


<PAGE>F-20


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


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.

        Under the terms of the above stock offering, the Company registered such
shares and warrants in December 1998.

        Equity Transactions With Employees

        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.
Provisions of the 1996 and 1998 Plans are substantially  similar to those of the
earlier plans.  The overall purpose of the 1996 and 1998 Plans is to advance the
long-term  interest of the Company by motivating  its  employees,  directors and
consultants with the opportunity to obtain an equity interest in the Company and
to attract  and retain  such  persons  upon whose  judgments  the success of the
Company largely depends.

        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% and 85% of the fair  market  value of the  common  stock on the date of the
grant of incentive stock options and nonstatutory  stock options,  respectively.
The options granted under the 1996 and 1998 Plans are exercisable over a maximum
term of ten years from the date of 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 and 1998  Plans are  subject to
various restrictions as to resale.



<PAGE>F-21



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



        Information  with  respect to  activity  under  these plans is set forth
below:

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


                                                   Outstanding Options and Warrants
                                                                                           Weighted 
                                                                                            Average 
                                         Number of       Price Per          Aggregate       Exercise 
                                           Shares          Share              Price           Price
                                      -------------    ------------      ------------     ---------
Balance, December 31, 1996                1,180,116     $0.40-$6.00         5,793,591          4.91

Granted                                   1,373,843     $0.53-$1.44           980,835          0.71
Exercised                                         -               -                 -             -
Terminated                               (1,135,726)    $0.40-$6.00        (5,502,778)         4.83
                                       -------------                    --------------
Balance, December 31, 1997                1,418,233     $0.40-$5.60         1,271,648          0.90

Granted                                     787,500    $0.53-$2.19            614,380          0.78
Exercised                                  (161,577)   $0.53-$1.44            (99,722)         0.617
Terminated                                       -               -                  -              -
                                     ---------------                     -------------
Balance, December 31, 1998                2,044,156    $0.40-$5.60       $  1,786,306          0.87
                                        ===========                      =============
</TABLE>

        The following table summarizes information with respect to stock options
and warrants outstanding at December 31, 1998:

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


         Options and Warrants Outstanding      Options and Warrants Exercisable
         ----------------------------------    --------------------------------


                               Weighted Average
                                  Remaining          Weighted           Weighted        Average 
   Range of         Number     Contractual Life  Average Exercise        Number         Exercise 
Exercise Price   Outstanding       (years)             Price           Exercisable       Price
--------------  ------------  ----------------- -------------------   -------------     ----------
 
  $0.53-$1.44     1,856,372        7.76                $0.65            1,379,140          $0.69
  $1.60-$2.80       149,375        8.44                $2.24              105,797           2.26
  $3.00-$5.60        38,409        7.06                $5.23               38,409           5.23
                  ----------                                          ------------

                  2,044,156                                            1,523,346
                 ==========                                           ===========
</TABLE>


     The following  information  concerning the Company's  stock option plans is
provided in accordance with Statement of Financial Accounting Standards No. 123,
Accounting for Stock-Based Compensation (SFAS No. 123). The Company accounts for
such plans in accordance with APB No. 25 and related interpretations.

        The weighted  average fair value of the options and warrants  granted or
modified  for the years  ended  December  31,  1997 and 1998 was $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:

<PAGE>F-22

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





                                    1998           1997
                                -----------     -----------

Risk free interest rate            5.7%             5.7%
Expected life                      7.3 years       8.2 years
Volatility                          227%             80%
Dividend yield                       -                -

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

                                            December 31,          December 31,
                                                1997                  1998
                                          -----------------    ----------------
 
Net income (loss)        As Reported      $(3,293,493)           $3,068,917 
                         Pro forma        $(3,713,942)           $1,793,791  

Net income (loss)        As Reported           $(0.47)                $0.49 
per share                Pro forma             $(0.53)                $0.29    


        In February 1997, the Company completed a stock option repricing program
in which 1,119,646 stock options, originally issued with exercise prices ranging
from $1.60 to $6.00 per share, were reissued with an exercise price of $1.44 per
share, which approximated fair market value.

        In December 1997, the Company  completed a second voluntary stock option
repricing  program in which  approximately  1,135,726 stock options,  originally
issued with an exercise  price of $1.44 per share were  reissued  with  exercise
prices  ranging  from  $0.53 to $0.58 per  share.  These  repriced  options  are
generally exercisable over four years and the Company has maintained the vesting
schedule from the original grants.

NOTE 10.       RELATED PARTY TRANSACTIONS

        In January 1997,  the Company began to defer payment of a portion of all
future  compensation  of the  Company's  president.  The  deferred  compensation
balance was $216,000 as of December 31, 1997. 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.




<PAGE>F-23



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


        On April 28, 1997, the Company's president provided a bridge loan to the
Company for $47,750  representing  collateral  funds pledged to Pacific Bank for
the Company's bank  overdraft.  As of December 31, 1997, both the bank overdraft
and the bridge loan have been repaid.

        During 1997, the Company borrowed $100,000 under a loan agreement with a
stockholder.  Borrowings under the agreement were unsecured and bore interest at
8% per annum. All borrowings and accrued interest were repaid as of December 31,
1997.

     Refer to Notes 3 and 7 for disclosures regarding related party transactions
with EchoStar.

NOTE 11.       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,
1998 and 1997, is as follows:
<TABLE>
<S>                                          <C>           <C>         <C>            <C>   


                                                      1998                     1997
                                           ------------------------- -------------------------
                                              Federal       State       Federal       State
                                           ------------- ----------- ------------- -----------

Deferred tax assets:
Net operating loss carryforwards              $1,785,000   $ 305,000     $ 706,000   $ 108,000
Research and development credit                                                     
 carryforwards                                   115,000           -        95,000           -
Excess of tax over book basis of investments,                                      
 deferred compensation, and other                 10,000       1,500        12,000       2,000
                                           -------------   ----------- ------------- -----------
Deferred tax assets                            1,910,000     306,500       813,000     110,000
Valuation allowance                           (1,910,000)   (306,500)     (813,000)   (110,000)
                                           -------------   ----------- ------------- -----------

Net deferred tax assets                      $              $       -   $        -   $        -   
                                           =============   ============ ============  ===========
</TABLE>

        Due to the  uncertainty of realization,  a valuation  allowance has been
provided to offset the net deferred tax assets.  The increase  (decrease) in the
valuation  allowance was  approximately  $1,293,500 and ($1,411,000)  during the
years ended December 31, 1998 and 1997,  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, 1998, the Company has net operating  loss  carryforwards
of  approximately  $5,250,000 and $5,000,000 for federal income tax purposes and
California  state  franchise  tax purposes,  respectively.  The Company has also
research and  development  credit  carryforwards  of $115,000 and $0 for federal
income tax purposes and California  state franchise tax purposes,  respectively.
Such carryforwards expire in varying amounts between 1998 and 2018.


<PAGE>F-24


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



        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.

NOTE 12.       RISKS AND UNCERTAINTIES

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

NOTE 13.       SUPPLEMENTAL DISCLOSURES OF NONCASH INVESTING AND FINANCING
               ACTIVITIES

        During the years ended December 31, 1998 and 1997, the following noncash
activities occurred:

        o      In April 1998,  the  Company  granted  options to two  consulting
               firms to purchase  700,000 shares of the Company's  Common Stock.
               The  Company  recorded  a  compensation  charge  of  $159,000  in
               connection with this transaction during 1998.

        o      The Company issued 728,000  warrants to purchase shares of Common
               Stock to certain  individuals for services rendered in connection
               with the placement of the  September  1998 sales of the Company's
               Common  Stock.  These  warrants  were valued at $973,000 and were
               offset against the proceeds.

        o      During 1997,  the Company  issued  55,419 of its shares of Common
               Stock  to  certain  individuals  in  consideration  for  services
               rendered. These shares were valued at $76,293.

        o      On January 23, 1997,  the Company  elected to exchange all of its
               401,107 DBSC shares for 270,414  shares of EchoStar  common stock
               which  were  valued at  approximately  $539,000  and  $6,760,000,
               respectively.

        o      On August 29, 1997, the Company settled all principal and accrued
               interest balances  outstanding  under its convertible debentures,
               in exchange for 270,414 shares of EchoStar common stock
               and a cash payment of approximately $936,000.

NOTE 14.       SUBSEQUENT EVENTS

        In February 1999, the Company issued 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.  Sale of these units 
resulted in gross proceeds to the company of $1.5 million.



<PAGE>F-25


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


        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 issued in connection  with the 2.8 million unit offering
discussed above.

     Under the terms of the MOU signed with Alcatel, the Company made additional
payments  totaling $1 million in January and February 1999. The ATP was extended
to April 15,  1999.  The  Company  and  Alcatel  are  negotiating  a  definitive
agreement.

     On March 31, 1999, the Company  signed  construction  and launch  contracts
with two  European  entities and made advance  payments of $4.4  million.  Total
payments  under such  cancellable  contracts  will amount to  approximately  $47
million through January 2001.

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

     Subsequent to December 31, 1998, the Company solicited stockholder approval
to increase the number of authorized  shares of Common Stock from  20,000,000 to
50,000,000. The requisite stockholder approval was obtained.