DBS Industries Inc – ‘10KSB’ for 12/31/99

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Annual Report — Small Business   —   Form 10-KSB
Filing Table of Contents

Document/Exhibit                   Description                      Pages   Size 

 1: 10KSB       Annual Report -- Small Business                       56    306K 
 2: EX-3.0      Articles of Incorporation/Organization or By-Laws     15     78K 
 3: EX-3.1      Articles of Incorporation/Organization or By-Laws     26    109K 
 4: EX-3.2      Articles of Incorporation/Organization or By-Laws      2      8K 
 5: EX-10.46    Material Contract                                      2     11K 
 6: EX-10.47    Material Contract                                      2     12K 
 7: EX-10.48    Material Contract                                     26     96K 
 8: EX-10.49    Material Contract                                      1     10K 
 9: EX-10.50    Material Contract                                      7     29K 
10: EX-10.51    Material Contract                                     27     96K 
11: EX-10.52    Material Contract                                     27     96K 
12: EX-10.53    Material Contract                                     71    185K 
13: EX-10.54    Material Contract                                     18     62K 
14: EX-27       Financial Data Schedule (Pre-XBRL)                     2      8K 

10KSB   —   Annual Report — Small Business
Document Table of Contents

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

 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, 1999                                     

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 190A    Mill Valley, California      94941         

(Address of principal executive                                  (Zip Code)     
offices)                                                                        

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

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

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

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

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     Indicate by check mark whether the issuer (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Exchange Act during the past 
12 months (or for such shorter period that the issuer was required to file such 
reports), and (2) has been subject to such filing requirements for the past 90  
days.                                                                           

YES    X       NO                                             
------                                                
       Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is contained herein, or will be contained, to the    
best of registrant's knowledge, in definitive proxy or information statements   
incorporated by reference in Part III of this Form 10-KSB or any amendment to   
this Form 10-KSB. [ ]                                                           

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

     As of March 13, 2000, the aggregate market value for the 13,590,331
shares of the common stock, par value $.0004 per share, held by non-affiliates  
was approximately $61,580,508.                                                  

       The number of shares outstanding of registrant's only class of Common
Stock, as of March 13, 1999, was 14,376,187 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 Forms SB-2.                                           

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

Exhibit Index is located at Page 28.                          

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PART I

FORWARD-LOOKING STATEMENTS

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

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

ITEM 1.  BUSINESS                                                               

GENERAL                                                                         

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

       The Company is a Delaware corporation, formed in 1989, with principal
executive offices located in Mill Valley, California. The Company has conducted 
its principal operations from its office in California since completing a share 
exchange reorganization with DBS Network in 1992. Since 1994, our focus has been
to pursue business opportunities in satellite telecommunications. We began this 
pursuit originally by purchasing interests in direct broadcast satellite        
licensees. We had an interest in Direct Broadcast Satellite Corporation that was
subsequently acquired by EchoStar Communications Corporation ("EchoStar"). In   
addition, we held an equitable interest in Continental Satellite Corporation.   
During 1997, we sold our last indirect interest in a direct broadcast satellite 
licensee and agreed to settle litigation involving our equitable interest in    
another direct broadcast satellite licensee.                                    

Prior to our decision to apply for the E-SAT license discussed
below, we were developing hardware and software to enhance data collection      
and transmission for utility companies. In the course of this development, we   
investigated the effectiveness and viability of low-earth-orbit satellites      
for collecting and transmitting data from fixed meters. These satellites are    
often called "Little LEO satellites - "LEO" is shorthand for low-earth-orbit    
satellites, and "Little LEO" is shorthand for low-earth-orbit satellites        
operating in this lower radio band. The success of these tests led us to        
believe that this technology could offer utilities lower data collection        
costs and enhanced energy management through two-way                            

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communications with utility meters.                                             

As a result, we formed E-SAT, Inc., a Colorado corporation, in
partnership with EchoStar and on November 1994 applied for a Federal            
Communications Commission ("FCC") license. On March 31, 1998, the FCC issued    
a license to E-SAT to launch and operate a Little LEO satellite system. (See    
"Regulatory Environment"). Pursuant to the initial formation agreement for      
E-SAT, we hold 20% of the capital stock of E-SAT and EchoStar holds the         
remaining 80%. In July 1999, we executed an agreement to acquire an             
additional 60.1% from EchoStar, to bring our total ownership of E-SAT to        
80.1% (See "Ownership in E-SAT"). This transfer is subject to the approval of   
the FCC.                                                                        

      In addition to E-SAT, we established two other subsidiaries: NewStar
Ltd. and Global Energy Metering Service, Inc.                                   

      -    We formed NewStar Ltd., a Bermuda corporation, in 1998. It is a
   wholly owned subsidiary organized to participate in the
construction, operation and marketing of our system.

 -    We formed Global Energy Metering Service, Inc., a Delaware
              corporation, in 1994. It is a wholly owned subsidiary organized to
           provide us with early market studies and management support for
             the NewStar System design. It is now inactive and does not engage
in any business activity.                           

BUSINESS STRATEGY                                                               

    The key components of our business strategy include the following:

  -    PROVIDING A RELIABLE, WORLDWIDE TWO-WAY DATA COMMUNICATIONS
     NETWORK BASED ON EXISTING TECHNOLOGY. We believe that, by
       incorporating existing and proven technologies such as CDMA
             communications technology and a store-and-forward design into the
          NewStar System and by using six Little LEO satellites in polar
             orbits, we will be able to provide reliable, global, two-way data
          and messaging communications services. The distribution of our
             satellite constellation in polar orbits is designed to provide us
          access to all of the earth's populated land mass approximately
        every hour with each satellite, reducing the potential risks
from the loss or outage of one or more satellites.  

        -    OFFERING A LOW-COST SERVICE. We believe that the NewStar System's
         relatively low cost to design, construct, launch and operate,
      together with lower-powered, relatively inexpensive ground
             transceivers, will allow us to provide data messaging services to
            customers in hard-to-access or remote locations at substantially
       lower rates than competing low-Earth orbit systems. We have
             designed our system specifically for the two-way communication of
           short messages, using fewer satellites than competing near-real
        time low-Earth orbit systems. Our system should utilize less
         complex and less expensive components than those required for
       larger satellite systems designed to carry voice, video and
           high-intensity data traffic. Competing Little LEO systems using
      the older TDMA communications technology will require more
       satellites and more gateway earth stations than the NewStar
           System. Because we have relatively inexpensive satellites and a
              relatively low-cost ground infrastructure, we believe that we will
       be able to offer a more affordable service for our targeted
markets than competing systems.                     

        -    OFFERING A LOW-COST GROUND TRANSCEIVER. Using CDMA communications
             technology and an Application Specific Integrated Circuit ("ASIC"
      technology) is expected to allow us to produce smaller and
             lower-cost ground transceivers than competing systems. We believe
      that our ground transceivers will cost less than competing
            systems' transceivers, providing us with a competitive advantage
in the marketplace.                                 

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

      -    CAPITALIZING ON THE BARRIERS TO ENTRY INTO OUR MARKETPLACE. The
          primary barrier to entry into the Little LEO satellite service
         market in the U.S. is the acquisition of an operating license
          from the FCC. Before the FCC issues any licenses to additional
             entities, it must allocate an additional portion of the frequency
          spectrum for use, which we do not expect to happen in the near
future.                                             

        -    DIRECTLY MARKETING TO LARGE INDUSTRIAL CUSTOMERS AND GOVERNMENTAL
            ENTITIES. We believe that marketing directly to large industrial
            customers and governmental entities will ensure greater customer
            service and support in each geographic region or targeted market
            than will value-added resellers, and will reduce our selling and
              administrative expenses for bringing the NewStar System to market.
              Outside of the U.S., it will also aid us in securing any necessary
local regulatory and other approvals.               

    -    CAPITALIZING ON THE COMMITMENT AND EXPERTISE OF OUR STRATEGIC
              PARTNERS. We have successfully assembled a group of investors whom
             we believe are highly qualified strategic partners. We negotiated
           equity investments totaling $10 million: $5 million by Eurockot
     Launch Services (our launch service provider), and Surrey
          Satellite Technology Limited (our satellite manufacturer); and
     an additional $5 million by Alcatel Space Industries, our
          end-to-end system prime contractor, which is contingent on our
       bringing into effect the prime contract effective date. Due
     to delays in our financing, we did not meet the milestone
 payment necessary to establish the "Effective Date of
  Contract" and, as of March 27, 2000, we continue to be
 overdue on this payment requirement (see "Development
Contract Commitments").                             

MILESTONES ACHIEVED                                                             

 Since our inception, we have achieved the following milestones:

     -    DEVELOPMENT OF THE SYSTEM. We initially conducted research and
            testing to develop our NewStar System design and were successful
           in integrating our satellite transmitter and antenna completely
within a utility meter.                             

 -    COMPLETE PROOF-OF-CONCEPT TRIALS. In 1995, we successfully
              completed our proof-of-concept demonstrations with 36 electric and
natural gas utilities.                              

  -    GRANTING OF FCC LICENSE. On March 31, 1998, E-SAT, Inc. was
       issued a license by the FCC to provide Little LEO satellite
services in the U.S.                                

      -    COMMENCED CONSTRUCTION OF THE SATELLITES. On March 31, 1999, we
              signed a contract with Surrey Satellite Technology Limited for the
              construction of our constellation of six Little LEO satellites. We
              have assigned this contract to our prime contractor, Alcatel Space
Industries.                                         

       -    ENGAGED A LAUNCH SERVICE PROVIDER TO DELIVER OUR SATELLITES INTO
        ORBIT. On March 31, 1999, we signed a contract with Eurockot
              Launch Services GmbH, for two launches. Two launches are currently
              expected to occur in 2002, each for a set of three satellites. The
       total contract price for the two launches is $30.0 million.

         -    ACQUIRED CONTROLLING INTEREST, SUBJECT TO FCC APPROVAL, OF THE FCC
             LICENSE. On July 31, 1999, we signed a contract with EchoStar DBS
           Corporation which will increase our ownership in our subsidiary
            E-Sat, Inc. to 80.1%. EchoStar will have the right to use 20% of
    the NewStar System's communications capacity. (See "Risk
         Factors - Transfer of Control of E-SAT, Inc. to Us is Subject
to FCC Approval").                                  

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        -    ENTERED INTO AN AGREEMENT WITH AN END-TO-END PRIME CONTRACTOR FOR
             THE NEWSTAR SYSTEM. On October 8, 1999, we signed a contract with
           Alcatel Space Industries for the final design, construction and
          delivery to the launch site of six Little LEO satellites. This
      agreement also includes the final design, construction and
              delivery of the ground infrastructure, including the gateway earth
     station, mission center, satellite control center, ground
      communications network and ground-based transceivers to be
        installed into devices, like utility meters. Alcatel is also
             responsible for providing in-orbit testing of the NewStar System.
       The total contract price for the end-to-end system is $88.5
           million. Either party has the right to terminate this agreement
   under certain circumstances. We have paid $2 million in
       construction payments to Alcatel, and have not yet made the
           milestone payment necessary to establish the "Effective Date of
   Contract." (See "Business Strategy" and "Risk Factors -
Development Contract Commitments")                  

  -    NEGOTIATED EQUITY INVESTMENTS IN US BY ALL OF OUR STRATEGIC
           PARTNERS. We negotiated equity investments totaling $10 million
        Alcatel Space Industries (the investment by Alcatel is still
             pending, see "Risk Factors"), Eurockot Launch Services and Surrey
Satellite Technology Limited.                       

         -    ORGANIZED OUR RISK MANAGEMENT THROUGH INSURANCE. On July 14, 1999,
              we engaged Frank Crystal and Co. and its subsidiary, International
            Space Brokers ("ISB"), as our exclusive risk management advisors
     and insurance brokers for both space and ground segments.

TARGET MARKETS                                                                  

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

      Two-way communication capabilities can substantially reduce customer
costs while enabling new customer applications such as initiating remote        
diagnostics and remote turn-on/turn-off of electric meters. This market niche   
represents over a billion potential units worldwide and a multi-billion dollar  
market for DBSI.                                                                

       Our initial focus is on energy meters in remote locations. One of the
Company's target markets is the U.S. 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. Our messaging
services can deliver benefits such as:                                          

    -    The cost to gather data from hard-to-access meters is greatly
             reduced. We expect to charge significantly less than the costs to
            utility companies of sending meter reading personnel out to each
of those difficult to reach locations.              

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

-    Estimated billing is eliminated.                         

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

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

     In the U.S., the emergence of automatic meter reading ("AMR") as an
accepted technology and the deregulation of the utility industry in a number of 
states - forcing utilities to focus on all aspects of cost of service and in    
some cases to compete to retain the meter reading activity - has provided a     
foundation for us to market our services. In the U.S. electric utility market   
alone, there are over 160 million meters, of which over 13 million are in remote
locations.                                                                      

  A significant portion of our potential market for services is in
countries who do not broadly monitor energy consumption. For these countries,   
implementing or expanding coverage of metering is of significant strategic and  
economic benefit, as this is a critical component of implementing the energy    
infrastructure that is important to many forms of foreign investment. By working
with these countries as they develop their services and providing them with a   
low-cost alternative to traditional meter reading methods, we believe we can    
succeed in becoming an integral part of their utility infrastructure.           

     Other significant markets segments for our non-real-time, low-cost,
two-way messaging services include:                                             

      -    PROPANE TANKS: Propane tanks represent another AMR opportunity,
             where metering fuel levels for replenishment benefit customer and
             distributor alike. The distributor enjoys a paradigm shift. Under
        the current approach, customers can be invoiced only on fuel
      delivery. Metering enables monthly billing based on actual
       consumption, which improves the distributor's cash flow and
            creates an opportunity for fuel arbitrage. Since the consumer no
              longer pays upon delivery, the distributor can fill customer tanks
             in the summer, when fuel prices are at their lowest. The consumer
          also avoids more than just the inconvenience of running out of
    fuel; they also reduce the safety issues associated with
re-lighting the pilots on their appliances.         

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

      -    CATHODIC PROTECTION ALERTS: Monitoring for cathodic protection,
   flow control and leakage from gas pipelines--is another
              application requiring periodic data transmission from sensors that
          are generally located in isolated areas. Most of the cathodic,
      flow control and leakage sensors around the world are read
  manually, which is a tedious process--frequently using
        helicopters--for typical pipeline terrain. Given the cost of
             product flowing through the pipeline and the ecological impact of
        a pipeline failure, energy companies are keenly motivated to
              quickly identify the source of the problem. Although the number of
     sensors required per linear mile varies upon the specific
    geography, an average of two sensors per mile is normal.

       -    VENDING MACHINES: Vending machines can use AMR for inventory and
          cash control. By collecting data from each machine on a timely
          basis, distributors can deliver the right product to the right
   machine at the right time, thereby improving sales, the
              productivity of their route personnel, and greatly simplifying the
 cash reconciliation process. While it is important to

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   recognize that most vending machines are not located in
            hard-to-access places, a system that offers both ease-of-use and
           complete geographic coverage offers significant benefits to the
distributor.                                        

        -    ENVIRONMENTAL AND AGRICULTURE: The waste disposal industry, faced
        with an increased public awareness of pollution problems, is
             required by U.S. Federal, state, and local governments to closely
              monitor air and water quality at all waste disposal sites. Reading
            data from these locations and reporting it to both operating and
           regulatory agencies is another service our system is capable of
        performing. In addition, we believe that existing irrigation
              systems can become far more efficient through timely monitoring of
usage data.                                         

      We are currently focusing our efforts on marketing directly to large
industrial customers and governmental entitities rather than through value-added
resellers. We believe this will ensure greater customer service and support in  
each geographic region or targeted market and will reduce our selling and       
administrative expenses for bringing the NewStar System to market. Outside of   
the U.S., it will also aid us in securing any necessary local regulatory and    
other approvals.                                                                

DESCRIPTION OF SYSTEM                                                           

      In response to customer requirements, DBSI developed a technology to
meet the needs of this marketplace. Our system is designed to minimize          
infrastructure investment and maximum spectral efficiency, including (1) a small
constellation of Low Earth Orbiting (LEO) satellites reaching markets beyond    
terrestrial technologies; (2) Code Division Multiple Access (CDMA) technology,  
which has superior noise tolerance and dramatically reduces power requirements  
and cost; (3) store-and-forward communications technology to reduce the number  
of ground stations; and (4) secure internet distribution of data to customers.  

NEWSTAR SYSTEM                                                                  

       The radio terminal unit (RTU) attaches to the customer's meter device
and transmits data to orbiting Low Earth Orbit (LEO) satellites. From these     
LEO's, the data is then transmitted to our Ground Station, which sorts the data 
and transmits the final data files, via the Internet, to our customers.         
Inversely, the two-way service also allows our customers to send instructions,  
messages, and updates to their remote meters.                                   

[GRAPHIC OMITTED] 

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1.       SPACE SEGMENT                                        

The initial constellation to be launched 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, taking about 100 minutes per orbit. 
After the initial three satellites are deployed and become operational, and the 
system is established, an additional three satellites will be deployed in a     
second near-polar orbital plane within FCC guidelines. These Little LEO         
satellites, which will weigh about 110 kg each, will be almost constantly       
illuminated by the sun, thereby significantly reducing battery usage.           
Supplemental battery power will be required only for power load leveling,       
occasional brief eclipse periods and contingencies. Based on the current design,
we estimate that each satellite will operate for a period of five years.        

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

      We are licensed by the FCC to operate from the Earth to Space in the
148.0000 - 148.905 MHz band, from Space to the Earth in the 137.0725 - 137.9275 
MHz band. The communications plan for our system will utilize Direct Sequence   
Spread Spectrum Multiple Access (DS-SSMA) transmission for service and feeder   
links. This modulation technique is designed to allow the communications to     
disseminate between messages and the background noise emanating into space. We  
are the only commercial LEO operator licensed in the U.S. to implement spread   
spectrum CDMA into its communications protocol. CDMA technology reduces the     
power requirement for the ground terminal and provides another competitive      
advantage by its ability to operate within an inherently noisy VHF-band.        

2.       GROUND SEGMENT                                       

        Rather than using traditional "bent pipe" technology, transmitting the
data to a ground station as soon as it is received, the non-real-time nature of 
our market allows us to use a store-and-forward design. That is, our satellites 
are designed to receive the information from terminals on the ground, store it  
in memory and hold all of the data until they pass over a "Gateway Earth        
Station." This allows us to use fewer ground stations, reducing costs and radio 
frequency licensing and coordination requirements. We currently intend to locate
our initial Gateway Earth Station (GES) on Svalbard Island in Spitzbergen,      
Norway, and are evaluating certain sites in Alaska for additional service.      

    The Mission Control Center manages the collection and retrieval of
data. It will interface with the Gateway Earth Station via the Satellite Control
Center, which will provide overall operational control of the satellites. The   
Mission Center location is currently in review; the Satellite Control Center is 
currently planned to be located in the United Kingdom.                          

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

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3.       TERMINAL                                             

         Also on the ground, our remote terminal unit ("RTU" or "terminal") will
connect to a device such as an electric utility meter and allow that device to  
send and receive signals to and from our system. The terminal provides the      
communication link between the meter and our satellites. This particular        
communications link is called the communications "Service Link". A relatively   
low-cost terminal is a key success factor for this business plan. Therefore, we 
will seek to strictly control the development and manufacturing of the terminal.

        The complete terminal will consist of two parts, those being the "Core
Engine" and the "Fixed Asset Interface Module". The Core Engine is principally  
comprised of a "Base Band" and a Radio Frequency section. The base-band section 
utilizes a digital signal processor used to impose the Direct Sequence Spread   
Spectrum CDMA modulation code to the incoming bit stream from the client device.
The Radio Frequency (RF) section is used to convert the base-band signal to the 
carrier frequency allowing the signal to be transmitted via an antenna into     
space within the parameters of the FCC license. The Core Engine will include a  
programmable controller unit. We intend that the Core Engine will be            
standardized and therefore the design and manufacturing of the engine will      
incorporate the cost-saving benefits of "Application Specific Integrated        
Circuitry" (ASIC). This silicon process allows us to manufacture the terminal   
chip sets at the lowest cost to the client. The second component of the terminal
is the Fixed Asset Interface Module (FAIM) that will be optimized for the       
specific application (i.e., electric-meter, vending machine, propane tank, etc.)
and will contain all the application-specific functions required to interface a 
client device with the Core Engine. The FAIM will contain any necessary power   
conditioning components to allow reliable communication between terminal and the
satellites.                                                                     

During 1998, we worked with SAIT Radio Holland SA ("SAIT") to 
perform studies on antennas for the proposed RTU, and to develop and test RTU   
prototypes. Terminal development was included as a cost-plus item under our     
Prime Contract with Alcatel in 1999. We have not yet identified a main          
subcontractor for the engineering, development and provision of hardware and    
software for terminals, or for the manufacture of terminals.                    

4.       PROOF-OF-CONCEPT DEMONSTRATIONS                      

         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.                                                                          

       To test our technology, we integrated the first satellite transmitter
and antenna completely within an electric utility meter and conducted           
proof-of-concept demonstrations with 36 electric and natural gas utilities that 
demonstrated LEO satellite technology as a viable method to collect data from   
hard-to-access locations.                                                       

      GEMS, a wholly owned DBSI subsidiary, was formed in December 1994 to
develop commercial service applications utilizing Little LEO satellite          
technology. We 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. 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 (RTU's) 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").                                                                       

These tests demonstrated the ability of Little LEO satellite  
communications to communicate to electric                                       

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utility meters.                                                                 

5.       IMPORTANCE OF 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 reliable communication systems. This objective   
is harder to achieve with conventional solutions because of numerous wireless   
systems creating more noise in the frequency bands of operation. To minimize    
the impact of noise and interference on the data being transmitted, we are      
implementing Code Division Multiple Access/Direct Sequence Spread Spectrum      
("CDMA/DSSS") modulation techniques. CDMA/DSSS is designed to enable our        
system to provide high functionality in a noisy radio frequency environment     
and achieve those particular data transmission objectives.                      

       With most conventional modulation techniques, energy concentration is
maximized for a narrowband transmission channel. While narrowband solutions opt 
for a single carrier channel, the transmitted signal must be strong enough to be
recognized over the background noise. Therefore, terminals operating in a       
narrowband technique must have relatively high power capability. CDMA/DSSS      
spreads the data signal over the entire band of operations reducing the power   
required by a terminal to transmit data to a satellite. We are presently the    
only commercial Little LEO system licensed in the U.S. to implement CDMA/DSSS in
its communications protocol. We believe CDMA/DSSS is a strategic advantage over 
competing systems to effectively transmit data messages.                        

6.       COST OF SYSTEM                                       

       We expect that the aggregate cost to construct and launch the NewStar
System into commercial service will be approximately $120 million, of which     
approximately $12 million had been spent through 1999.                          

DEVELOPMENT STRATEGY                                                            

        Our development strategy includes aligning ourselves with partners who
have (1) shown expertise in the development and delivery of data telemetry      
systems and services to clients who may operate internationally; (2) are willing
to enter into fixed-cost agreements; and (3) who will demonstrate their         
alignment with and commitment to our project through equity investment.         

    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 our system.                                                      

     On October 8, 1999, we signed a contract with Alcatel for the final
design, construction, and delivery to the launch site of our constellation of   
six LEO satellites, using Surrey Satellite as a subcontractor, and for the final
design, construction and delivery of the ground infrastructure, including the   
gateway earth station, mission center, satellite control center, ground         
communications network, and the ground-based transceivers to be installed into  
fixed assets such as electric utility meters. The total contract price for the  
end-to-end system is $88.5 million. (See "Business Strategy" and "Risk          
Factors - Development Contract Commitments").                                   

       Currently, Alcatel is responsible for the final design, construction,
and delivery to the launch site of our constellation of six LEO satellites,     
using Surrey Satellite as a subcontractor, and for the final design,            
construction and delivery of the system infrastructure, including gateway earth 
station, the ground communications network, the mission control center, and the 
ground transceiver.                                                             

           The Company entered into a launch reservation agreement with Eurocket
Launch Services GmbH ("Eurockot") during 1997. 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                                                                       

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launches. On March 31, 1999, the Company entered into a formal launch service   
contract with Eurockot. The first three satellites, when constructed, are       
expected to be launched on a single Eurockot launch vehicle in 2002.            

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. In July 1999,     
the Company and EchoStar agreed to restructure E-SAT in order to allow the      
Company to acquire an additional 60.1%, to bring its total ownership of E-SAT   
to 80.1%. In this agreement, EchoStar will have a 20% undivided interest in     
the satellite transmission capacity associated with the FCC E-SAT license.      

    This acquisition of a majority interest in E-SAT is subject to FCC
approval as a "change of control." (See "Risk Factors - Transfer of Control     
of E-Sat, Inc. to Us is Subject to FCC Approval").                              

REGULATORY ENVIRONMENT                                                          

1.       U.S.                                                 

      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.                             

      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 intergovernmental            
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 the following      
licensees: 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.                                       

  In order to maintain the validity of the FCC license, E-SAT must
comply at all times with the terms of such FCC license, unless specifically     
waived or modified by the FCC. These terms include, among other things,         
system construction milestones. In order to comply with the milestone           

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requirements of the FCC license, E-SAT was required to commence construction    
of the first two satellites by March 1999 and the remaining four satellites     
by March 2001. On March 31, 1999, we, on E-SAT's behalf, entered into an        
agreement with Surrey Satellite for the construction of the Little LEO          
satellites, and we notified the FCC on April 8, 1999, that we had met the       
first milestone of the license (commencement of satellite construction by       
March, 1999). The FCC has neither confirmed nor denied our assertion. Because   
of the competitive nature of the Little LEO market, the other U.S. licensees    
may challenge in the future our timeliness or ability to meet the conditions    
of the license. If the FCC or any competing licensee is successful in           
challenging the conditions of the license, the FCC license could be             
jeopardized. Further, although we intend to meet future milestone               
requirements, no assurance can be given that these or any other requirements    
and conditions of the FCC license can be met by E-SAT or us. In the event       
that we cannot meet these milestone requirements, and the FCC does not waive    
or modify such requirements, E-SAT will lose the FCC license. Such a loss       
would have an immediate and significant adverse effect on our financial         
position and results of operations. The terms of the FCC license also require   
that construction, launch and operation of the NewStar System be accomplished   
in accordance with the technical specifications set forth in the FCC            
application, as amended, and consistent with the FCC's rules, unless            
specifically waived. During the process of constructing the NewStar System,     
there may be certain modifications to the design set forth in the FCC           
application that may necessitate regulatory approval. No assurance can be       
given that such modifications will be approved by the FCC.                      

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

       In addition, the NewStar System's ground transceiver to be integrated
with the fixed devices must be approved by the FCC in a single authorization    
that, if granted, would apply to all transceivers to be operated in the U.S.    

2.       INTERNATIONAL REGULATIONS                            

     LANDING RIGHTS. In addition to the FCC license for operation of the
NewStar System in the U.S., we will be required to seek certain "landing        
rights" in each country in which our ground transceivers will be located. The   
Company intends to utilize international clients, partners or affiliates in     
each country to obtain such authority. In the event we are unsuccessful in      
obtaining a foreign license in a particular country, we will be able to offer   
only one-way (broadcast from the satellite) NewStar System data and messaging   
services in such country. Depending on the number of proposed ground            
transceivers to be operating in a country, the inability to offer data          
messaging services to such country may materially adversely affect our          
business plan.                                                                  

       INTERNATIONAL TELECOMMUNICATIONS UNION COORDINATION. The E-SAT System
operates in frequencies that are allocated on an international basis under the  
authority of the International Telecommunications Union ("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 coordination with respect to other satellite systems, and in some 
cases, with terrestrial communication systems. The purpose of this coordination 
is to ensure, to the maximum extent feasible, that communication systems will be
able to operate without unacceptable radio frequency interference from other    
communication systems. This process, called "satellite coordination," takes     
place under the auspices of the ITU and is essentially a first come, first      
served process. That is, earlier filings generally establish some priority over 
later filings although the ITU encourages applicants to cooperate to enable as  
many satellite systems as possible to be implemented. While there can be no     
assurance that the NewStar System will successfully complete the international  
coordination process, most countries seek to accommodate satellite              

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systems of other countries and historically, virtually all coordination requests
have been ultimately successful. However, any delays in obtaining international 
satellite coordination would result in delays in our offering messaging services
outside the U.S.                                                                

   No assurance can be given that the FCC or any other international
organization will make any of the above approvals or licenses. (See "Regulatory 
Risks").                                                                        

COMPETITION                                                                     

        Competition in the communications industry is intense, fueled by rapid
and continuous technological advances and alliances between industry            
participants seeking to use such advances on an international scale to capture  
significant market share. At this time, Orbcomm Corp. has a Little LEO in       
operation using TDMA "narrow band" communication protocols and a "bent pipe"    
satellite system using thirty-eight satellites and numerous gateway earth       
stations. In the future, we expect that potential competitors will include other
Little LEO systems, certain geosynchronous or geostationary orbit ("GEO")-based 
systems, certain terrestrial-based communications systems, certain LEO satellite
systems operating above 1GHz (so-called "Big LEO" systems) and various          
medium-earth orbit ("MEO") systems.                                             

 In addition to the license issued to our subsidiary, four other
entities have been licensed by the FCC to provide Little LEO satellite          
services in the U.S., although no other entity has been issued a license to     
use CDMA communication protocols AND "store-and-forward" system designs. In     
1998, the FCC's International Bureau granted licenses to Leo One USA            
Corporation, Final Analysis Communication Services and an additional license    
to Orbcomm Corp. Further in 1998, the FCC granted a license to Volunteers in    
Technical Assistance to transmit health, research and scientific data on a      
delayed basis between developing countries and the U.S.                         

      Based on published reports, other than Orbcomm's existing TDMA based
system, we do not believe that any of the other proposed Little LEO systems will
be commercially operational in the near term. We believe that we hold a         
substantial advantage over these potential competitors by having obtained an FCC
license for the only CDMA based "store-and-forward" Little LEO system in the    
U.S. and by achieving international coordination of our designated frequencies  
through the ITU. Over the course of the next several years, we expect to obtain 
further advantages over these potential competitors by demonstrating that a CDMA
"store-and-forward" system can offer service at lower cost than TDMA based or   
"bent-pipe" systems offered by the competition.                                 

        Plans for Little LEO systems have been announced in Australia, Brazil,
France, Russia, South Korea, Tonga and Uganda, although we believe that, without
additional allocations of spectrum in the U.S., these systems will be unable to 
offer services in the U.S. nor will they be able to coordinate the use of these 
frequencies at the ITU.                                                         

In addition, we believe that we will compete in certain of our
market segments with existing operators and users of certain GEO-based          
systems such as American Mobile and Qualcomm, and companies providing           
services using the Inmarsat system. American Mobile offers SKYCELL mobile       
data services, both satellite only and "dual-mode," i.e., satellite and         
terrestrial, through a public data network that can reach both densely          
populated urban areas and sparsely populated rural areas. In 1998, American     
Mobile acquired Motorola's ARDIS two-way terrestrial-based wireless messaging   
network, which complements American Mobile's existing satellite-based voice     
and data communications services. This allows American Mobile to offer a        
hybrid solution that has the ability, among other things, to serve urban        
areas and to penetrate buildings. Qualcomm designs, manufactures, distributes   
and operates the OmniTRACS(R) Communications System, a                          

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satellite-based, two-way mobile communications and tracking system that provides
messaging, position reporting and other services for transportation companies   
and other mobile and fixed site customers using certain GEO satellites. In      
addition, various companies using the Inmarsat system are providing fishing     
vessel and other marine tracking applications. We believe that the NewStar      
System will have certain advantages over these other systems including worldwide
coverage and lower equipment costs.                                             

        While we do not intend to compete in general with existing and planned
terrestrial-based communications systems, in certain of our market segments we  
believe that we may compete with certain of these systems. SkyTel provides      
messaging services in cities in the U.S. and is using its messaging network to  
provide fixed location services, specifically utility meter reading in urban    
areas. Because of the inherent coverage limitations of a terrestrial-based      
communications system, we believe that the NewStar System will also complement  
these systems, which provide cost-effective services primarily in metropolitan  
areas where subscriber densities justify construction of radio towers. Such     
systems generally do not have sufficient coverage outside metropolitan areas,   
making them less attractive to certain market segments such as the              
"hard-to-access" locations that we target. We believe that the NewStar System   
will present an attractive complement to tower-based services because it can    
provide geographic gap-filler service at affordable costs without the need for  
additional infrastructure investment. The NewStar System's ability to serve as a
geographic gap-filler may be reduced, however, as terrestrial-based             
communications systems expand their coverage.                                   

The Big LEO and MEO systems are expected to provide real time,
uninterrupted service. These systems are designed primarily to provide two-way  
voice services that require larger, more complex satellites than our satellites 
and larger constellations to provide coverage. As a result, the cost of the Big 
LEO and MEO systems is significantly greater than those of the NewStar System.  
However, the marginal cost on a per-message basis of providing services similar 
to those we will offer could be relatively low for a Big LEO or MEO system that 
is unable to sell its capacity for voice services. For example, the satellite   
system operated by Globalstar, L.P. is expected to utilize a multi-billion      
dollar constellation of 48 satellites, as compared with our planned system of 6 
satellites with an expected cost of approximately $120 million.                 

     We may also face competition in the future from companies using new
technologies and new satellite systems. Our business could be adversely affected
if competitors begin operations or existing or new communications service       
providers penetrate our targeted markets. A number of these new technologies,   
even if they are not ultimately successful, could have an adverse effect on our 
future financial condition and results of operations.                           

EMPLOYEES                                                                       

      As of December 31, 1999, the Company had 14 full-time employees. The
Company considers its relationship with its employees to be good.               

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RISK FACTORS

DEVELOPMENT STAGE COMPANY                                                       

        We are a development stage company and as of December 31, 1999, we had
no customers. Although we previously earned revenues through the sale of        
interests in entities which own direct broadcast satellites licenses, we have   
earned no significant operating revenues since our formation. Given our limited 
operating history and lack of revenues, no assurances can be given that we will 
be able to construct and implement the NewStar System, and, if implemented, to  
develop a sufficiently large customer base to be profitable.                    

INCREASING EXPENSES AND LOSSES                                                  

       We expect our operating expenses to significantly increase as the our
system reaches critical stages of development. We recorded operating losses of  
approximately $2,996,000 for 1998 and approximately $6,029,000 for 1999, and do 
not anticipate any revenues during the year 2000. We expect to continue to incur
substantial and increasing operating losses and negative net cash flow until our
system is developed, deployed and operating in a profitable manner.             

NEED FOR FUTURE CAPITAL; ANTICIPATED RESTRICTIVE CONDITIONS                     

       We currently estimate that we will require approximately $120 million
in capital related to the construction and launch costs associated with our     
system. Given the risks in an undertaking of this nature, no assurances can be  
given that actual cash requirements will not exceed our estimates. In           
particular, additional capital, over and above amounts anticipated, will be     
required in the event that we (i) incur unexpected costs in completing the      
NewStar System design or encounter any unexpected technical or regulatory       
difficulties; (ii) incur delays and additional expenses as the result of a      
launch or satellite failure; (iii) are unable to enter into marketing agreements
with third parties or sell our metering services; or (iv) incur any significant 
unanticipated expenses. The occurrence of any such events could adversely affect
the ability to meet our business objectives.                                    

   We anticipate that we will depend almost exclusively on long-term
debt and equity financings to pay for our system. No assurance can be given     
that capital will be available to us to meet development costs or on terms      
acceptable to us. The issuance of additional equity securities by us will       
result in significant dilution of the equity interests of the current           
stockholders. Selling debt securities such as bonds will increase our           
liabilities and future cash commitments. Further it is anticipated that, in     
the event of a significant bond placement, bondholders would require that all   
of our assets, including our ownership interest in E-SAT, serve as security     
for the repayment of the bonds. In the event of a default on such bonds, it     
would be unlikely that there will be any assets remaining to be distributed     
to equity holders. If we are unable to obtain financing sufficient amounts      
necessary to complete our system and on commercially-acceptable terms, our      
business and future success will be adversely affected.                         

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DEVELOPMENT CONTRACT COMMITMENTS                                                

    In order to comply with development milestones required by the FCC
license, we have entered into various development contracts including a         
satellite construction contract and a satellite launch contract. Entering into  
these and other development and service contracts are critical to the overall   
development of the NewStar System. The satellite construction and launch        
contracts require progress payments of approximately $60 million over the next  
12 months. Failure to maintain these contracts would adversely affect our       
ability to construct the NewStar System.                                        

   The contract with our Prime Contractor, Alcatel Space Industries,
required a payment at the end of 1999 of approximately $9.1 million in cash     
and the equivalent of $5 million in common stock. This payment is necessary     
for Alcatel to continue work and trigger an effective date for our full         
system development schedule (the "Effective Date of Contract" or "EDC"). As     
of March 24, 2000, this payment has not been made, and Alcatel therefore has    
the right to consider this contract void. Although Alcatel has                  
verbally indicated that it does not intend to terminate the Prime Contract,     
it therefore has the right to do so. Until EDC, we continue to have a direct    
satellite construction contract with Surrey Satellite Technology Limited. At    
EDC, this contract would be assigned to Alcatel. Any cancellation or            
termination of these contracts could result in loss of the FCC license. (See    
"Risk Factors--Need for Future Capital; Anticipated Restrictive Conditions").   

TECHNOLOGICAL RISKS                                                             

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

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

TRANSFER OF CONTROL OF E-SAT, INC. TO US IS SUBJECT TO FCC APPROVAL             

      E-SAT, Inc. has been granted an FCC license to construct, launch and
operate six Little LEO satellites to provide two-way, low-cost data and         
messaging services in the United States. Currently, we hold a 20% interest in   
E-SAT with EchoStar DBS Corporation ("EchoStar") holding the remaining 80%      
interest. On July 30, 1999, we reached an agreement with EchoStar concerning    
the transfer of control of the E-SAT license from EchoStar to us, subject to    
regulatory approval. We intend to file an application with the FCC for their    
consent to the transfer of control of E-SAT. As part of the application, we     
may be required to demonstrate both technical and financial ability.            
Financial ability consists of funding the construction and launch of two        
satellites and the financial ability to operate the system for one year. We     
do not at this time have the financial ability to complete the transfer of      
control, if such financial ability is required. Assuming FCC approval of such   
transfer of control, we will hold an 80.1% interest in E-SAT, and EchoStar      
will hold the remaining 19.9%. In addition EchoStar will have a 20% undivided   
interest in the satellite transmission capacity associated with the FCC         
license. In the event that we are unable to obtain control of the FCC license   
held by E-SAT, we may be unable to obtain the financing necessary to fulfill    

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our business objectives. (See "Risk Factors - Need for Future Capital;          
Anticipated Restrictive Conditions").                                           

UNSCHEDULED DELAYS                                                              

       Delays and related increases in costs in the construction, launch and
implementation of the NewStar System could result from a variety of causes,     
including: (i) delays encountered in the construction, integration and testing  
of the NewStar System; (ii) launch delays or failures; (iii) delays caused by   
design reviews in the event of a launch vehicle failure or a loss of satellites 
or other events beyond our control; (iv) further modification of the design of  
all or a portion of the NewStar System in the event of, among other things,     
technical difficulties or changes in regulatory requirements; (v) our failure to
enter into agreements with marketing providers at the times or on the terms     
expected; and (vi) the failure to develop or acquire effective applications for 
use with the NewStar System. There can be no assurance that the Little LEO      
satellites or the data and messaging services of the NewStar System will be     
available on a timely basis, or at all. A significant delay in the completion of
the NewStar System could erode our competitive position, could result in        
cancellation of the FCC license, and could have a material adverse effect on our
financial condition and results of operations. (See "Risk Factors - Regulatory  
Risks").                                                                        

LAUNCH RISKS                                                                    

     Satellite launches are subject to considerable risks, including the
possible failure of the launch vehicle, which may result in the loss or         
damage to the satellite or its deployment into an incorrect or unusable         
orbit. Furthermore, each launch is expected to carry three Little LEO           
satellites. Consequently, an unsuccessful launch could adversely affect         
one-half of our planned satellite constellation. We will be obtaining           
insurance to cover our exposure to loss in this area, but there is no           
assurance that the insurance will cover all incidents. (See "Risk Factors -     
Limited Insurance").                                                            

       We have entered into a launch services agreement with Eurockot Launch
Services GmbH, Breman, Germany ("Eurockot") providing for two payload launches  
from a launch site in Plesetzk, Russia during specified periods. Eurockot has   
limited experience in launching commercial satellites. Further, it is           
anticipated that any launch must be approved by a governmental agency of the    
Russian Federation. No assurance can be given that the launches will be approved
by the Russian Federation or such launches will take place as planned.          

POTENTIAL SATELLITE MALFUNCTION                                                 

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

LIMITED INSURANCE                                                               

         We expect to obtain launch insurance for each of our satellite launches
and have engaged Frank Crystal & Co. and its subsidiary, International Space    
Brokers, Inc., Washington, D.C., to provide risk management counsel and         
insurance coverage for our planned Little LEO satellite constellation. This     
insurance would, in the event of a launch failure, provide funds for replacement
launch satellites. In addition, we expect to obtain satellite replacement       
insurance, which would provide funds for rebuilding satellites damaged in       
construction, shipment or launch. In the event a covered loss occurs prior to   
the next event that would be                                                    

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subject to any such policy, we will need to satisfy the insurance underwriters  
that the technological or other problems associated with the covered loss have  
been addressed. The launch and replacement insurance marketplace is volatile and
no assurance can be given that launch or replacement insurance, or both, will be
available to us, or if available, will be available on terms acceptable to us.  
We will continue to evaluate the insurance marketplace to determine the level of
risk we are willing and able to absorb internally versus the amount of risk to  
be transferred to third parties.                                                

REGULATORY RISKS                                                                

  The Company's business is subject to both U.S. and international
regulations and licensing. The E-SAT license has several milestone conditions,  
including (1) the completion of construction of the first two satellites by     
March 2002 and the launch of those satellites by September 2002, and (2) the    
construction and launch of the remaining four satellites by March 2004.         
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 full services in such countries,   
which would adversely affect the Company's anticipated results of operation. In 
addition, if the FCC fails to approve our application for consent to transfer   
control of the FCC license or if other technological or financial difficulties  
arise, we may be unable to meet our obligations under our construction and      
launch agreements. Any cancellation or termination of these contracts could     
result in loss of one or more license. (See "Regulatory Environment").          

UTILITY INDUSTRY ACCEPTANCE                                                     

Our success is largely dependent on whether utility and other 
related companies will contract for services utilizing the NewStar System.      
Although we have other proposed uses for the data messaging services, utility   
companies, such as gas, electrical and water utility companies, remain the      
primary focus of our marketing and development efforts. Although we have        
demonstrated the ability of Little LEO satellites to read data from ground      
transceivers located in meters in proof-of-concept trials with utility          
companies, no assurance can be given that we will be successful in completing   
the development and commercial implementation of automatic meter reading        
("AMR") using the NewStar System. We must complete a number of technical        
developments and continue to expand and upgrade NewStar's System capabilities   
prior to implementing our AMR services on a full commercial basis. Utility      
companies typically go through numerous steps before making final decisions     
which can take up to several years to complete.                                 

Further, AMR utilizing satellite data messaging services is a 
relatively new and evolving business. It is difficult to predict the future     
growth of the market or the potential size of the market. Utility companies are 
testing products from a number of entities developing various communication     
technologies. The use of the NewStar System is but one possible solution for    
hard-to-access meter sites. No assurances can be given that we will be          
successful in achieving the adoption of the NewStar System or to what extent    
utilities will employ it. In the event that utility companies do not adopt our  
technology, or do so less rapidly than expected, our future results, including  
our ability to achieve profitability, will be materially and adversely affected.

The development of low-cost ground transceivers to collect and
transmit data from fixed devices such as meters will be important in the        
development of a broad utility market for NewStar's data messaging services.    
Ground transceivers must be manufactured and operated at a low cost in order    
to make NewStar's data messaging services attractive to commercial users. It    
is expected that the cost of ground transceivers will decline as the volume     
of units produced increases. We believe that we can develop a low-cost ground   
transceiver which requires less power to operate and will be attractive to      
utility and other companies that may be interested in NewStar's data            
messaging services. However, there can be no assurance that ground              
transceivers can be developed at a cost and with the capabilities that will     
attract a large enough commercial subscriber base for us to achieve             
profitability.                                                                  

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RELIANCE ON VENDORS AND CONSULTANTS                                             

        We have relied on and will continue to rely on vendors and consultants
that are not our employees to complete the design, construction and             
implementation of the NewStar System, to market its data messaging services and 
for representation on regulatory issues. While we believe that vendors and      
consultants will continue to provide the expertise necessary to complete the    
design and construction of the NewStar System, there can be no assurance that   
such vendors and consultants will be available in the future, and if available, 
will be available on terms deemed acceptable to us.                             

      In addition, we rely and will continue to rely on outside parties to
manufacture parts and equipment for the NewStar System such as meters,          
transceivers, antennas, and other Little LEO satellite related devices. No      
assurances can be given that these manufacturers will be able to meet our needs 
in a satisfactory and timely manner or that we will be able to obtain additional
manufacturers when and if necessary. A significant price increase, a quality    
control problem, an interruption in supply or other difficulties with third     
party manufacturers could have a material adverse effect on our plan of         
business. Further, the failure of third parties to deliver the requisite        
products, components, necessary parts or equipment on schedule, or the failure  
of third parties to perform at expected levels, could delay our deployment of   
the NewStar System. Any such delay or increased costs could have a material     
adverse effect on our business.                                                 

DEVELOPMENT OF BUSINESS AND MANAGEMENT GROWTH; KEY PERSONNEL                    

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

      Our performance is substantially dependent on the performance of our
executive officers and key personnel and on our ability to retain and motivate  
high-quality personnel. The loss of any of our key personnel, particularly Fred 
W. Thompson, President, could have a material adverse effect on our business,   
financial condition, and operating results.                                     

COMPETITION                                                                     

        We will encounter competition from other Little LEO satellite systems,
as well as from an increasingly competitive terrestrial-based communications    
industry. The market for collection and transmission of data from fixed devices 
such as meters and the potential market for other applications of data messaging
services have led to substantial and increasing competition. Many of our present
and future competitors using Little LEO satellites have begun to address        
collecting and transmitting data from the fixed devices for the utility industry
and vending machine industry and have substantially greater (i) financial,      
marketing, technical and manufacturing resources; (ii) name recognition; and    
(iii) experience than we do. Such competitors may be able to respond more       
quickly to new or emerging advancements in the industry and to devote greater   
resources to the development, promotion and sale of their products and services.
While we believe that our technology is competitive and that the NewStar System 
has been designed to provide a data transmission service at a cost lower than   
our competitors' systems, no assurances can be given that such competitors, in  
the future, will not succeed in developing better or more cost-effective data   
transmission systems.                                                           

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   In addition, current and potential competitors may make strategic
acquisitions or establish cooperative relationships among themselves or with    
third parties that could increase their ability to reach commercial customers or
subscribers of data messaging services. Further, terrestrial-based wireless     
communication systems are providing data messaging services to the utility      
industry. Such existing and future competition could affect our ability to form 
and maintain agreements with utility companies and other customers. No          
assurances can be given that we will be able to compete successfully against    
current and future competitors, and any failure to do so would have a material  
adverse effect on our business.                                                 

PENNY STOCK REGULATIONS                                                         

      The Securities and Exchange Commission has adopted regulations which
generally define "penny stock" to be any equity security that has a market      
price (as defined) less than $5.00 per share or an exercise price of less       
than $5.00 per share, subject to certain exceptions. Our securities may be      
covered by the penny stock rules, which impose additional sales practice        
requirements on broker-dealers who sell to persons other than established       
customers and accredited investors (generally, institutions with assets in      
excess of $5,000,000 or individuals with a net worth in excess of $1,000,000    
or annual income exceeding $200,000 or $300,000 jointly with their spouse).     
For transactions covered by this rule, the broker-dealers must make a special   
suitability determination of the subscriber and receive the subscriber's        
written agreement of the transaction prior to the sale. Consequently, the       
rule may affect the ability of broker-dealers to sell our securities and        
affect the ability of existing stockholders to sell their shares in the         
secondary market.                                                               

CERTAIN ANTI-TAKEOVER PROVISIONS                                                

       Our Certificate of Incorporation contains a fair price provision that
requires a certain threshold approval by our board of directors in the event of 
a merger, sale of assets or other types of business combinations. In addition,  
our board consists of staggered three year terms, and the board of directors is 
authorized to issue preferred stock, the terms of which may be determined by the
board of directors. These provisions may have the effect of deterring a change  
in control of in our management.                                                

NO DIVIDENDS                                                                    

     We have not declared or paid any dividends on our Common Stock, and
do not anticipate paying any dividends for the foreseeable future. Further,     
it is anticipated that if we obtain bond financing, we will be restricted in    
our ability to declare dividends.                                               

FLUCTUATION OF STOCK PRICE                                                      

    Our Common Stock is quoted on the OTC Bulletin Board and is thinly
traded. In the past, our trading price has fluctuated widely, depending on many 
factors that may have little to do with our operations or business prospects.   

DILUTIVE EFFECTS FROM OUTSTANDING WARRANTS AND OPTIONS                          

       The exercise of outstanding warrants and options will dilute existing
shareholders. As of December 31, 1999, there were outstanding warrants and      
options to purchase an aggregate of 6,153,167 shares of Common Stock. The       
majority of the options and warrants have exercise prices at less than the      
current trading price of our Common Stock. Further, the outstanding options and 
warrants may have a detrimental impact on the terms under which we may obtain   
financing through a sale of our Common Stock in the future since they may hinder
our ability to raise capital at a higher market price due to the dilutive effect
to new investors. For these reasons, any evaluation of the favorability of      
market conditions for a subsequent stock offering must take into account any    
outstanding warrants and options.                                               

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ITEM 2.  PROPERTIES                                                             

        We have leased 4,566 square feet at a monthly rate of $14,845, for our
principal offices at 100 Shoreline Highway, Suite 190A, Mill Valley, California,
on a three-year lease which expires on July 31, 2003. We also have office       
locations in Paris and Toulouse in France on short-term leases.                 

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. This case was settled during 1999 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.                                                         

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 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."                 

                                                                [Download Table]


                                                          Common Stock
                                                          ------------
Quarter Ended                                               High  Low 
-------------                                                         
                                                                      
December 31, 1999                                           2.25  2.16
September 30, 1999                                          2.56  2.44
June 30, 1999                                               3.00  2.75
March 31, 1999                                              4.97  4.06

December 31, 1998                                           4.25  4.00
September 30, 1998                                          4.63  1.88
June 30, 1998                                               2.88  1.50
March 31, 1998                                              2.32   .50

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

      As of December 31, 1999, the Company had 14,354,911 shares of Common
Stock outstanding and approximately 443 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 on Common
Stock 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 on Common Stock in the        
foreseeable future.                                                             

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

GENERAL                                                                         

        We have historically recognized operating costs and expenses primarily
through our twenty percent (20%) interest in E-SAT. However, effective March 31,
1998, we began recognizing all of these costs and                               

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expenses, including expenditures for the development of the Newstar system,     
within DBSI.                                                                    

PLAN OF OPERATION                                                               

   Throughout fiscal 2000, we plan to continue the deployment of the
E-SAT license and the construction of our system, subject to our success in     
raising adequate financing (See "Risk Factors - Need For Future Capital;        
Anticipated Restrictive Conditions.")                                           

       We established a dedicated marketing and sales group in 1999 and plan
to increase our marketing activities during fiscal 2000.                        

     We seek to satisfy our fiscal 2000 cash requirements by raising new
equity and debt capital, as well as by seeking the exercise of previously issued
third-party warrants and stock options. Through March 24, 2000, we committed to 
issue 20,833 shares of the Company's preferred stock in exchange for gross      
proceeds of $624,990 in cash.                                                   

RESULTS OF OPERATIONS FOR FISCAL YEARS 1999, 1998 AND 1997                      

REVENUES                                                                        

   Our Company remains in the development stage and did not generate
revenues in the last three fiscal years ended December 31, 1999, December 31,   
1998 or December 31, 1997.                                                      

OPERATING EXPENSES                                                              

   Total operating expenses in 1999, 1998, and 1997 were $6,028,829,
$2,995,848, and $1,682,277 respectively. These costs are related to marketing   
and sales expenses, general and administrative expenses, and research and       
development expenses.                                                           

MARKETING AND SALES EXPENSES                                  

Marketing and sales expenses primarily the costs of personnel 
(including non-cash stock compensation) and travel. Marketing and sales expenses
for 1999 were $922,623 (15.3% of operating expenses). No marketing and sales    
expenses were incurred in 1998 or 1997. This increase is due to the             
establishment of our dedicated marketing and sales group in June, 1999.         

GENERAL AND ADMINISTRATIVE EXPENSES                           

   General and Administrative expenses include the costs of finance,
legal, administrative and general management functions of DBSI. General and     
administrative expenses for 1999, 1998, and 1997 were $4,060,910 (67.4% of      
operating expenses), $2,198,701 (73.4% of operating expenses), and $1,472,162   
(87.5% of operating expenses) respectively. The increase of $1,862,209 from 1998
to 1999 was primarily due to increased personnel costs arising from the         
expansion of the management team, and from non-cash stock compensation of       
approximately $760,000. The increase of $726,539 from 1997 to 1998 was primarily
due 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 our       
business interests in Europe and the U.S.                                       

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RESEARCH AND DEVELOPMENT EXPENSES                             

   Research and development expenses represent the costs incurred to
develop our system. Research and development expenses for 1999, 1998, and 1997  
were, respectively, $1,045,296 (17.3% of total operating expenses), $797,147    
(26.6% of total operating expenses), and $210,115 (12.5% of total operating     
expenses). The increase of $248,149 in 1999 compared to 1998 is due to the      
expansion of our research and development staff in Toulouse, France, and from   
non-cash stock compensation of approximately $50,000. The increase of $587,032  
from 1997 to 1998 was due primarily to the issuance of the E-SAT license in     
April 1998 and the 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.                                            

NON-CASH STOCK COMPENSATION                                   

      In order to attract and retain personnel, we have granted options to
purchase 1,913,106 shares of Common Stock at exercise prices ranging from       
$0.39 to $2.81 to several employees and service providers. Some of the          
exercise prices were below the fair market value of the Common Stock at the     
time of grant, resulting in deferred stock compensation of $2,490,337. This     
amount is being amortized over the vesting periods of the granted options,      
and as a result, $957,755 was recognized as non-cash stock compensation         
expense during 1999 in the relevant expense category as described above. No     
similar expenses were incurred during 1998 or 1997.                             

OTHER INCOME AND EXPENSES                                                       

       We experienced a non-operating gain of $113,336, consisting solely of
net interest income, for the fiscal year ended December 31, 1999, an increase of
$80,915 over net interest earned of $32,421 for the year ended December 31,     
1998. This gain was generated from investment income arising from substantial   
fundraising activities during the year ended December 31, 1999. We recorded no  
net loss of investees in 1999, as compared to a loss of $100,143 in 1998 and a  
loss of $80,975 in 1997. We also recorded no gains or losses on sale of         
investments in 1999, compared to a loss in 1998 of $228,323 arising from the    
sale of Seimac, and a gain in 1997 of $5,221,063 arising from the sale of       
marketable securities.                                                          

NET INCOME (LOSS)                                                               

   Our net loss for the year ended December 31, 1999, was $5,915,493
compared to a net loss for the year ended December 31, 1998 of $3,293,493 and a 
net income for the year ended December 31, 1997 of $3,068,917. The 1997 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 FOR FISCAL YEARS 1999 AND 1998                  

   The Company has been in the development stage since its inception
and has not recognized any significant revenues. Our monthly expenses           
averaged approximately $300,000 per month during calendar year 1999 for         
operating, legal and consulting expenses. However, expenses will continue to    
increase during fiscal 2000 with the demands of increased efforts in both       
systems and business development. Additional capital will be necessary to       
expand operations or continue current operations.                               

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

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    From January 1, 2000 through March 24, 2000, we committed to issue
20,833 shares of the Company's preferred stock in exchange for gross proceeds of
$624,990 in cash. Each share of preferred stock is convertible, at the election 
of the holder, into ten shares of the Company's common stock at a conversion    
price of three dollars per common share, or based upon the average trading price
of the common stock within a specified period if the common stock is trading at 
less than $3.00 per share.                                                      

 During 1999, we received proceeds from the sale of common stock
totaling approximately $15 million before stock issuance costs of               
approximately $154,000. These transactions included a private placement of      
500,000 units at $3.00 per unit for an aggregate amount of $1.5 million with    
each unit consisting of one share of Common Stock, and one warrant to           
purchase one share of Common Stock at $4.00 per share; a private placement of   
50,000 units at $2.50 per unit for an aggregate amount of $125,000 with each    
unit consisting of one share of Common Stock, and one warrant to purchase one   
share of Common Stock at $3.50 per share; the sale of 1,666,667 shares of the   
Company's common stock to two of our European contractors for a total of $5     
million; proceeds in the amount of approximately $7.8 million from the          
exercise of warrants in exchange for 2.818 million shares of the Company's      
common stock; and proceeds in the amount of approximately $786,000 from the     
exercise of 675,228 options. These proceeds were used primarily to fund our     
satellite construction costs and investing activities.                          

        During 1998, we 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.                                                     

   We had cash and cash equivalents of $282,945 and $1,291,711 as of
December 31, 1999 and 1998 respectively. We had a negative working capital of   
$941,527 as of December 31, 1999 and a positive working capital of $233,078 as  
of December 31, 1998. Until we are able to develop, construct and operate the   
NewStar System and derive revenues therefrom, we must continue to raise cash    
from outside sources for operations and for the development of the NewStar      
System.                                                                         

       Net cash used in operating activities for the year ended December 31,
1999 was $3,681,956. This resulted from a net loss of $5,915,493, offset        
primarily by (1) non-cash stock compensation of $957,755, (2) the issuance of   
options and warrants for services rendered in the amount of $774,298, (3) the   
issuance of $324,391 of common stock (63,239 shares) in connection with a       
litigation settlement (see "Legal Proceedings"); and (4) an increase in accounts
payable of $204,675 arising from increased marketing and general administrative 
activities in the final quarter of 1999.                                        

       Net cash used in operating activities during 1998 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 we increased our level of          
development activity relating to the NewStar System which included a $1,000,000 
payment to Alcatel. 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, 1999, was $12,413,265. This was an increase of $10,928,307 over the same    
period ended December 31, 1998. Approximately $10.8 million of the net cash     
used in investing activities was related to satellite construction payments     
made to our satellite contractors in Europe, and approximately $1.5 million     
was paid to a consultant to negotiate the terms of an agreement with EchoStar   
(see "Ownership Interest in E-SAT").                                            

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       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 cash advances to E-SAT 
of $407,292 and approximately $1.3 million in progress payments relating to     
satellite construction costs. Net cash provided by investing activities was     
$4,183,565 in 1997 as we received proceeds of $3,573,677 in connection with the 
divestiture of our interest in Continental Satellite Corporation.               

Net cash provided by financing activities for the year ended  
December 31, 1999, was $15,086,455 compared to $4,554,726 for the same period   
ended December 31, 1998. Net cash provided by financing activities during       
1999 was related primarily to the net proceeds from the sale of units of        
common stock, the exercise of warrants by our stockholders and the sale of      
common stock to two of our European contractors.                                

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

FACTORS AFFECTING FUTURE OPERATING RESULTS                                      

   Factors that could cause future results to differ materially from
historical results, include, in addition to other factors identified in this    
report, our ability to raise significant additional capital from outside        
sources for the development of the NewStar System, the availability of          
capital on commercially acceptable terms, the completion of a commercially      
viable NewStar 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 NewStar 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 our activities    
in the Little LEO satellite technology, results of the Company's financing      
efforts and marketing conditions, and other risk factors related to our         
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 that 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.                

ITEM 7.  FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA                             

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

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

None.                                                         

PART III  

ITEMS 9-12.                                                                     

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

        ITEM 13. 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:                                                         

                                                                [Download Table]
                                                               
Report of Independent Accountants                          F-1 

Consolidated Balance Sheets                                F-2 

Consolidated Statements of Operations                      F-3 

Consolidated Statements of Stockholders' Equity            F-4 

Consolidated Statements of Cash Flows                      F-10

Notes to Consolidated Financial Statements                 F-11

EXHIBITS                                                                        

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

                                                                [Download Table]
                                                                      
*(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)       Restated Certificate of Incorporation, effective May 28,  
            1997.                                                     

(3.1)       Bylaws, effective February 19, 1999.                      

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

*(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.                   

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                                                                [Download Table]
                                                                        
*(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.    

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

*(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.                                                       

*(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. dated March 1, 1998.                       

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

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

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                                                                [Download Table]
                                                                       
***(10.44)  Launch Services Agreement with Eurockot Launch Services    
            GmbH dated March 31, 1999. (Redacted per Confidential      
            Treatment Request)                                         

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

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

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

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

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

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

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

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

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

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

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

    (27)    Financial Data Schedule                                    

    *   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.                              

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

***   Previously filed with Registration Statement on Form SB-2 filed on  
May 3, 1999.                                                  

REPORTS ON FORM 8-K                                                             

  On October 8, 1999, the Company filed a Form 8-K documenting the
signing of a contract with Alcatel Space Industries for the final design,       
construction and delivery of the Company's constellation of                     

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six LEO satellites.                                                             

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

SIGNATURES

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

Dated:   March 30, 2000                    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.                    

                                                                [Download Table]

       NAME           TITLE                        DATE                
                                                                       
FRED W. THOMPSON      President, Chairman                March 30, 2000
Fred W. Thompson      Principal Executive Officer                      

MICHAEL T. SCHIEBER   Director                           March 30, 2000
Michael T. Schieber                                                    

JEROME W. CARLSON     Director                           March 30, 2000
Jerome W. Carlson                                                      

H. TATE HOLT          Director                           March 30, 2000
H. Tate Holt                                                           

JESSIE J. KNIGHT, JR. Director                           March 30, 2000
Jessie J. Knight, Jr.                                                  

STANTON C. LAWSON     Director                           March 30, 2000
Stanton C. Lawson     Principal Financial Officer                      

ROY T. GRANT                                                           
Roy T. Grant          Director                           March 30, 2000


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 REPORT OF INDEPENDENT ACCOUNTANTS

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

In our opinion, the accompanying consolidated balance sheets and the related    
consolidated statements of operations, of stockholders' equity, and of cash     
flows present fairly, in all material respects, the financial position of DBS   
Industries, Inc. and Subsidiaries (a development stage company) as of December  
31, 1999 and 1998, and the results of their operations and their cash flows for 
the three years ended December 31, 1999 and for the period from April 25, 1990  
(date of inception) to December 31, 1999, in conformity with accounting         
principles generally accepted in the United States. These financial statements  
are the responsibility of the Company's management; our responsibility is to    
express an opinion on these financial statements based on our audits. We        
conducted our audits of these statements in accordance with auditing standards  
generally accepted in the United States which require that we plan and perform  
the audit to obtain reasonable assurance about whether the financial statements 
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures the financial statements,       
assessing the accounting principles used and significant estimates made by      
management, and evaluating the overall financial statement presentation. We     
believe that our audits provide a reasonable basis for our opinion 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.                                    

PricewaterhouseCoopers LLP                                                      

March 10, 2000, except for Note 13 as                                           
to which the date is March 24, 2000                                             
San Francisco, California                                                       

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DBS INDUSTRIES, INC. AND SUBSIDIARIES                                           
(A DEVELOPMENT STAGE COMPANY)                                                   
CONSOLIDATED BALANCE SHEETS                                                     
--------------------------------------------------------------------------------

                                                        [Enlarge/Download Table]

                                                                            DECEMBER 31,           
                                                                       --------------------------- 
                                                                         1999              1998    
ASSETS                                                                                             
                                                                                                   
Current assets                                                                                     
    Cash and cash equivalents                                          $ 282,945        $1,291,711 
    Prepaid and other current assets                                     114,439            71,138 
                                                                     -----------        ---------- 
      Total current assets                                               397,384         1,362,849 
                                                                     -----------        ---------- 

Furniture and equipment, net                                              48,211            22,527 
Investments, advances and other                                        2,370,618           855,052 
Satellite construction costs                                          12,072,873         1,272,083 
Deferred stock offering costs                                            673,500                 - 
                                                                     -----------        ---------- 
                                                                      15,165,202         2,149,662 
                                                                     -----------        ---------- 
        Total assets                                                $ 15,562,586        $3,512,511 
                                                                     -----------        ---------- 
                                                                     -----------        ---------- 
LIABILITIES AND STOCKHOLDERS' EQUITY                                                               
Current liabilities                                                                                
    Accounts payable                                                   $ 478,334         $ 240,240 
    Customer advances                                                    400,000           400,000 
    Accrued liabilities                                                  460,577           489,531 
                                                                     -----------        ---------- 
        Total current liabilities                                      1,338,911         1,129,771 
                                                                     -----------        ---------- 
Commitments (Notes 4 and 7)                                                                        

STOCKHOLDERS' EQUITY                                                                               
    Common stock, $0.0004 par value; 50,000,000 shares authorized;                                 
      14,354,911 and 8,581,117 issued and outstanding at                                           
      December 31, 1999 and 1998, respectively                             5,762             3,452 
    Capital in excess of par value                                    26,968,174         8,511,410 
    Warrants                                                           1,890,436         1,085,500 
    Note receivable from stockholder                                     (60,000)                - 
    Deferred stock-based compensation                                 (1,532,582)                - 
    Deficit accumulated during the development stage                 (13,048,115)       (7,132,622)
    Treasury stock (0 and 51,562 shares as of December 31,                                         
      1999 and 1998)                                                           -           (85,000)
                                                                     -----------        ---------- 
        Total stockholders' equity                                    14,223,675         2,382,740 
                                                                     -----------        ---------- 
           Total liabilities and stockholders' equity               $ 15,562,586        $3,512,511 
                                                                     -----------        ---------- 
                                                                     -----------        ---------- 

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

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DBS INDUSTRIES, INC. AND SUBSIDIARIES                                           
(A DEVELOPMENT STAGE COMPANY)                                                   
CONSOLIDATED STATEMENTS OF OPERATIONS                                           
------------------------------------------------------------------------------- 

                                                        [Enlarge/Download Table]


                                                                                                  APRIL 25,  
                                                                                                    1990     
                                                                                                 (INCEPTION) 
                                                                                                     TO      
                                                                     DECEMBER 31,                DECEMBER 31,
                                                   -----------------------------------------                 
                                                       1999            1998            1997          1999    

                                                                                                             

REVENUE                                          $          -    $          -   $          -   $    161,420  
                                                    ---------       ---------      ---------     ----------  
COST AND OPERATING EXPENSES                                                                                  
    Cost of revenue                                         -               -              -        127,580  
    Marketing and sales                               922,623               -              -        922,623  
    General and administrative                      4,060,910       2,198,701      1,472,162     12,722,599  
    Research and development                        1,045,296         797,147        210,115      4,012,014  
                                                    ---------       ---------      ---------     ----------  
                                                    6,028,829       2,995,848      1,682,277     17,784,816  
                                                    ---------       ---------      ---------     ----------  
      Loss from operations                         (6,028,829)     (2,995,848)    (1,682,277)   (17,623,396) 
                                                    ---------       ---------      ---------     ----------  
OTHER INCOME (EXPENSE)                                                                                       
    Interest,                                         113,336          32,421       (308,094)      (596,123) 
    net                                                                                                      
    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) 
                                                    ---------       ---------      ---------     ----------  
                                                      113,336        (296,045)     4,831,994      4,663,541  
                                                    ---------       ---------      ---------     ----------  
Income (loss) before provision for income taxes                                                              
    and minority interests                         (5,915,493)     (3,291,893)     3,149,717    (12,959,855) 
Provision for income taxes                                  -          (1,600)       (80,800)       (96,835) 
                                                    ---------       ---------      ---------     ----------  
      Income (loss) before minority interests      (5,915,493)     (3,293,493)     3,068,917    (13,056,690) 

Minority interests in income of consolidated                                                                 
    subsidiaries                                            -               -              -          8,575  
                                                    ---------       ---------      ---------     ----------  
        Net income (loss)                        $ (5,915,493)   $ (3,293,493)   $ 3,068,917   $(13,048,115) 
                                                    =========       =========      =========     ==========  

Basic net income (loss) per share                $      (0.45)   $      (0.47)   $      0.52                 
                                                    =========       =========      =========                 

Diluted net income (loss) per share              $      (0.45)   $      (0.47)   $      0.49                 
                                                    =========       =========      =========                 
Weighted average number of shares of common                                                                  
    stock, basic                                   13,088,723       6,979,818      5,863,261                 
                                                    =========       =========      =========                 
Weighted average number of shares of common                                                                  
    stock, diluted                                 13,088,723       6,979,818      6,235,144                 
                                                    =========       =========      =========                 

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

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DBS INDUSTRIES, INC. AND SUBSIDIARIES                                           
(A DEVELOPMENT STAGE COMPANY)                                                   
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY                                 
------------------------------------------------------------------------------- 

                                                        [Enlarge/Download Table]


                                                              COMMON STOCK                                             
                                                           -------------------  CAPITAL IN                             
                                                                        PAR     EXCESS OF                    NOTES     
                                                           SHARES      VALUE    PAR VALUE     WARRANTS     RECEIVABLE  
                                                                                                                       
Balance at December 31, 1990, of DBSN as restated                                                                      
    pursuant to the merger on December 2, 1992               301,000     $ 120    $  46,375      $     -       $     - 

Issuance of common stock for professional services                                                                     
    at $1.01 to $2.14 per share                              520,000       208       47,542            -             - 
Issuance of common stock for cash at $.01 to $1.00                                                                     
    per share                                                244,500        98      124,507            -             - 
Stock issue costs for the twelve months ended                                                                          
    December 31, 1991                                              -         -      (15,774)           -             - 
Net loss for the twelve months ended December 31, 1991             -         -            -            -             - 
                                                           ---------    ------    ---------      --------       -------

Balance at December 31, 1991                               1,065,500       426      202,650            -             - 

Issuance of common stock for cash at $.01 to $1.00 -                                                                   
    per share                                              1,317,290       527      538,998            -             - 
Issuance of common stock for professional services at                                                                  
    $.01 to $.10 - per share                                 214,240        86       12,338            -             - 
Issuance of common stock in payment of stockholder loans:                                                              
    June 1992 at $.01 per share                              230,000        92        2,208            -             - 
Net loss for the seven months ended July 31, 1992                  -         -            -            -             - 
                                                           ---------    ------    ---------      --------       -------
Balance at July 31, 1992                                   2,827,030     1,131      756,194            -             - 

Shares of Fi-Tek IV, Inc. from August 3, 1989                                                                          
    (inception) through December 2, 1992                     817,540       327      155,450            -             - 
Issuance of common stock for cash at $.01 to $3.20                                                                     
    per share                                              1,313,926       527      998,088            -             - 
Issuance of common stock for interest at $5.00 per share      10,000         4        4,996            -             - 
Issuance of common stock for JPS common stock on                                                                       
    September 11, 1992 at $.80 per share                      61,447        24       49,134            -             - 
Issuance of common stock for professional services on                                                                  
    September 11, 1992 at $.10 per share                       6,679         3          665            -             - 
Issuance of common stock in exchange for DBSC common                                                                   
    stock on October 9, 1992, at $2.00 per share               6,375         2       12,748            -             - 
Redemption of 97,450 common stock warrants on                                                                          
    October 2, 1992, at $8.00 per share                            -         -      (19,490)           -             - 

                                                        [Enlarge/Download Table]

                                                                           DEFICIT                              
                                                                         ACCUMULATED                            
                                                             DEFERRED     DURING THE                  TOTAL     
                                                           STOCK-BASED    DEVELOPMENT   TREASURY   STOCKHOLDERS'
                                                           COMPENSATION     STAGE         STOCK       EQUITY    
                                                                                                                
Balance at December 31, 1990, of DBSN as restated                                                               
    pursuant to the merger on December 2, 1992                  $     -   $  (219,990)     $    -   $  (173,495)

Issuance of common stock for professional services                                                              
    at $1.01 to $2.14 per share                                       -             -           -        47,750 
Issuance of common stock for cash at $.01 to $1.00                                                              
    per share                                                         -             -           -       124,605 
Stock issue costs for the twelve months ended                                                                   
    December 31, 1991                                                 -             -           -       (15,774)
Net loss for the twelve months ended December 31, 1991                -      (115,339)          -      (115,339)
                                                             --------       ---------     ----------   -------- 
Balance at December 31, 1991                                          -      (335,329)          -      (132,253)

Issuance of common stock for cash at $.01 to $1.00 -                                                            
    per share                                                         -             -           -       539,525 
Issuance of common stock for professional services at                                                           
    $.01 to $.10 - per share                                          -             -           -        12,424 
Issuance of common stock in payment of stockholder loans:                                                       
    June 1992 at $.01 per share                                       -             -           -         2,300 
Net loss for the seven months ended July 31, 1992                     -       (90,750)          -       (90,750)
                                                             --------       ---------     ----------   -------- 
Balance at July 31, 1992                                              -      (426,079)          -      331,246  

Shares of Fi-Tek IV, Inc. from August 3, 1989                                                                   
    (inception) through December 2, 1992                              -             -           -       155,777 
Issuance of common stock for cash at $.01 to $3.20                                                              
    per share                                                         -             -           -       998,615 
Issuance of common stock for interest at $5.00 per share              -             -           -         5,000 
Issuance of common stock for JPS common stock on                                                                
    September 11, 1992 at $.80 per share                              -             -           -        49,158 
Issuance of common stock for professional services on                                                           
    September 11, 1992 at $.10 per share                              -             -           -           668 
Issuance of common stock in exchange for DBSC common                                                            
    stock on October 9, 1992, at $2.00 per share                      -             -           -        12,750 
Redemption of 97,450 common stock warrants on                                                                   
    October 2, 1992, at $8.00 per share                               -             -           -       (19,490)

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

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                                                        [Enlarge/Download Table]


                                                            COMMON STOCK                                              
                                                         --------------------  CAPITAL IN                             
                                                                       PAR     EXCESS OF                    NOTES     
                                                          SHARES      VALUE    PAR VALUE     WARRANTS     RECEIVABLE  
                                                                                                                      
Issuance of common stock December 2, 1992, at closing                                                                 
    of acquisition of DBSN as a finder's fee at $.0004                                                                
    per share                                                25,000     $  10      $     -      $     -       $     - 
Issuance of common stock for Axion common stock                                                                       
    during March 1993 at $1.60 per share                     50,000        20       79,980            -             - 
Issuance of common stock for DBSC common stock                                                                        
    on July 2, 1993, at $1.60 per share                     133,306        53      213,238            -             - 
Stock issue costs for the period from August 1, 1992                                                                  
    through July 31, 1993                                         -         -       (6,374)           -             - 
Net loss for the twelve months ended July 31, 1993                -         -            -            -             - 
                                                          ---------    ------    ---------      --------       -------
Balance at July 31, 1993                                  5,251,303     2,101    2,244,629            -             - 

Issuance of common stock for cash at $4.00 per share                                                                  
    (August 1993 through April 1994)                        102,256        41      411,943            -             - 
Stock issued in exchange for 46% of JPS stock on                                                                      
    November 19, 1993                                         3,379         1       10,137            -             - 
Stock issued for professional services:                                                                               
    January 28, 1994, at $3.60 per share                      5,331         2       19,188            -             - 
    July 29, 1994, at $2.00 per share                         3,833         2        7,663            -             - 
Stock issued due to exercise of warrants, at $2.00                                                                    
    per share (March and April 1994)                          2,500         1        4,999            -             - 
Stock issued for interest on July 31, 1994, at $2.00                                                                  
    per  share                                                1,000         -        2,000            -             - 
Purchase of shares of common stock on January 28, 1994,                                                               
    at $3.20 per share                                       (1,563)        -            -            -             - 
Reacquisition of common stock pursuant to sale of                                                                     
    investment in Axion in May 1994, at $1.60 per share     (50,000)        -            -            -             - 
Net loss for the twelve months ended July 31, 1994                -         -            -            -             - 
                                                          ---------    ------    ---------      --------       -------
Balance at July 31, 1994                                  5,318,039     2,148    2,700,559            -             - 

                                                        [Enlarge/Download Table]

                                                                         DEFICIT                               
                                                                       ACCUMULATED                             
                                                          DEFERRED      DURING THE                  TOTAL      
                                                         STOCK-BASED    DEVELOPMENT   TREASURY    STOCKHOLDERS'
                                                         COMPENSATION     STAGE         STOCK       EQUITY     
                                                                                                               
Issuance of common stock December 2, 1992, at closing                                                          
    of acquisition of DBSN as a finder's fee at $.0004                                                         
    per share                                            $        -         $     -      $    -       $    10  
Issuance of common stock for Axion common stock                                                                
    during March 1993 at $1.60 per share                          -               -           -        80,000  
Issuance of common stock for DBSC common stock                                                                 
    on July 2, 1993, at $1.60 per share                           -               -           -       213,291  
Stock issue costs for the period from August 1, 1992                                                           
    through July 31, 1993                                         -               -           -        (6,374) 
Net loss for the twelve months ended July 31, 1993                -        (755,040)          -      (755,040) 
                                                         ----------        --------     ---------   ---------- 
Balance at July 31, 1993                                          -      (1,181,119)          -     1,065,611  

Issuance of common stock for cash at $4.00 per share                                                           
    (August 1993 through April 1994)                              -               -           -       411,984  
Stock issued in exchange for 46% of JPS stock on                                                               
    November 19, 1993                                             -               -           -        10,138  
Stock issued for professional services:                                                                        
    January 28, 1994, at $3.60 per share                          -               -           -        19,190  
    July 29, 1994, at $2.00 per share                             -               -           -         7,665  
Stock issued due to exercise of warrants, at $2.00                                                             
    per share (March and April 1994)                              -               -           -         5,000  
Stock issued for interest on July 31, 1994, at $2.00                                                           
    per share                                                     -               -           -         2,000  
Purchase of shares of common stock on January 28, 1994,                                                        
    at $3.20 per share                                            -               -      (5,000)       (5,000) 
Reacquisition of common stock pursuant to sale of                                                              
    investment in Axion in May 1994, at $1.60 per share           -               -     (80,000)      (80,000) 
Net loss for the twelve months ended July 31, 1994                -         (26,909)          -       (26,909) 
                                                         ----------        --------     ---------   ---------- 
Balance at July 31, 1994                                          -      (1,208,028)    (85,000)    1,409,679  

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

F-5 

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                                                            COMMON STOCK                                             
                                                          -------------------  CAPITAL IN                            
                                                                       PAR     EXCESS OF                   NOTES     
                                                          SHARES      VALUE    PAR VALUE    WARRANTS     RECEIVABLE  
                                                                                                                     
Stock issued for services:                                                                                           
    November 30, 1994, at $1.88 per share                    10,000     $   4    $  18,796     $     -       $     - 
    May 15, 1995, at $2.00 per share                         10,724         4       21,443           -             - 
    July 15, 1995, at $1.60 per share                        11,373         5       18,192           -             - 
Net loss for the twelve months ended July 31, 1995                -         -            -           -             - 
                                                          ---------    ------    ---------     --------       -------
Balance at July 31, 1995                                  5,350,136     2,161    2,758,990           -             - 

Issuance of common stock for 1% JPS common stock                                                                     
    on September 21, 1995 at $1.20 per share                  9,450         4       11,336           -             - 
Issuance of common stock for 20% Seimac Limited                                                                      
    common stock on December 13, 1995 at $4.00 per share    165,519        66      662,010           -             - 
Issuance of common stock for professional services at                                                                
    $5.60 per share                                           2,934         1       16,427           -             - 
Net loss for the twelve months ended December 31, 1995            -         -            -           -             - 
                                                          ---------    ------    ---------     --------       -------
Balance at December 31, 1995                              5,528,039     2,232    3,448,763           -             - 

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             - 
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           -             - 
    February 15, 1996, at $5.20 per share, less noncash                                                              
      issuance cost of $19,999                               38,462        15      179,988           -             - 
Stock issued for services                                                                                            
    January 1 - June 30, 1996, at $3.75 per share            22,743         9       85,277                           
    August 15, 1996, at $4.80 per share                       6,018         2       28,884                           
    September 21, 1996, at $5.60 per share                    4,821         2       26,996                           
    July 1 - December 31, 1996, at $2.00 per share            7,605         3       15,207                           
    Placement fee associated with January 15 and                                                                     
      February 15, 1996, issuances settled through           19,821         8       83,891                           
      issuance of common stock                                                                                       
Net loss for the twelve months ended December 31, 1996            -         -            -           -             - 
                                                          ---------    ------    ---------     --------       -------
Balance at December 31, 1996                              5,827,509     2,351    4,605,026     112,500             - 

                                                        [Enlarge/Download Table]

                                                                        DEFICIT                              
                                                                        ACCUMULATED                          
                                                            DEFERRED    DURING THE                 TOTAL     
                                                          STOCK-BASED   DEVELOPMENT  TREASURY   STOCKHOLDERS'
                                                          COMPENSATION    STAGE        STOCK       EQUITY    
                                                                                                             
Stock issued for services:                                                                                   
    November 30, 1994, at $1.88 per share                      $     -      $     -     $    -     $  18,800 
    May 15, 1995, at $2.00 per share                                 -            -          -        21,447 
    July 15, 1995, at $1.60 per share                                -            -          -        18,197 
Net loss for the twelve months ended July 31, 1995                   -  (1,284,558)          -    (1,284,558)
                                                             --------     ---------   ----------   --------- 
Balance at July 31, 1995                                             -  (2,492,586)   (85,000)       183,565 

Issuance of common stock for 1% JPS common stock                                                             
    on September 21, 1995 at $1.20 per share                         -            -          -        11,340 
Issuance of common stock for 20% Seimac Limited                                                              
    common stock on December 13, 1995 at $4.00 per share             -            -          -       662,076 
Issuance of common stock for professional services at                                                        
    $5.60 per share                                                  -            -          -        16,428 
Net loss for the twelve months ended December 31, 1995               -    (662,877)          -      (662,877)
                                                             --------     ---------   ----------   --------- 
Balance at December 31, 1995                                         -  (3,155,463)   (85,000)       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 
Issuance of common stock for cash                                                                            
    January 15, 1996, at $4.00 per share, less noncash                                                       
      issuance cost of $63,900                                       -            -          -       736,100 
    February 15, 1996, at $5.20 per share, less noncash                                                      
      issuance cost of $19,999                                       -            -          -       180,003 
Stock issued for services                                                                                    
    January 1 - June 30, 1996, at $3.75 per share                                                     85,286 
    August 15, 1996, at $4.80 per share                                                               28,886 
    September 21, 1996, at $5.60 per share                                                            26,998 
    July 1 - December 31, 1996, at $2.00 per share                                                    15,210 
    Placement fee associated with January 15 and                                                             
      February 15, 1996, issuances settled through                                                    83,899 
      issuance of common stock                                                                               
Net loss for the twelve months ended December 31, 1996               -  (3,752,583)          -    (3,752,583)
                                                             --------     ---------   ----------   --------- 
Balance at December 31, 1996                                         -  (6,908,046)   (85,000)    (2,273,169)

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

F-6 

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                                                             COMMON STOCK                                               
                                                           -------------------   CAPITAL IN                             
                                                                        PAR      EXCESS OF                    NOTES     
                                                           SHARES      VALUE     PAR VALUE     WARRANTS     RECEIVABLE  
                                                                                                                        
Stock issued for services                                                                                               
    January 31, 1997, at $1.69 per share                       5,088         2         8,586                            
    February 14, 1997, at $1.75 per share                      4,701         2         8,225                            
    February 28, 1997, at $2.00 per share                      7,918         3        15,834                            
    March 31, 1997, at $1.63 per share                           302         -           491                            
    April 10, 1997, at $2.00 per share                         7,500         3        14,997                            
    April 30, 1997, at $1.50 per share                           332         -           498                            
    June 30, 1997, at $1.13 per share                         14,578         6        16,394                            
    July 9, 1997, at $0.75 per share                          15,000         6        11,244                            

Net income for the twelve months ended December 31, 1997           -         -             -            -             - 
                                                           ---------    ------     ---------      --------       -------
Balance at December 31, 1997                               5,882,928     2,373     4,681,295      112,500             - 

Common stock issued for cash, on April 16, 1998,                                                                        
    at $2.00 per share                                       102,000        41       203,959            -             - 
Common stock issued upon exercise of options, on                                                                        
    June 11, 1998, at $1.44 per share                         12,500         5        17,964                            
Common stock issued (voided) in connection with                                                                         
    services rendered                                                                                                   
    February 12, 1998, at $0.53 per share                     26,209        10        13,906                            
    April 1, 1998, at $3.25 per share                         10,000         4        32,496                            
    May 14, 1998, at $3.75 per share                          13,646         6        51,168                            
    May 14, 1998, at $3.75 per share                         (22,743)       (9)      (85,277)                           
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                            
Common stock issued upon exercise of options at $0.53                                                                   
    per share                                                 17,202         6         9,128                            
Fair value of Common Stock warrants committed to                                                                        
    representing stock issuance costs                                               (973,000)     973,000               
Fair value of options granted in connection with                                                                        
    services rendered                                                                159,000                            

                                                        [Enlarge/Download Table]

                                                                           DEFICIT                              
                                                                         ACCUMULATED                            
                                                             DEFERRED     DURING THE                  TOTAL     
                                                           STOCK-BASED    DEVELOPMENT   TREASURY   STOCKHOLDERS'
                                                           COMPENSATION     STAGE         STOCK       EQUITY    
                                                                                                                
Stock issued for services                                                                                       
    January 31, 1997, at $1.69 per share                                                                  8,588 
    February 14, 1997, at $1.75 per share                                                                 8,227 
    February 28, 1997, at $2.00 per share                                                                15,837 
    March 31, 1997, at $1.63 per share                                                                      491 
    April 10, 1997, at $2.00 per share                                                                   15,000 
    April 30, 1997, at $1.50 per share                                                                      498 
    June 30, 1997, at $1.13 per share                                                                    16,400 
    July 9, 1997, at $0.75 per share                                                                     11,250 

Net income for the twelve months ended December 31, 1997              -     3,068,917           -     3,068,917 
                                                            --------        ---------    ----------   --------- 
Balance at December 31, 1997                                          -    (3,839,129)    (85,000)       872,039

Common stock issued for cash, on April 16, 1998,                                                                
    at $2.00 per share                                                -             -           -       204,000 
Common stock issued upon exercise of options, on                                                                
    June 11, 1998, at $1.44 per share                                                                    17,969 
Common stock issued (voided) in connection with                                                                 
    services rendered                                                                                           
    February 12, 1998, at $0.53 per share                                                                13,916 
    April 1, 1998, at $3.25 per share                                                                    32,500 
    May 14, 1998, at $3.75 per share                                                                     51,174 
    May 14, 1998, at $3.75 per share                                                                    (85,286)
Common stock issued for cash in August and September 1998                                                       
    at $2.00 per share net of issuance costs of $485,826                                              5,114,174 
Common stock issued upon exercise of options at $0.53                                                           
    per share                                                                                             9,134 
Fair value of Common Stock warrants committed to                                                                
    representing stock issuance costs                                                                         - 
Fair value of options granted in connection with                                                                
    services rendered                                                                                   159,000 

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

F-7 

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                                                            COMMON STOCK                                               
                                                          -------------------   CAPITAL IN                             
                                                                       PAR      EXCESS OF                    NOTES     
                                                          SHARES      VALUE     PAR VALUE     WARRANTS     RECEIVABLE  
                                                                                                                       
Common stock issued for exercise of options $0.60 per        37,500        15        22,485                            
    share 10/1/98                                                                                                      
Common stock returned to investees at $2.00 per share in                                                               
    October 1998                                           (400,000)     (160)     (799,840)                           
Common stock issued upon exercise of options $0.531 per                                                                
    share in October 1998                                    94,375        38        50,075                            
Common stock issued representing stock issuance costs         7,500         3        14,997                            
Net loss for the year ended December 31, 1998                     -         -             -            -             - 
                                                          ---------    ------     ---------      --------       -------
Balance at December 31, 1998                              8,581,117     3,452     8,511,410    1,085,500             - 

Common stock issued for cash                                                                                           
  February 1999 at $2.50, net of issuance                                                                              
    costs of $2,104                                          50,000        20       122,876                            
  February 1999 at $3.00, net of issuance                                                                              
    costs of $25,246                                        500,000       200     1,474,554                            
  April 1999 at $3.00 per share                           1,666,667       667     4,999,333                            
Common stock issued upon exercise of options                                                                           
  January, March, August, and December 1999                                                                            
    at $0.53 per share                                      195,227        78       103,557                            
  February 1999 at $0.58                                     12,625         5         7,368                            
  January and February 1999 at $0.60                         26,667        11        15,990                            
  February 1999 at $1.44                                     37,500        15        53,891                            
  February and March 1999 at $1.45                          200,000        80       289,920                            
  January, February, and March 1999 at $1.50                195,084        78       292,548                            
  January 1999 at $2.80                                       8,125         3        22,747                            
Common stock issued upon exercise of warrants                                                                          
  January 1999 at $0.50 per share                           200,000        80        99,920                            
  January 1999 at $1.44 per share                            11,080         4        15,923                            
  January and February 1999 at $1.50 per share               64,380        26       183,251     (86,707)               
  March 1999 at $2.00 per share                               7,500         2        24,673      (9,675)               
  February and March 1999 at $2.10 per share                 33,700        13       111,534     (40,777)               
  January - March 1999 at $3.00 per share,                                                                             
    net of issuance costs of $123,805                     2,452,000       983     7,239,689      (8,475)               
  March 1999 at $3.50 per share                                                                                        
    net of issuance costs of $3,344                          50,000        20       172,035                            

                                                        [Enlarge/Download Table]

                                                                          DEFICIT                             
                                                                        ACCUMULATED                           
                                                            DEFERRED     DURING THE                 TOTAL     
                                                           STOCK-BASED   DEVELOPMENT  TREASURY   STOCKHOLDERS'
                                                          COMPENSATION     STAGE        STOCK       EQUITY    
                                                                                                              
Common stock issued for exercise of options $0.60 per                                                  22,500 
    share 10/1/98                                                                                             
Common stock returned to investees at $2.00 per share in                                                      
    October 1998                                                                                     (800,000)
Common stock issued upon exercise of options $0.531 per                                                       
    share in October 1998                                                                              50,113 
Common stock issued representing stock issuance costs                                                  15,000 
Net loss for the year ended December 31, 1998                     -     (3,293,493)             -  (3,293,493)
                                                           --------      ---------     ----------   --------- 
Balance at December 31, 1998                                      -     (7,132,622)       (85,000)  2,382,740 

Common stock issued for cash                                                                                  
  February 1999 at $2.50, net of issuance                                                                     
    costs of $2,104                                                                                   122,896 
  February 1999 at $3.00, net of issuance                                                                     
    costs of $25,246                                                                                1,474,754 
  April 1999 at $3.00 per share                                                                     5,000,000 
Common stock issued upon exercise of options                                                                  
  January, March, August, and December 1999                                                                   
    at $0.53 per share                                                                                103,635 
  February 1999 at $0.58                                                                                7,373 
  January and February 1999 at $0.60                                                                   16,001 
  February 1999 at $1.44                                                                               53,906 
  February and March 1999 at $1.45                                                                    290,000 
  January, February, and March 1999 at $1.50                                                          292,626 
  January 1999 at $2.80                                                                                22,750 
Common stock issued upon exercise of warrants                                                                 
  January 1999 at $0.50 per share                                                                     100,000 
  January 1999 at $1.44 per share                                                                      15,927 
  January and February 1999 at $1.50 per share                                                         96,570 
  March 1999 at $2.00 per share                                                                        15,000 
  February and March 1999 at $2.10 per share                                                           70,770 
  January - March 1999 at $3.00 per share,                                                                    
    net of issuance costs of $123,805                                                               7,232,197 
  March 1999 at $3.50 per share                                                                               
    net of issuance costs of $3,344                                                                   172,055 

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

F-8 

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                                                      COMMON STOCK                                           
                                                    ------------------  CAPITAL IN                           
                                                                 PAR    EXCESS OF                   NOTES    
                                                    SHARES      VALUE   PAR VALUE    WARRANTS     RECEIVABLE 
                                                                                                             
Expiration of warrants                                                      15,730      (15,730)             
Deferred stock compensation                                              2,490,337                           
Options issued in connection with                                                                            
    services rendered                                                      751,497                           
Amortization of deferred stock compensation                                                                  
Warrants issued in connection with services                                                                  
    rendered in November and December 1999                                               22,800              
Issuance of common stock in connection with                                                                  
Litigation settlement in March 1999                                                                          
    at $5.00 per share                                63,239        25     324,391                           
Fair value of Common Stock warrants committed to                                                             
    representing deferred stock issuance costs                                          673,500              
    in December 1999                                                                                         
Warrant issued in connection with stock issuance                          (270,000)     270,000              
    costs                                                                                                    
Note Receivable from Stockholder                                                                     (60,000)
Retirement of Treasury Stock                                               (85,000)                          
Net loss for the year ended December 31, 1999                                                                
                                                   ---------    ------   ---------     --------      ------- 
Balance at December 31, 1999                      14,354,911    $5,762  26,968,174   $1,890,436    $ (60,000)
                                                   ---------    ------   ---------     --------      ------- 
                                                   ---------    ------   ---------     --------      ------- 

                                                        [Enlarge/Download Table]

                                                                   DEFICIT                              
                                                                 ACCUMULATED                            
                                                    DEFERRED      DURING THE                  TOTAL     
                                                   STOCK-BASED    DEVELOPMENT   TREASURY   STOCKHOLDERS'
                                                  COMPENSATION      STAGE        STOCK       EQUITY     
                                                                                                        
Expiration of warrants                                                                                  
Deferred stock compensation                        (2,490,337)                                        - 
Options issued in connection with                                                                       
    services rendered                                                                           751,497 
Amortization of deferred stock compensation            957,755                                  957,755 
Warrants issued in connection with services                                                             
    rendered in November and December 1999                                                       22,800 
Issuance of common stock in connection with                                                             
    litigation settlement in March 1999                                                                 
    at $5.00 per share                                                                          324,416 
Fair value of Common Stock warrants committed to                                                        
    representing deferred stock issuance costs                                                  673,500 
    in December 1999                                                                                  - 
Warrant issued in connection with stock issuance                                                      - 
    costs                                                                                               
Note Receivable from Stockholder                                                               (60,000) 
Retirement of Treasury Stock                                                      85,000              - 
Net loss for the year ended December 31, 1999                      (5,915,493)              (5,915,493) 
                                                    ----------     ----------   ----------   ---------- 
Balance at December 31, 1999                       $(1,532,582)  $(13,048,115)    $    -    $14,223,675 
                                                    ----------     ----------   ----------   ---------- 
                                                    ----------     ----------   ----------   ---------- 

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

F-9 

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DBS INDUSTRIES, INC. AND SUBSIDIARIES                                           
(A DEVELOPMENT STAGE COMPANY)                                                   
CONSOLIDATED STATEMENTS OF CASH FLOWS                                           
------------------------------------------------------------------------------- 

                                                        [Enlarge/Download Table]


                                                                                                 APRIL 25, 1990 
                                                                                                 (INCEPTION) TO 
                                                              YEAR ENDED DECEMBER 31,              DECEMBER 31, 
                                                       -------------------------------------                    
                                                          1999           1998          1997           1999      
RECONCILIATION OF NET INCOME (LOSS) TO NET CASH                                                                 
   USED IN OPERATING ACTIVITIES                                                                                 
                                                                                                                
   Net income (loss)                                   $ (5,915,493)  $(3,293,493)   $3,068,917  $  (13,048,115)
   Adjustments to reconcile net income (loss) to net                                                            
   cash used in operating activities:                                                                           
     Depreciation and amortization                           15,719        73,122       126,989         446,975 
     Minority interest's share of net loss                        -             -             -          (8,575)
     Noncash charges                                              -       573,999        76,293       1,084,545 
     Amortization of stock-based compensation               957,755             -             -         957,755 
     Issuance of options and warrants for services          774,298             -             -         774,298 
       rendered                                                                                                 
     Issuance of common stock in connection                                                                     
      with litigation settlement                            324,391             -             -         324,391 
     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                                          (43,301)       48,127       (50,320)        (95,235)
     Increase (decrease) in accounts payable                                                                  - 
      accrued liabilities                                   204,675      (108,264)   (1,053,843)        609,915 
     Increase in customer advances                                -             -             -         400,000 
                                                      -------------   -----------    ----------     ----------- 
        Net cash used in operating activities            (3,681,956)   (2,161,111)   (2,972,152)    (13,629,360)
                                                      -------------   -----------    ----------     ----------- 
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                                 (34,394)       (5,523)            -        (145,441)
   Satellite construction payments                      (10,800,790)   (1,272,083)            -     (12,072,873)
   Organization costs                                             -             -             -         (28,526)
   Advances to officer                                      (60,000)            -             -         (91,187)
   Purchase of interest in Continental                            -             -             -      (2,292,409)
   Investments and advances                              (1,518,081)     (407,292)      309,888      (2,726,807)
   Net assets of purchased subsidiaries                           -             -             -        (147,500)
   Cash transferred from Fi-Tek IV, Inc. pursuant to                                                          - 
   the merger and reorganization                                  -             -             -         156,648 
   Cash of divested subsidiary                                    -             -             -            (277)
   Purchase of patents                                            -             -             -         (18,251)
   Proceeds from repayment of advances to affiliate               -             -             -         152,500 
   Restricted cash on credit line                                 -             -       300,000         300,000 
                                                      -------------   -----------    ----------     ----------- 
        Net cash provided by (used in) investing        (12,413,265)   (1,484,958)    4,183,565     (12,240,506)
           activities                                 -------------   -----------    ----------     ----------- 

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                              15,240,555     4,997,226             -      23,391,297 
   Redemption of common stock warrants                            -             -             -         (19,490)
   Stock issue costs                                       (154,100)     (442,500)            -        (653,835)
   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         15,086,455     4,554,726    (1,230,944)     26,152,811 
        activities                                    -------------   -----------   ----------      ----------- 
Net increase (decrease) in cash                         (1,008,766)       908,657      (19,531)         282,945 
Cash and cash equivalents, beginning of period            1,291,711       383,054       402,588               - 
                                                      -------------   -----------    ----------     ----------- 
Cash and cash equivalents, end of period                 $  282,945    $1,291,711     $ 383,057     $   282,945 
                                                      -------------   -----------    ----------     ----------- 
                                                      -------------   -----------    ----------     ----------- 
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION                                                               
   Interest                                               $   4,672       $     -     $  11,456      $   24,892 
                                                      -------------   -----------   ----------      ----------- 
                                                      -------------   -----------    ----------     ----------- 
   Income taxes                                            $      -       $     -     $   1,600        $      - 
                                                      -------------   -----------   ----------      ----------- 
                                                      -------------   -----------    ----------     ----------- 

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

F-10

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DBS INDUSTRIES, INC. AND SUBSIDIARIES                                           
(A DEVELOPMENT STAGE COMPANY)                                                   
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS                                      
------------------------------------------------------------------------------- 
1.   ORGANIZATION AND BASIS OF PRESENTATION                                     

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

The Company was organized as a Delaware corporation on August 3, 1989.
Since inception the Company has been in the development stage. The    
    Company's current business plan is to develop a data communication service
   using a constellation of low earth orbit satellites and the internet. The
     Company's financial statements have been prepared assuming the Company will
continue as a going concern. Since inception, the Company has devoted 
  substantially all of its efforts to developing its business. The Company
has therefore incurred substantial losses and negative cash flows from
operating activities as reflected in these consolidated financial     
  statements. Accordingly, the Company has relied primarily upon obtaining
equity capital and debt financing to support its operations.          

  The Company does not expect revenue to exceed costs and expenses in 2000
 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 1999, the Company raised approximately $15 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 satellite constellation. Such financing is likely to
 result in a significant dilution in the equity interests of the current
stockholders. The construction of the first two of the six planned    
    satellites was required to commence by April 1999 pursuant to the terms of
   the Federal Communications Commission (FCC) license granted to E-SAT. The
  Company notified the FCC that it has achieved this milestone by entering
    into a construction contract on March 31, 1999. These financial statements
   do not reflect any adjustments that might result from the outcome of this
uncertainty.                                                          

GEMS is a Delaware corporation in the development stage whose primary 
     activity has been the development of satellite and radio systems for use in
automating the control and distribution of gas and electric power by  
 utility companies. GEMS had no significant activity during fiscal 1999.

     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.       

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2.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES                                 

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

USE OF ESTIMATES                                              

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

CASH EQUIVALENTS                                              

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

DEPRECIATION                                                  

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

SATELLITE CONSTRUCTION COSTS                                  

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

 The Company adopted Statement of Financial Accounting Standards
   ("SFAS") No. 121, "Accounting for Impairment of Long-Lived Assets
and Long-Lived Assets to be Disposed of." The Company reviews 
satellite construction costs and other long-lived assets for  
      impairment whenever events or changes in circumstances indicate that
      the carrying amount of an asset may not be recoverable. There was no
impact as of December 31, 1999.                               

GOODWILL                                                      

       Goodwill is amortized using the straight-line method over five years.
         Amortization expense charged to operations for the years ended December
        31, 1999, 1998 and 1997, was $2,515, $5,564, 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.

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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 these standards, basic
        earnings per share is computed based on the weighted average number of
        common shares outstanding and excludes any potential dilution; diluted
       earnings per share reflects diluted effects of all outstanding common
   stock equivalents. Options and warrants are excluded from the EPS
 calculation in loss years due to their antidilutive effect. The
following table summarizes options and warrants outstanding:  

                                                        [Enlarge/Download Table]

                                                      YEAR ENDED DECEMBER 31,            
                                            1999              1998              1997     
                                       --------------------------------------------------
                                                                                         
Options and warrants (excluded                                                           
    from) included in EPS calculation     (6,153,167)       (6,220,695)         1,748,938

Price range                            $0.40 - $5.60     $0.40 - $5.60      $0.39 - $5.60

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.                                  

SEGMENT REPORTING                                             

       Effective May 1, 1998, the Company adopted the Statement of Financial
 Accounting Standards No. 131, "Disclosures about Segments of an
     Enterprise and Related Information" ("SFAS 131"). SFAS 131 requires
       that an enterprise report financial and description information about
        its reportable operating segments. Generally, financial information is
  required to be reported on the basis that is used internally for
       evaluating segment performance and deciding how to allocate resources
       to segments. The Company has determined that they operate in a single
    segment as defined by SFAS 131. Adoption of this standard does not
   affect the Company's results of operations or financial position.

COMPREHENSIVE INCOME                                          

 In June 1997, the FASB issued Statement of Financial Accounting
       Standards No. 130, "Reporting Comprehensive Income" ("SFAS No. 130").
 SFAS No. 130 established standards for reporting and display of
comprehensive income and its components and is effective for  

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        periods beginning after December 15, 1997. The Company's comprehensive
income approximated net income for all periods presented.     

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
         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. 

        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, INC. (E-SAT)                                           

        In October 1994, the Company and EchoStar formed E-SAT for the purpose
   of filing with the FCC for a license to operate a low earth orbit
      satellite system. E-SAT filed with the FCC on November 16, 1994. The
        Company holds a 20% interest in E-SAT. The Company's total investments
      in, and advances to, E-SAT were $851,490 as of December 31, 1999 and
    1998. The investment is accounted for using the equity method. The
      Company's equity in losses of E-SAT for the years ended December 31,
1999 and 1998, were $0 and $134,524, respectively.            

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

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

       On July 30, 1999, the Company entered into an agreement with EchoStar
      under which it will receive 60.1% of E-SAT's shares from EchoStar in
        exchange for consideration, including the grant of rights to use up to
   20% of the satellite capacity of the E-SAT system by EchoStar. As

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       a result of this transaction, the Company will own 80.1% of the E-SAT
     shares. This share purchase agreement is subject to approval by the
FCC. In connection with the negotiations of the share purchase
      agreement with EchoStar, the Company paid $1,517,187 to a consultant
during 1999 and capitalized such costs in the E-SAT investment
account.                                                      

SEIMAC LIMITED                                                

        On November 30, 1995, the Company acquired 232,829 shares representing
        20% of the voting shares of common stock of Seimac Limited, a Canadian
 company, pursuant to a stock purchase and exchange agreement in
       exchange for 165,519 shares of common stock of the Company, valued at
        $662,010. The Company's investments of $662,010 was $464,255 in excess
         of the Company's proportionate share of the net book value of Seimac as
       of November 30, 1995. This excess 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, 1999 and 1998.
This investment is accounted for using the equity method.     

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

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

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 stockholder (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 rule 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.                                      

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        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.   

4.   SATELLITE CONSTRUCTION COSTS                                               

During the construction of the System, the Company is capitalizing all
    design, engineering, launch and construction costs. Such costs amounted to
approximately $12 million as of December 31, 1999.                    

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

In January and February 1999, the Company made additional payments to 
Alcatel totaling $1 million.                                          

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

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

5.   CUSTOMER ADVANCES                                                          

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

6.   RETIREMENT OF CONVERTIBLE DEBENTURES                                       

 On August 29, 1997, the Company completed an agreement with EchoStar to
   retire three convertible debentures in the principal amount of $4,640,000
     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   

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  which represented the closing bid price on August 27, 1997, the date the
parties initially agreed to the terms of the transaction.             

7.       COMMITMENTS                                                            

OPERATING LEASES                                              

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

                                                                [Download Table]


YEAR ENDING                                                       
DECEMBER 31,                                                      
                                                                  
   2000                                                 $ 178,128 
   2001                                                   178,128 
   2002                                                   178,128 
   2003                                                   103,908 
                                                     -------------
                                                        $ 638,292 
                                                     -------------
                                                     -------------

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

OTHER                                                         

Refer to Note 4 for certain contract commitments.             

8.  STOCKHOLDERS' EQUITY                                                        

COMMON STOCK                                                  

 The Company's Certificate of Incorporation, as amended in 1999,
         authorizes the issuance of 50,000,000 shares of common stock with a par
   value of $0.0004 per share. Each record holder of common stock is
  entitled to one vote for each share held on all matters properly
        submitted to the stockholders for their vote. Cumulative voting of the
election of directors is not permitted by the Certificate of  
Incorporation.                                                

PREFERRED STOCK                                               

 The Company's Certificate of Incorporation, as amended in 1999,
         authorizes the issuance of 5,000,000 shares of preferred stock with par
      value of $0.0004 per share. The Board of Directors of the Company is
        authorized to issue preferred stock from time to time in series and is
       further authorized to establish such series, to fix and determine the
  variations in the relative rights and preferences as between the
        series, and to allow for the conversion of preferred stock into common
         stock. No preferred stock has been issued by the Company as of December
31, 1999.                                                     

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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, 1999, none of these warrants have been exercised.

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

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

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

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

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

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

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

        In February 1999, the Company issued (a) 500,000 units each consisting
        of a share of Common Stock at a price of $3.00 per share and a warrant
        to purchase a share of Common Stock at an exercise price of $4.00, (b)
        50,000 units consisting of a share of common stock at a price of $2.50
   per share and a warrant to purchase a share of common stock at an
         exercise price of $3.50. Sale of these units resulted in gross proceeds
       to the Company of approximately $1.6 million. In connection with this
offering, the Company granted warrants                        

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        to purchase 75,000 shares of the Company's common stock at an exercise
 price of $3.75. Such grant represented stock issuance costs and
 therefore, its fair value of $270,000 was recorded as an offset
against the proceeds of the offering.                         

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

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

   During 1999, the Company granted options and warrants to purchase
         347,273 shares of the Company's common stock at exercise prices ranging
     from $0.79 to $2.75 to several service providers. The fair value of
      such options and warrants, which amounted to approximately $774,000,
      was recorded as an expense during 1999. The following variables were
used to determine the fair value of such instruments under the
       Black-Scholes option pricing model: volatility of 100%, expected life
  of 10 years for options and 2 to 3 years for warrants, risk free
       interest of 5% to 6% and underlying stock prices equal to fair market
value at the time of grant.                                   

    In December 1999, the Company granted warrants to purchase 500,000
        shares of the Company's common stock at an exercise price of $2.81 per
      share to a financial institution as consideration for its efforts to
     help raise capital. The fair value of such warrants of $674,000 was
        recorded as a long term asset and will be offset against proceeds once
        they are received. The fair value of the warrants was estimated on the
      date of grant using the Black-Scholes model with volatility of 100%,
         expected life of 3 years, risk-free interest rate of 5% and fair market
value of the common stock of $2.25 per share.                 

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

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 judgements 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% of the fair market value of the common stock on the date
   of the grant of incentive stock options. Nonqualified and nonplan
     options may be granted at a price lower than fair market value. The
      options granted under the 1996 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

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     (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.                                                    

  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.
   The Company has maintained the vesting schedule from the original
grants.                                                       

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

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

                                                        [Enlarge/Download Table]

                                              OUTSTANDING OPTIONS                     
                            --------------------------------------------------------  
                                                                             WEIGHTED 
                                                                             AVERAGE  
                            NUMBER OF        PRICE PER        AGGREGATE      EXERCISE 
                             SHARES            SHARE            PRICE         PRICE   
                                                                                      
Balance, December 31, 1997     1,418,233   $0.40 - $5.60      $  1,271,648        0.90

    Granted                      787,500   $0.53 - $2.19           569,329        0.78
    Exercised                   (161,577)  $0.53 - $1.44           (99,722)       0.62
    Terminated                         -         -                       -           -
                              ----------                       -----------            
Balance, December 31, 1998     2,044,156   $0.40 - $5.60         1,741,255            

    Granted                    2,149,700   $0.39 - $5.50         2,759,768        1.33
    Exercised                   (280,144)  $0.53 - $2.80          (203,695)       0.73
    Terminated                   (10,340)      $0.53                (5,491)       0.53
                              ----------                       -----------            
Balance, December 31, 1999     3,903,372   $0.39 - $5.60      $  4,291,837            
                              ----------                       -----------            
                              ----------                       -----------            

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  The following table summarizes information with respect to stock
options outstanding at December 31, 1999:                     

                                                                [Download Table]

                                                                OPTIONS           
                            OPTIONS OUTSTANDING                EXERCISABLE        
                  ------------------------------------   ------------------------ 
                                WEIGHTED                                          
                                 AVERAGE                                          
                                REMAINING    WEIGHTED                    WEIGHTED 
                               CONTRACTUAL    AVERAGE                    AVERAGE  
    RANGE OF      NUMBER          LIFE       EXERCISE      NUMBER        EXERCISE 
EXERCISE PRICE  OUTSTANDING      (YEARS)       PRICE     EXERCISABLE      PRICE   
                                                                                  
$0.53 - $0.75       1,643,659         7.08      $  0.57      1,384,517     $  0.55
$1.08 - $1.67       2,038,501         9.41         1.31        638,084        1.32
$2.00 - $2.86         164,928         8.09         2.33        164,928        2.33
$5.50 - $5.60          56,284         8.13         5.51         56,284        5.51
                   ----------                              -----------            
                    3,903,372                                2,243,813            
                   ----------                              -----------            
                   ----------                              -----------            

       The stock based compensation for the twelve months ended December 31,
    1999 of $957,755 has been allocated across the relevant functional
expense categories within operating expense as follows:       

                                                                [Download Table]

                                                 
Marketing and sales                     $ 153,324
General and administrative                756,035
Research and development                   48,396


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

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

F-21

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        The weighted average fair value of the options granted or modified for
 the years ended December 31, 1999 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:                       

                                                                [Download Table]

                                      1999              1998              1997 
                                                                               
Risk free interest rate                5.5%              5.7%              5.7%
Expected life                      4 years           4 years           4 years 
Volatility                             100%              227%               80%
Dividend yield                           -                 -                 - 

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

                                                                [Download Table]

                                              DECEMBER 31,                    
                             -------------------------------------------------
                                1999              1998              1997      
                                                                              
Net income (loss)                                                             
    As reported              $ (5,915,493)     $ (3,293,493)        $3,068,917
    Pro forma                $ (6,252,010)     $ (3,713,942)        $1,793,791

Net income (loss) per share                                                   
    As reported                  $  (0.45)         $  (0.47)          $   0.49
    Pro forma                    $  (0.48)         $  (0.53)          $   0.29

9.   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.                                                              

Refer to Notes 3 and 6 for disclosures regarding related party        
transactions with EchoStar.                                           

10.  INCOME TAXES                                                               

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

F-22

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The estimated tax effect of significant temporary differences and     
   carryforwards that gave rise to deferred income tax assets as of December
31, 1999 and 1998, is as follows:                                     

                                                        [Enlarge/Download Table]

                                                1999                         1998              
                                      --------------------------   ----------------------------
                                       FEDERAL         STATE        FEDERAL         STATE      
                                                                                               
Deferred tax assets:                                                                           
    Net operating loss carryforwards  $  3,439,000     $ 602,000   $  1,785,000     $ 305,000  
    Research and development credit                                                            
      carryforwards                        147,000             -        115,000             -  
    Excess of tax over book basis of                                                           
      investments, deferred                                                                    
      compensation, and other               64,000        12,000         10,000         1,500  
                                       -----------      --------     ----------      --------  
    Deferred tax assets                  3,650,000       614,000      1,910,000       306,500  
    Valuation allowance                 (3,650,000)     (614,000)    (1,910,000)     (306,500) 
                                       -----------      --------     ----------      --------  
        Net deferred tax assets          $       -       $     -      $       -       $     -  
                                       -----------      --------     ----------      --------  
                                       -----------      --------     ----------      --------  

Due to the uncertainty of realization, a valuation allowance has been 
provided to offset the net deferred tax assets. The increase in the   
    valuation allowance was approximately $2,047,500 and $1,293,500 during the
 years ended December 31, 1999 and 1998, 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, 1999, the Company has net operating loss carryforwards
     of approximately $10,114,000 and $9,800,000 for federal income tax purposes
     and California state franchise tax purposes, respectively. The Company also
has research and development credit carryforwards. Such carryforwards 
expire in varying amounts between 2000 and 2020.                      

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

11.  RISKS AND UNCERTAINTIES                                                    

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

12.  SUPPLEMENTAL DISCLOSURES OF NON CASH INVESTING AND FINANCING ACTIVITIES    

During the years ended December 31, 1999, 1998 and 1997, the following
noncash activities occurred:                                          

   -    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.                              

  F-23

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-    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.

-    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.                          

    -    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.                                    

     -    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.                                                   

-    The Company issued a warrant to purchase 500,000 shares of the   
         Company's common stock in exchange for efforts to help raise capital.
       The fair value of the warrant of $673,000 was capitalized as a long
 term asset and will be offset against proceeds, once they are
received.                                                   

-    The Company issued a warrant to purchase 75,000 shares of the    
          Company's common stock to a financial institution as consideration for
    its effort to help raise capital. The fair value of $270,000 was
offset against the proceeds from the issuance of stock.     

13.  SUBSEQUENT EVENT                                                           

   As of March 24, 2000, the Company committed to issue 20,833 shares of the
 Company's preferred stock in exchange for gross proceeds of $624,990 in
    cash. Each share of preferred stock is convertible, at the election of the
     holder, into ten shares of the Company's common stock at a conversion price
    based upon a $3.00 per common share price, or the average trading price of
   the common stock within a specified period if the common stock is trading
at less than $3.00 per share.                                         

F-24

Deferred                                                                        
Stock                                                                           

Dates Referenced Herein   and   Documents Incorporated by Reference

				Referenced-On Page
This ‘10KSB’ Filing		Date		First		Last			Other Filings
		7/31/03		22
		6/30/01		50					10QSB
Filed on:		3/30/00		32
		3/27/00		5
		3/24/00		17		56
		3/13/00		2
		3/10/00		33
		1/1/00		26
For Period End:		12/31/99		1		55
		12/22/99		30
		11/8/99		30
		10/18/99		30
		10/8/99		6		48
		9/1/99		30
		7/31/99		5
		7/30/99		17		46
		7/28/99		30
		7/14/99		6
		6/1/99		30
		5/3/99		30
		4/28/99		28
		4/8/99		13		46
		3/31/99		5		48			10-Q,  4,  NT 10-K,  NT 10-Q
		3/13/99		2
		2/19/99		28
		1/12/99		29
		12/31/98		24		55			10KSB,  NT 10-K
		12/15/98		48
		9/16/98		30					SB-2
		6/11/98		39
		5/14/98		39
		5/1/98		45
		4/30/98		47
		4/16/98		39
		4/1/98		39
		3/31/98		4		46			10QSB,  NT 10-K,  NT 10-Q
		3/1/98		29
		2/12/98		39
		12/31/97		24		55			10KSB,  10KSB/A,  NT 10-K
		12/15/97		46
		8/29/97		46		56
		8/27/97		49
		8/17/97		47
		7/9/97		39		50
		6/30/97		39					10KSB40/A,  10QSB,  NT 10-Q
		5/28/97		28
		4/30/97		39
		4/21/97		47
		4/10/97		39					PRE 14A
		3/31/97		39					10QSB
		2/28/97		39
		2/14/97		39
		1/31/97		39
		1/23/97		46		56
		1/8/97		46
		12/31/96		30		46			10KSB,  10KSB40,  10KSB40/A,  NT 10-K
		9/21/96		38
		8/15/96		38
		6/30/96		38					10QSB
		5/16/96		47
		4/18/96		29
		3/1/96		29
		2/15/96		38
		2/9/96		29
		2/1/96		29
		1/22/96		47
		1/15/96		38
		1/13/96		38		50
		1/12/96		47
		12/31/95		30		38
		12/21/95		46
		12/13/95		29		38
		11/30/95		47
		9/21/95		38
		7/31/95		30		38
		7/15/95		38
		5/15/95		38
		11/30/94		38
		11/16/94		46
		7/31/94		30		37
		7/29/94		37
		5/16/94		29
		1/28/94		37
		11/19/93		37
		7/31/93		30		37
		7/2/93		37
		12/2/92		28		37
		10/9/92		36
		10/2/92		36
		9/30/92		28
		9/11/92		36
		8/1/92		37
		7/31/92		36
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