<PAGE>   1

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                                 UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549
                             ---------------------

                                   FORM 10-K
                             ---------------------
(MARK ONE)

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

               FOR THE FISCAL YEAR ENDED JUNE 30, 2001

                                       OR

    [  ]      TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
              SECURITIES EXCHANGE ACT OF 1934

               FOR THE TRANSITION PERIOD FROM ________ TO ________

                         COMMISSION FILE NUMBER 1-14198

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

                       DIGITAL TRANSMISSION SYSTEMS, INC.
       (Exact name of small business issuer as specified in its charter)

<Table>
<S>                                              <C>
              DELAWARE                                        58-2037949
    (State or other jurisdiction                           (I.R.S. Employer
  of incorporation or organization)                       Identification No.)
       3400 RIVER GREEN COURT
             DULUTH, GA                                          30096
   (Address of principal executive                            (Zip Code)
                office)
</Table>

                                 (770) 497-4500
                (Issuer's telephone number, including area code)

          SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:

<Table>
<Caption>
                                                 NAME OF EACH EXCHANGE
TITLE OF EACH CLASS                               ON WHICH REGISTERED
-------------------                              ---------------------
<S>                                     <C>
Common Stock..........................  Philadelphia and Boston Stock Exchanges
</Table>

          SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
                                  Common Stock
                                (Title of Class)

    Check whether the issuer (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing requirements for the past
90 days. Yes [X]  No [ ]

    Total revenues for the registrant for the fiscal year ended June 30, 2001
were: $47,265,332, including discontinued operations.

    At September 27, 2001, there were 11,814,119 shares of common stock
outstanding. The aggregate market value of the common stock held by
non-affiliates (based upon the closing price quoted on the OTC Bulletin Board at
September 27, 2001 was approximately $2,362,824.

    Transitional Small Business Disclosure Format (check one): Yes [ ]  No [X]

    Documents incorporated by reference: The Company's 2001 Proxy Statement to
filed with the Commission in October 2001.
--------------------------------------------------------------------------------
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<PAGE>   2

                                     PART I

ITEM 1.  BUSINESS

GENERAL

Digital Transmission Systems, Inc. ("DTS") and subsidiaries (collectively termed
the "Company") designs, manufactures, repairs and markets a broad range of
products for the telecommunications ("telecom") industry. The Company's primary
customers are long-distance carriers, domestic and international wireless
service providers, including those offering cellular telephone services and
Personal Communication Services ("PCS"), and domestic and international
resellers/integrators who sell to and service end users with telecom equipment.

The Company's products of original design, consisting of proprietary software
and hardware modules, facilitate the control, monitoring, and efficient
transmission of high-speed digital information through public or private
telecommunications networks. The Company's network access products enable
telecommunications service providers to give their customers economical, high
quality access to public and private networks and various telecommunications
services. These services include voice and high speed data transmission, access
to the Internet and video and desktop conferencing. Important product
requirements in the market segments the Company serves include high feature
density, modularity, quality performance and compactness. The Company's products
meet these requirements and are suitable for both wireline and wireless service
environments. Major customers of DTS include Nextel, Alltel Wireless and Alltel
Supply.

The Company markets its products through a direct sales force employing inside
and outside sales representatives and several reseller channels. Domestically,
wireless service providers, including cellular, Specialized Mobile Radio ("SMR")
and PCS service companies, are targeted as prospective customers directly by the
Company's sales force. The Company also utilizes telecommunications equipment
resellers and agents in the United States and other countries to market to
private network customers.

In late fiscal 2001, the Company's Board of Directors approved a plan to divest
of its de-installed telecommunications equipment business (Asurent Technologies,
Inc. -- formerly Telcor Communications). The business, which includes a repair
services unit, will continue to operate while the Company seeks and evaluates
divestiture alternatives for Asurent Technologies. The financial statements have
been reclassified to exclude the operating results of Asurent Technologies and
account for them as discontinued operations (See Note 15 to the accompanying
consolidated financial statements). The following discussion relates only to the
Company's continuing operations. The decision for divestiture was based on a
thorough strategic and financial review of the Company's operations and
subsidiaries coupled with the consideration of the severe macroeconomic
conditions in the telecommunications industry. The Company decided to only
retain those segments that will potentially provide self-generated positive and
profitable growth in the near-term as access to external financing has been
difficult to obtain in recent periods.

BACKGROUND

Apart from a recent trend in consolidations and business combinations among
service providers, the telecommunications industry is undergoing rapid and
fundamental changes in the services being provided. Along with traditional voice
services, customers are now being offered multimedia applications, Internet
access, video and desktop conferencing, facsimile transmission, compressed voice
communications and data communications between computers. The new services
necessitate the increased use of high-speed digital or broadband transmissions.
The increased demand for broadband capacity has led to significant network
infrastructure growth and efforts to improve the efficiency of current
telecommunications systems. For all participants in the telecommunications
industry, including long distance carriers, telephone operating companies and
wireless service providers, the need for efficient transmission of broadband
signals, lower operating costs, seamless connectivity and the assurance of
quality service between networks is of vital importance. Continued growth in
traditional wireline and alternative services will increase the need for
products like those offered by the Company which are designed to address these
requirements.

The Company has focused on the equipment needs of the wireless service industry.
Future needs will require the more efficient use of the frequency bands used by
the wireless carriers in offering current or future services especially those
requiring high speed or broadband digital data rates. The Company's association
with Wi-LAN, Inc., a developer and licensor of high speed wireless technology in
Calgary, Canada, has permitted the Company to potentially address such future
equipment needs with W-OFDM technology from Wi-LAN. This patented technology
allows the more efficient utilization of the limited bandwidth that wireless
carriers are licensed to use. The Company believes the following trends are
contributing and will continue to contribute to the growth in demand for its
products and services:

Growth in Wireless Services.  According to industry sources, the wireless market
is currently estimated to include over 60 million cellular users in the US.
Although many of these users initiated wireless service with analog cellular
networks, many of these older networks are being upgraded to offer digital
services in the frequency bands they have been authorized

                                        1
<PAGE>   3

to utilize. The growth and analog-to-digital migration of these legacy networks
has created the need for highly integrated, multi-functional, high-speed network
access products to speed deployment of new digital cellular services, ease the
maintainability of networks, lower cell site costs and simplify the day-to-day
operation of the associated network.

Deployment of PCS (Personal Communications Services).  The Company believes that
significant infrastructure investments will be made over the next few years as
PCS licensees build new or upgrade their communications networks to third ("3G")
and fourth generations ("4G") of wireless services. The establishment of a PCS
network involves the construction of a significant infrastructure that must be
reliably connected to existing wireline and cellular services. Each of these
networks will require efficient equipment to control and monitor the flow of
digital information without significant dependency on the local telephone
company for links between cell sites or major switching centers.

Growth in Wireline Services.  The Company believes the markets for traditional
wireline service will continue to grow. Internet access is expanding and the
Company believes the trend of increased level of mobile services and
telecommuting is likely to continue because of: declining costs of
telecommunications equipment and services, employer cost-cutting and desires to
improve employee productivity, availability and convenience of improved
technology and environmental concerns. The increasing number of public
telecommunications services has created the need for broadband digital
connection devices that give service providers the ability to economically
expand their networks to provide new service offerings without drastic changes
in technology and the associated infrastructure costs. The ability to quickly
connect existing customers to these new broadband services without changing
access technologies usually means lower costs to end users and simplification of
network construction for the service provider.

Proliferation of Competitive Access Providers.  Deregulation of the
telecommunications industry has resulted in an increase in competitive
alternatives for local access to network services. These Competitive Access
Providers ("CAPs"), such as cable TV companies, utilities and long distance
telephone service providers, have targeted major metropolitan markets in the
United States to offer local telephone and broadband network services and are
courting large corporate customers who have traditionally been serviced by the
local Regional Bell Operating Companies ("RBOCs"). These CAPs have unique
connection requirements for access to the public network that are creating
opportunities for wireless digital transport equipment providers. Bridging two
buildings separated by 100 yards or two locations 30 miles apart with wireless
transport equipment allows companies to avoid the expense of leased lines from
the local RBOC. The market for equipment that connects the various networks is
one that the Company believes will continue to grow.

Growth of International Markets.  Many countries throughout the world lag behind
the United States in telecommunications infrastructure development. As customers
in such countries begin to demand new or enhanced communications services,
service providers will seek the ability to upgrade telecommunication networks
quickly without sacrificing service quality. Service providers in developing
countries are faced with the need to promptly connect high-speed digital lines
to public networks, provide telecommunications to rural areas and provide
extensions for thin route cellular services.

Growth in Usage of Internet Protocol (IP) Packet Systems.  The proliferation of
packet based data systems using the IP format has led to the advent of IP based
telephone services. It is envisioned that future voice communications and data
transmission through carrier networks will be increasingly accomplished through
IP packet formatted systems. This trend will revolutionize the processing of
voice calls and will lead to new services that many carriers are eager to offer.

All of these trends have created and will continue to create the need for
cost-effective, quality broadband network control and network access products,
such as those offered by the Company, that permit carriers to economically build
and operate networks to address the service requirements of their customers.

THE DTS SOLUTION

DTS has developed an integrated, systems-based, high-speed network control and
access solution for wireless and wireline networks that consists of the family
of access devices -- FlexT1(R), FlexE1(TM), microFlex(TM) and the IP Processor.
In fiscal 1998 the Company introduced microFlex, a DS-1 cross connect switch
which addresses the need for high speed line concentration in wireless carrier
networks and in wireline applications. In April 1999 the Company introduced the
IP Processor, a device that allows connectivity to the internet from cell sites
in a wireless carrier network. The Company believes that its products can be
combined to offer whole product solutions that provide significant
differentiation from competitive offerings in the marketplace with respect to
size, price, feature density and reliability.

The FlexT1 and FlexEl network access products provide integrated access to
public network services for both domestic ("T1") and international ("El")
markets. The FlexT1 and FlexEl are provided in a compact physical package, are
expandable and allow an end user to access many of the business services
available from the public network. These products also enable the sharing of
telecommunication facilities among the different services, such as voice, video,
the Internet and facsimile, thus reducing the number of access lines the user
must lease and potentially reducing overall telecommunications expenses. A
companion product to the FlexT1/E1 family is microFlex(TM), a cross connect
switch or "DACS" (Digital Access Cross Connect Switch). The microFlex offers
non-blocking DS0 cross connect capability for up

                                        2
<PAGE>   4

to sixteen T1's or E1's in one RU (1.75in.) high package. This product has
applications in hubbing or grooming environments involving many broadband lines
such as those found when concentration of voice lines from several cell sites
are necessary before transport to the central switching center.

COMPANY STRATEGY

The Company's goal is to become a leading worldwide supplier of network control
and access products and services for both public and private high-speed
telecommunications networks. In order to realize these goals the Company plans
to:

Concentrate on the Domestic and International Expanding Cellular and PCS
Markets.  The Company has a sales force and support staff to further penetrate
the growing domestic and international Cellular and PCS markets. The Company's
network access products have numerous wireless applications and offer what the
Company believes is a unique integrated solution to the wireless carriers' need
to monitor and control transmission facilities to hundreds of remote cell sites.

Develop and Expand on Flexible and Modular Platforms.  The Company continues to
expand upon its modular Flex and microFlex and IP Processor line of network
access products and plans to add various modules for feature enhancements,
facilitating continued utilization of Flex products as new applications are
developed.

The Company was certified in December 1994 and continues to be an ISO 9001 new
equipment supplier, thus establishing its quality assurance credentials for the
international arena.

PRODUCTS AND TECHNOLOGY

The Company's proprietary products facilitate network access, bandwidth
management, network control and delivery of high-speed digital
telecommunications services.

MICROFLEX PRODUCT

During fiscal 1998 the Company introduced microFlex which in conjunction with
FlexT1/E1 allows more efficient use of high speed lines which a wireless carrier
utilizes to connect voice and other traffic between cell sites and its switching
center. In particular, microFlex offers cross connect functionality between
segments of one high speed line (T1 or E1) with another in a total set of up to
sixteen high speed lines.

FLEXT1 AND FLEXE1 PRODUCT FAMILY

The FlexTl family of products provides integrated access to public network
telecommunications services. The FlexTl consists of single and multi-slot
enclosures that are customized with various card sets to satisfy a wide range of
network access applications. The FlexE1 provides much of the same functionality
currently available in the FlexT1 for countries using the E1 (international)
standard. Customer equipment needs include N x 56/64 Kbps and full T1 interfaces
for data, voice and video applications.

FLEXT1/E1 SYSTEM ARCHITECTURE

The FlexT1/E1 bandwidth management features are derived from an advanced
architecture with two independent Time Division Multiplexed ("TDM") busses
available to each card position within a FlexT1/E1 enclosure. This architecture
allows users to pay only for the functions and features needed for a particular
application. Bandwidth managers connect directly to the service provider's
network and user traffic is interfaced through card sets that connect directly
to voice, data and video terminals. All card sets within the product family can
be upgraded with software as new features become available.

IP PROCESSOR PRODUCTS

The IP Processor product from DTS provides wireless carriers a means for
connecting cell sites in their network to the internet. This connectivity
enhances the ability of the carrier to remotely access various pieces of
equipment at the cell site for maintenance and network control purposes. This
password protected access would be available from any personal computer
connected to the internet. In addition, a craftsperson at the cell site would
have access to the internet resources for accessing equipment user manual
information.

INTERFLEX

InterFlex is the newest member of the Flex family of network access and
connectivity products. InterFlex combines the functions of an STS-1/DS3/DS1/DS0
digital Cross-Connect Switch and a Voice & Data Access Multiplexer into a single
compact unit. Wireless carriers can use InterFlex at cell sites to groom signals
from base stations and ancillary equipment into one or more T1s or into a T3. At
a Hub site, T1s from remote cell sites can be multiplexed into a T3 or STS-1
signal.

                                        3
<PAGE>   5

Partially full T1s can also be combined in the digital cross-connect switch to
reduce the number of T1s and minimize transmission costs. The InterFlex has two
chassis options: an 11 slot chassis occupying 10.15 inches (6 RUs) of vertical
space and supporting up to 88 T1s, or a 4 slot horizontal model supporting 32
T1s in 5.25 inches (3 RUs) of vertical space. Application modules range from
STS-1, T3, and T1 network cards, to a variety of router/hub, voice and data
cards. An N+1 protection switch is also available to provide redundancy for the
T3, STS-1, and octal T1 card sets.

The Company offers its complete set of products to wireless and wireline service
providers through a direct sales force. A secondary channel to
telecommunications service providers exists through selected reseller
arrangements. Reseller agreements were signed with Alltel Supply and Somera
Communications who distribute telecommunications equipment to telephone service
providers and private network users.

COMPETITION

The market for telecommunications products is highly competitive and subject to
rapid technological change, regulatory developments and emerging industry
standards. The Company believes that the principal competitive factors in its
markets are: support for multiple types of carrier services, conformance of
products to multiple public carrier standards, reliability and safety, the
development and rapid introduction of new product features, price, performance,
and quality of customer support.

The Company's principal competition to date has come from major
telecommunications equipment suppliers active in certain market segments. In the
network access marketplace, ADC Kentrox (a subsidiary of ADC Telecommunications
Inc.), Carrier Access Corporation, Paragon Networks, Inc., Adtran Inc. and
Newbridge Networks, Inc. are competitors.

The Company expects increased competition from existing competitors as they
develop and service products with functionality similar to that of the Company's
products. In addition, the Company expects to compete with other new entrants to
the telecommunications access equipment marketplace, including those targeting
bandwidth on demand services and broadband integrated access products. To the
extent that current or potential competitors can expand their current offerings
to include monitoring and maintaining network facilities in an integrated
product, the Company's business and operating results could be materially
adversely affected.

MANUFACTURING

For its products of proprietary design, DTS currently outsources most
subassembly, board assembly and testing to high quality suppliers which are ISO
9002 certified. For products designed by other manufacturers and sold as
refurbished items with warranty, DTS does repair and testing of those products
using its facilities and personnel with rare exception.

For several of the products and subassemblies of original design, finished
circuit boards are brought to DTS headquarters for final assembly, system
integration, testing and product burn-in. Defective subassemblies are returned
to the contract manufacturers for root cause analysis and process problem
resolution. System test development is jointly done by the Company's engineering
and quality assurance personnel. Most DTS product board assemblies contain
surface mount technology ("SMT") components so that only minor touch-up is
possible by DTS manufacturing personnel.

High quality is demanded by all DTS' customers. The Company continues to strive
for quality in the design and the manufacturing of products in order to attain a
competitive advantage. All key procedures in the Company have been documented
and Company policy requires that employees follow these procedures. It is the
Company's belief that this policy promotes consistency in the delivery of value
to the customer. This effort led to ISO 9001 certification for the Company in
December 1994, and numerous successful follow-up compliance surveillance audits
for products of original design.

PRODUCT DEVELOPMENT

The market value of the Company's diversified network access and control systems
is based upon its core technologies in customer terminal interfaces for voice
and high-speed data applications, T1 networking and microwave radio
applications. Additionally, the Company has valuable experience in public,
private and cellular T1 networking standards and control systems. The Company's
product development efforts are currently concentrated in the T1 network access,
transport and control areas.

The Company's resident core technologies resulting from the developments of the
Flex and microFlex products include:

- T1/E1 multiplexing of voice and high speed data signals

- T1/E1 alarm reporting and trunk conditioning

- Network performance monitoring and testing

                                        4
<PAGE>   6

- TI ESF data link message transport

- SNMP protocol processing

- TCP/IP protocol message handling

- 10Base5 and 10BaseT Ethernet Media Access Control

- Microprocessor-based product design

- Real time processing of control and data signals

- Design of programmable logic device

The Company's product development efforts have also resulted in the development
of a number of relevant technologies for products targeted toward the wireless
infrastructure and CAP market segments. These technologies include hardware and
software modules for high-speed digital modems, high data rate modulation
algorithms, error correcting coding, automatic equalization methods utilizing
digital signal processing, VLSI devices, RF filtering for microwave products,
point-to-point and multipoint networking protocols, X.25 interfaces, voice
compression, voice telephony interfaces and T1 digital cross connects.

The technologies listed above are being used by the Company's product
development group to design wireless products and enhancements for the FlexT1/El
platform. Future Company products will potentially exploit the bandwidth
efficiencies offered with the use of the patented broadband wireless technology
from Wi-LAN, Inc.

INTELLECTUAL PROPERTY

The Company's proprietary technology is protected in large measure by trade
secret although it has several patents either granted or pending. Core
technologies described in the "Product Development" section are incorporated in
the Company's products through proprietary hardware and software modules that
embed original algorithmic and device circuitry.

The Company currently owns the trademarks of "FlexT1," "FlexE1," and
"microFlex." It has also filed federal trademark applications for FlexSentry,
FlexCell, FlexE1 internationally, and these applications were published for
opposition in the Trademark Office after examination. The applications for
FlexCell and FlexE1 were formally opposed by Fujitsu Network Transmission
Systems, Inc. Fujitsu has alleged that the trademark registrations should be
denied because of their prior rights filed on a trademark application for FlexR,
for certain access controllers. The Company and Fujitsu have reached an
agreement whereby the DTS trademarks can be used with few restrictions.

The Company relies primarily upon trade secret protection for its confidential
and proprietary product information. There can be no assurance that competitors
or potential competitors of the Company will not independently develop
substantially equivalent proprietary information and techniques or otherwise
gain access to the Company's trade secrets or disclose such technology, or that
the Company can meaningfully protect its trade secrets. Failure to obtain needed
patents or licenses or proprietary information held by others could have a
material adverse effect on the Company.

RESEARCH AND DEVELOPMENT COSTS

During fiscal years 2001 and 2000, the Company's expenditures in product
development were $1,527,000 and $759,000, respectively. The increase in spending
from 2000 to 2001 is primarily due to additional compensation costs as a result
of the additional hiring of approximately 11 hardware and software engineers
during early fiscal 2001. During fiscal 2001 and 2000, the Company capitalized
approximately $105,000 and $174,000 in software development costs primarily for
the continued development and enhancement of the Internet Protocol Processor
card set.

During fiscal years 2000 and 1999, the Company's expenditures in product
development were $759,000 and $1,353,000, respectively. The decrease in spending
from 1999 to 2000 is primarily due to the divestiture of SouthTech, Inc., the
Company's international subsidiary. During fiscal 2000, the Company capitalized
approximately $174,000 in software development costs primarily for the continued
development and enhancement of the Internet Protocol Processor card set. During
fiscal 1999, the Company capitalized approximately $136,000 in software
development costs primarily for the development of the Company's ELP (Enhanced
Lightning Protection) Card set.

GOVERNMENT REGULATION

The FCC has regulated the design of telecommunications equipment for use in the
United States by restricting radio frequency signal emissions and by licensing
frequency usage. Compliance with electronic product safety regulations is also
required for every new product design. It is possible that a government agency
such as the FCC could issue regulations which would require the modification of
DTS equipment in order to comply with the new regulations. A change in FCC rules
may impact sales of DTS products should it occur. International standards for
electronic product design in the areas

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of safety and signal emissions are different in many cases from those issued by
United States government agencies. Sales of telecommunications equipment in a
foreign country are often restricted by equipment design standards and
regulations adopted by a centralized governmental agency similar to the FCC. The
Company has to date experienced no material difficulties in complying with the
various laws and regulations affecting its business.

EMPLOYEES

As of June 30, 2001, the operating unit of the Company, apart from Asurent
Technologies, had approximately 41 full-time employees, of whom 14 are technical
personnel engaged in developing the Company's products, 11 are marketing and
sales personnel, approximately 9 are quality assurance and operations personnel
and 7 are involved in administration and finance. All of the Company's employees
are full-time. The Company's employees are not unionized and the Company
believes that its employee relations are good.

BACKGROUND OF THE COMPANY

A predecessor by merger to the Company was incorporated in Delaware in 1984. The
Company was originally incorporated in Delaware in 1992 as Netra, Inc. and
changed its name to Digital Transmission Systems, Inc. in 1995 in conjunction
with the merger with its wholly-owned subsidiary Digital Transmission Systems,
Inc., a California corporation. On March 4, 1996, the Company completed a public
offering of 1,220,700 Units each consisting of one share of Common Stock and one
warrant to purchase one share of Common Stock at a price of 120% of the unit
offering price of $7.50. On February 18, 1997, trading of the Units was split
into separate trading of the underlying Common Stock and Warrants. The Company
stock was delisted from the NASDAQ small cap exchange on October 15, 1998 and is
currently being traded as an OTC Bulletin Board issue.

ITEM 2.  PROPERTIES

The Company's primary operations are located in an approximately 160,000 square
foot facility in a modern business park in Duluth (in the greater Atlanta,
Georgia area). The Company leases the Duluth facility under a five year lease
with an irrevocable trust for the children of the former shareholders of Asurent
Technologies (formerly Telcor Communications, Inc.) Base annual rent under this
lease approximates $909,000 per year.

The Company believes its facilities are suitable and adequate for its current
purposes but will seek facilities more appropriate for its operations after the
divestiture of Asurent Technologies.

ITEM 3.  LEGAL PROCEEDINGS

The Company is involved in various claims and legal actions arising in the
ordinary course of business. In the opinion of management, the ultimate
disposition of these matters will not have a material adverse effect on the
Company's financial position, results of operations, or liquidity. The Company
is not a party to any material legal proceedings.

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

None.

                                        6
<PAGE>   8

                                    PART II

ITEM 5.  MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS

On October 14, 1998, the Company was de-listed from NASDAQ due to noncompliance
with a net worth requirement of $2,000,000 for continued listing. The Company's
common stock, with symbol DTSX, continues to trade on the OTC Bulletin Board.

On March 4, 1996, the Company completed a public offering of 1,220,700 Units
("Units"), each consisting of one share of Common Stock ("Common Stock") and one
Warrant ("Warrant") to purchase one share of Common Stock at an exercise price
per share equal to 120% of the initial public offering price of the Units. The
shares of Common Stock and Warrants were not detachable or separately
transferable, and could only have been traded as part of a Unit until February
18, 1997 (the "Separation Date"), when each Unit was separated into one share of
Common Stock and one Warrant. The Common Stock and Warrants had been listed on
the NASDAQ SmallCap Market, the Company's principal market, under the symbols
DTSX and DTSXW, respectively, and were listed on the Philadelphia Stock Exchange
and the Boston Stock Exchange under the symbols DTS and DTS.W, respectively. The
Units previously traded on the NASDAQ Market and the Philadelphia and Boston
exchanges.

On February 18, 1997 the Common Stock and Warrants underlying the Units began
trading separately and the Units ceased to trade. Both the Common Stock and
Warrants traded on the NASDAQ Market and the Philadelphia and Boston exchanges.
On October 14, 1998, the Company's securities ceased to be listed on NASDAQ and
continue to trade on the OTC Bulletin Board. The Company's publicly traded
warrants expired on March 5, 2001. The price per share of the Company's Common
Stock in the table below represents the range of low and high closing sale
prices as reported by the NASDAQ Stock Market or the OTC Bulletin Board for the
quarters indicated:

<Table>
<Caption>
                       Quarter Ended                          High Price   Low Price
------------------------------------------------------------  ----------   ---------
<S>                                                           <C>          <C>
June 30, 1999                                                  $ 0.8125     $0.2187
September 30, 1999                                             $ 0.4688     $0.2188
December 31, 1999                                              $ 2.1250     $0.2500
March 31, 2000                                                 $12.4375     $2.2500
June 30, 2000                                                  $ 7.3750     $2.7500
September 30, 2000                                             $ 7.9375     $3.2500
December 31, 2000                                              $ 4.0312     $0.4688
March 31, 2001                                                 $ 2.4688     $0.5000
June 30, 2001                                                  $ 0.9000     $0.5100
</Table>

The closing sale price of the Company's Common Stock as reported by the OTC
Bulletin Board on June 30, 2001 was $0.51.

The total number of shareholders of record of the Company's common shares as of
September 28, 2001 was approximately 83. Because a substantial portion of shares
are held by brokers and other institutions on behalf of shareholders, the
Company is unable to estimate the total number of shareholders beyond those
represented by these record holders.

The Company has never paid cash dividends on its Common Stock. The Company
currently intends to retain any earnings for use in the business and does not
anticipate paying any cash dividends in the foreseeable future.

ITEM 6.  SELECTED FINANCIAL DATA

The following selected financial data should be read in conjunction with the
Company's historical financial statements and related footnotes and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" immediately following this section.

Amounts are in thousands, except per share data, and relate to the continuing
operations of the Company.

<Table>
<Caption>
                                                         FY2001   FY2000   FY1999   FY1998   FY1997
                                                         ------   ------   ------   ------   ------
<S>                                                      <C>      <C>      <C>      <C>      <C>
Net sales                                                11,811   10,085   7,538    15,579   14,484
Loss from continuing operations                           (853)   (1,700)   (424)   (8,380)  (4,190)
Loss from continuing operations per common share         (0.10)   (0.31)   (0.10)   (2.01)    (1.05)
Total assets                                             4,188    31,014   3,807    7,208    10,311
Long term debt                                             721      721    2,127       --        --
</Table>

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<PAGE>   9

ITEM 7.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS AND SELECTED FINANCIAL DATA

The following discussion of the results of operations and financial condition
should be read in conjunction with the Company's audited consolidated financial
statements and notes thereto.

OVERVIEW

During fiscal 2001, the Company created two subsidiaries -- Asurent Wireless,
Inc. and Asurent Technologies, Inc. Asurent Wireless' operations encompass the
design, manufacture and marketing of network access product lines of the Company
(Flex products) while Asurent Technologies (formerly Telcor Communications)
targets the de-installed telecommunications equipment market segment. The
Asurent Technologies subsidiary was basically the result of a restructuring of
Telcor Communications, a company purchased in March of 2000. During fiscal 2001
the Company engaged two different investment bankers to execute private
placements of the Company's stock in order to increase cash reserves and provide
additional working capital for its subsidiaries. The money raising activities by
the two investment bankers did not provide the working capital required for the
Company's growth in sales. With the advent of a severe downturn in
telecommunications services domestically, the process of completing a private
placement was abandoned. The Company has downsized in headcount and has
implemented a number of expense reduction programs in order to preserve cash and
prepare for any further downturn in telecommunications equipment sales. As a
means to raise money for its remaining business, in late fiscal 2001 the
Company's Board of Directors approved a plan to divest Asurent Technologies,
Inc. The Company will seek and evaluate several divestiture alternatives. As a
result of this Board approval, the financial statements have been reclassified
to account for the operating results of Asurent Technologies as discontinued
operations (See Note 15 to the accompanying consolidated financial statements).
The following discussion relates only to the Company's continuing operations.
The decision to exit the business was based on a thorough strategic and
financial review of the Company's operations and subsidiaries coupled with the
consideration of the severe macroeconomic conditions in the telecommunications
industry. The Company decided to only retain those segments, addressed by the
Asurent Wireless subsidiary, that will potentially provide self-generated
profitable growth in the near-term, as access to external financing to provide
working capital has been extremely difficult to obtain in recent periods. During
fiscal 2001, Asurent Wireless' revenues grew 17% year over year and 57% since
fiscal 1999. Earnings before interest, taxes, depreciation and amortization for
Asurent Wireless totaled $140,000 during fiscal 2001.

COMPARISON OF YEARS ENDED JUNE 30, 2001 AND JUNE 30, 2000

The following table sets forth certain financial data derived from the Company's
Statements of Operations (dollars in thousands):

<Table>
<Caption>
                                                      YEAR ENDED              YEAR ENDED
                                                     JUNE 30, 2001          JUNE 30, 2000
                                                  -------------------     ------------------
                                                                % of                   % of
                                                     $         Sales         $        Sales
                                                  --------     ------     -------     ------
<S>                                               <C>          <C>        <C>         <C>
Net sales                                         $ 11,811       100      $10,085      100
Gross profit                                         5,046        43        3,752       37
Product development                                  1,527        13          759        8
Selling, general and administrative                  3,379        29        3,698       37
Loss from continuing operations                       (853)       (7)      (1,700)     (17)
Net loss                                           (38,077)     (322)      (3,815)     (38)
</Table>

NET SALES.  Net sales increased by 17%, to $11,811,000 for the year ended June
30, 2001, from $10,085,000 for the year ended June 30, 2000. The sales mix, and
the resulting percentage of total sales, is shown in the table below (dollars in
thousands):

<Table>
<Caption>
                                                                             PERCENTAGE OF
                                                                                 TOTAL
                                               FISCAL YEAR                    FISCAL YEAR
                                             ENDED JUNE 30,                 ENDED JUNE 30,
                                       ---------------------------    ---------------------------
                                           2001           2000            2001           2000
                                       ------------   ------------    ------------   ------------
<S>                                    <C>            <C>             <C>            <C>
FlexT1/E1                              $     11,622   $      9,556              98             95
MicroFlex                                       139            283               1              3
Other products                                   50            246               1              2
                                       ------------   ------------    ------------   ------------
    Totals                             $     11,811   $     10,085             100            100
                                       ============   ============    ============   ============
</Table>

                                        8
<PAGE>   10

During the year ended June 30, 2001, two customers accounted for greater than
10% each of the Company's consolidated sales. Nextel Communications and Nextel
Partners represented 66% of total sales and Alltel (a reseller/integrator of
telecommunications products) accounted for approximately 31% of the Company's
sales. Revenues from the Company's FlexT1/E1 product line increased 22% from
$9,556,000 in the year ended June 30, 2000 to $11,622,000 in the year ended June
30, 2001. The increase was primarily due to increased customer demand for the
Company's network access products. The microFlex product, introduced in fiscal
1998, realized $139,000 in sales for fiscal 2001 compared to $283,000 in sales
in fiscal 2000, a decrease of 51% due to lower customer demand for the microFlex
product line during fiscal 2001.

GROSS PROFIT.  Gross profit for the year ended June 30, 2001 increased 35% to
$5,046,000 from $3,752,000 for the year ended June 30, 2000. As a percentage of
sales, gross profit increased from 37% for the year ended June 30, 2000 to 43%
for the year ended June 30, 2001. The increase reflects increased efficiencies
in operations expense of the Company (a component of cost of sales) coupled with
sales price increases across the major Flex product lines.

PRODUCT DEVELOPMENT.  Product development expenses increased from $759,000 for
the year ended June 30, 2000 to $1,527,000 for the year ended June 30, 2001. The
increase in overall spending from 2000 to 2001 is primarily due to additional
compensation costs as a result of the addition of a team of hardware and
software engineers during early fiscal 2001.

Approximately $105,000 of software development costs related to new products
were capitalized during the fiscal 2001 year, as compared to $174,000 during the
year ended June 30, 2000. As a percentage of sales, total product development
costs increased from 8% for the year ended June 30, 2000 to 13% for the year
ended June 30, 2001. The increase, as a percentage of sales, is attributable to
increased product development spending during the year ended June 30, 2001 as
compared to the year ended June 30, 2000.

SELLING, GENERAL AND ADMINISTRATIVE.  Selling, general and administrative
expenses of the Company decreased 9%, from $3,698,000 for the year ended June
30, 2000 to $3,379,000 for the year ended June 30, 2001.

Selling expenses increased by 23% from $1,380,000 for the year ended June 30,
2000 to $1,700,000 for the year ended June 30, 2001. The increase is primarily a
result of the associated 17% increase in revenue and an increase in overall
headcount of sales personnel during fiscal 2001. Selling expenses as a
percentage of product sales remained consistent at 14% for the years ended June
30, 2001 and 2000.

General and administrative expenses for the Company decreased from $2,318,000
for the year ended June 30, 2000 to $1,679,000 for the year ended June 30, 2001.
The decrease is primarily attributable to certain non-recurring charges of
approximately $1,200,000 relating to an executive severance settlement and
consolidation expenses borne by the Company during fiscal 2000. No such expenses
were recorded during fiscal 2001. Offsetting the absence of the one-time charges
in fiscal 2001 is an increase in overall headcount of the Company from 32
full-time employees at June 30, 2000 to 41 full-time employees at June 30, 2001.

NET LOSS.  The net loss for the year increased from $3,815,000 for the year
ended June 30, 2000 to a loss of $38,077,000 for the year ended June 30, 2001.
Significant components of the current year loss include (1) a non-cash charge of
$527,000 which represents depreciation and amortization, (2) write-downs to fair
market value of certain assets of the Company's discontinued subsidiary and
losses from the discontinued subsidiary's operations of approximately
$37,224,000 and (3) interest and other expense of $466,000. The net loss from
continuing operations decreased 50% from $1,700,000 for the year ended June 30,
2000 to $853,000 for the year ended June 30, 2001.

COMPARISON OF YEARS ENDED JUNE 30, 2000 AND JUNE 30, 1999

The following table sets forth certain financial data derived from the Company's
Statements of Operations (dollars in thousands):

<Table>
<Caption>
                                                   YEAR ENDED                 YEAR ENDED
                                                 JUNE 30, 2000               JUNE 30, 1999
                                               ------------------          -----------------
                                                            % of                       % of
                                                  $         Sales            $         Sales
                                               -------      -----          ------      -----
<S>                                            <C>          <C>            <C>         <C>
Net sales                                      $10,085       100           $7,538       100
Gross profit                                     3,752        37            2,774        37
Product development                                759         8            1,353        18
Selling, general and administrative              3,698        38            2,161        29
Loss from continuing operations                 (1,700)       17             (424)       (6)
Net loss                                        (3,815)      (22)            (424)       (6)
</Table>

                                        9
<PAGE>   11

NET SALES.  Net sales increased by 34%, to $10,085,000 for the year ended June
30, 2000, from $7,538,000 for the year ended June 30, 1999. The sales mix, and
the resulting percentage of total sales, is shown in the table below (dollars in
thousands):

<Table>
<Caption>
                                                                             PERCENTAGE OF
                                                                                 TOTAL
                                               FISCAL YEAR                    FISCAL YEAR
                                             ENDED JUNE 30,                 ENDED JUNE 30,
                                       ---------------------------    ---------------------------
                                           2000           1999            2000           1999
                                       ------------   ------------    ------------   ------------
<S>                                    <C>            <C>             <C>            <C>
FlexT1/E1                              $      9,556   $      5,623              95             75
MicroFlex                                       283            459               3              6
SKYPLEX                                          --          1,402              --             18
Other products                                  246             54               2              1
                                       ------------   ------------    ------------   ------------
    Totals                             $     10,085   $      7,538             100            100
                                       ============   ============    ============   ============
</Table>

During the year ended June 30, 2000, two customers accounted for greater than
10% each of the Company's consolidated sales. Nextel represented 60% of total
sales and Alltel (a reseller/integrator of telecommunications products)
accounted for approximately 35% of the Company's sales. Revenues from the
Company's FlexT1/E1 product line increased over 70% from $5,623,000 in the year
ended June 30, 1999 to $9,556,000 in the year ended June 30, 2000. The increase
was primarily due to increased access to working capital as a result of the
Wi-LAN investment on January 7, 2000. Such an investment enabled DTS to more
effectively manage inventory levels and supplier relationships which in turn
resulted in DTS's ability to more adequately serve its customers. Revenues from
SKYPLEX (both international and domestic customers) decreased by 100% from
$1,402,000 in the year ended June 30, 1999 to $0 in the year ended June 30,
2000. The decrease is due to the sale of the Company's international subsidiary
(and the corresponding SKYPLEX product line) during FY1999. The microFlex
product, introduced in fiscal 1998, realized $283,000 in sales for fiscal 2000
compared to $459,000 in sales in fiscal 1999, a decrease of 38%. The decrease is
attributable to the sale of the Company's international subsidiary during fiscal
1999. Prior to the sale of the international subsidiary, the Company sold its
microFlex product to certain international customers. Such international sales
were eliminated after the sale of the subsidiary as the Company focused its
operations on only servicing domestic customers.

GROSS PROFIT.  Gross profit for the year ended June 30, 2000 increased 35% to
$3,752,000 from $2,774,000 for the year ended June 30, 1999. As a percentage of
sales, gross profit remained consistent at 37% for both the years ended June 30,
2000 and 1999. For the years ended June 30, 2000 and 1999, sales of the
Company's FlexT1 and microFlex products represented approximately 98% and 81%,
respectively, of total sales recorded for each respective fiscal year.

PRODUCT DEVELOPMENT.  Product development expenses decreased from $1,353,000 for
the year ended June 30, 1999 to $759,000 for the year ended June 30, 2000.
Approximately $174,000 of software development costs related to new products
were capitalized during the fiscal 2000 year, as compared to $136,000 during the
year ended June 30, 1999. The decrease in product development costs is due to
the sale of the Company's international subsidiary during fiscal 1999. Prior to
the sale, the Company was developing international products (SKYPLEX) in
addition to its domestic product offerings. As the international subsidiary was
sold during fiscal 1999, no such international product development expense was
incurred during the period ended June 30, 2000 thereby accounting for a majority
of the decrease. As a percentage of sales, total product development costs
decreased from 18% for the year ended June 30, 1999 to 8% for the year ended
June 30, 2000. The decrease, as a percentage of sales, is attributable to lower
product development spending and significantly higher revenues recorded during
the year ended June 30, 2000 as compared to the year ended June 30, 1999.

SELLING, GENERAL AND ADMINISTRATIVE.  Selling, general and administrative
expenses of the Company increased 71%, from $2,161,000 for the year ended June
30, 1999 to $3,698,000 for the year ended June 30, 2000. Selling expenses of the
Company increased by 18% from $1,173,000 for the year ended June 30, 1999 to
$1,380,000 for the year ended June 30, 2000. The increase is a result of
increased selling costs due to the increase in revenue noted during fiscal 2000
as compared to fiscal 1999 coupled with an increase in additional marketing,
travel and compensation expenses during fiscal 2000. Selling expenses as a
percentage of sales decreased from 16% for the year ended June 30, 1999 to 14%
for the year ended June 30, 2000.

General and administrative expenses for the Company increased from $988,000 for
the year ended June 30, 1999 to $2,318,000 for the year ended June 30, 2000. The
increase is primarily attributable to non-recurring charges of approximately
$1,200,000 relating to an executive severance settlement and consolidation
expenses recorded by the Company during fiscal 2000. Also contributing to the
increase is an overall increase in headcount from approximately 27 employees at
the end of fiscal 1999 to approximately 32 employees at the end of fiscal 2000.

NET LOSS.  The net loss for the year increased from $424,000 for the year ended
June 30, 1999 to a loss of $3,815,000 for the year ended June 30, 2000.
Significant components of the fiscal 2000 loss include (1) non-cash charges of
$421,000

                                        10
<PAGE>   12

which represents depreciation and amortization, (2) non-cash charges related to
certain one-time severance and consolidation expenses mentioned above of
approximately $1,200,000 and (3) losses from discontinued operations of
approximately $2,115,000. For the year ended June 30, 1999, significant
components of the net loss included depreciation and amortization charges of
$853,000 and interest expense of $651,000 for a total of $1,504,000.

SALE OF DTS STOCK BY SIGNIFICANT SHAREHOLDER -- PEREGRINE VENTURES -- FISCAL
1999

On December 31, 1998 an option to purchase 1,738,159 common shares of DTS stock
was granted to MicroTel International ("MicroTel") by Peregrine Ventures, a
California based limited partnership and shareholder of DTS, in consideration
for a certain amount of MicroTel common stock. On the same date, the two DTS
Board members representing Peregrine Ventures interests, tendered their
resignations effective immediately. The option, due to expire on January 31,
1999, was exercised by MicroTel and thus Microtel became DTS' largest single
shareholder, holding approximately 40% of the then outstanding stock of DTS. Two
MicroTel representatives were subsequently elected to the DTS Board of Directors
at the DTS Shareholders Meeting held on April 13, 1999. MicroTel is a Delaware
corporation whose stock is publicly traded on the OTC Bulletin Board under the
ticker symbol MCTL. In addition to various subsidiaries whose principal business
is to manufacture and market power supplies, keypads, video displays, circuit
boards and other electronic assemblies to a variety of aerospace and
communications clients, MicroTel also owns two CXR subsidiaries -- CXR Telcom
and CXR S.A. -- which manufacture and market telecommunications products to
telecommunications and private network users.

ACQUISITION OF DTS STOCK BY WI-LAN, INC. -- FISCAL 2000

On December 29, 1999, the Company entered into an agreement with Wi-LAN Inc.
("Wi-LAN"), a leading provider of wireless data communications technology and
products, to sell Wi-LAN $1.5 million in convertible debentures (the "1999
debentures"). The debentures, convertible into the Company's common stock at any
time by the holder, have a four-year term with a 10% interest rate with
principal and interest due at maturity. The Company has no buy-back provision,
and the conversion rate is one share per $1 in debentures, which approximated
the fair value of the Company's common stock on the date the Company entered
into the agreement. On January 7, 2000, a closing on the Wi-LAN debentures was
held whereby the Company received the proceeds from the first tranche of the
debentures of $400,000. The remaining $1,100,000 in proceeds from the issuance
of debentures was received prior to March 31, 2000. In connection with various
transactions subsequent to the sale of the $1.5 million in debentures and
through June 30, 2001, Wi-LAN has converted $1,278,900 of the 1999 debentures
into 1,278,900 shares of the Company's common stock. The outstanding amount of
these 1999 debentures as of June 30, 2001 is $221,100. In connection with the
agreement, Wi-LAN also received an option to purchase additional debentures of
$1.5 million with similar terms but at a conversion rate to be determined by the
market price of the Company's common stock at the time the option is exercised.
The expiration on the option to purchase additional debentures of $1.5 million
is January 7, 2002.

Apart from the transactions described above, in January 2000, Wi-LAN purchased
1,738,159 shares of the Company's common stock from MicroTel, another DTS
shareholder, and the outstanding $2 million in debentures (the "1997
debentures") with outstanding warrants from Finova Mezzanine Capital, a DTS
lender. By converting $1,310,000 of the 1997 debentures, Wi-LAN received
1,310,000 shares of the Company's common stock and gained over 50% of the
outstanding common stock of the Company. Through the transaction with Finova,
Wi-LAN also received outstanding warrants for 702,615 shares of common stock at
an exercise price of $1 per share which expire in March 2004. All 702,615
warrants remain outstanding and exercisable as of June 30, 2001.

Additionally, Wi-LAN converted another $190,000 of the 1997 debentures into
190,000 shares of the Company's common stock through June 30, 2001. The
outstanding amount of the 1997 debentures as of June 30, 2001 is $500,000.

On March 31, 2000, Wi-LAN purchased 454,737 shares of the Company's Series B
preferred stock for $3 million in cash to be used in connection with the
acquisition of Telcor Communications. The Company's Series B Preferred Stock is
convertible into common shares at $7.125 per share, the market closing price of
the Company's common stock on March 30, 2000.

In June 2000, the Company announced that Wi-LAN Inc. entered into a purchase and
assignment agreement with the two former shareholders of Telcor to acquire the
right to receive approximately 31% of the merger consideration still due to the
former Telcor shareholders. According to the agreement, Wi-LAN acquired
$6,100,000 of the original $20 million acquisition payable for $500,000 in cash
and $5,600,000 by issuing the former Telcor shareholders a right to receive
$5,600,000 of Wi-LAN common shares based on the market value of Wi-LAN shares on
July 17, 2000, subject to a specified maximum number of shares. Wi-LAN may
redeem all or part of the right for cash. In addition, Wi-LAN granted the former
Telcor shareholders an option exercisable by August 31, 2000, to sell between
$2,000,000 and $4,000,000 of additional merger consideration to Wi-LAN for the
issuance of a right to receive Wi-LAN shares of equivalent value, based on the
market value of Wi-LAN shares at October 30, 2000, subject to a specified
maximum number of shares. On

                                        11
<PAGE>   13

August 31, 2000, the former shareholders of Telcor exercised the aforementioned
option and sold $4,000,000 of merger consideration to Wi-LAN in exchange for
Wi-LAN shares as discussed above.

ACQUISITION OF TELCOR COMMUNICATIONS, INC.

TRANSACTION SUMMARY

On March 31, 2000 the Company consummated the merger of Telcor Communications,
Inc. ("Telcor"), a leading reseller of new and used wireless and wireline
telecom equipment based in Duluth, Georgia, into a wholly-owned subsidiary of
the Company. The merger consideration payable to the shareholders of Telcor was
$25 million in a combination of the Company's common stock and cash. The amount
of $5 million of the consideration was paid at closing with $2.5 million in cash
and $2.5 million in common stock valued at $7.375 per share (the closing price
of DTS common stock a few days before and after the announcement date). A total
of 338,983 shares of DTS common stock were paid in connection with the closing
on March 31, 2000. The remaining consideration of $20 million was due and
payable on or before October 30, 2000.

The acquisition was accounted for by the purchase method of accounting, and
accordingly, the purchase price was allocated to assets acquired and liabilities
assumed based on their fair value at the date of acquisition.

In June 2000, the Company announced that Wi-LAN Inc. entered into a purchase and
assignment agreement with the two former shareholders of Telcor to acquire the
right to receive approximately 31% of the merger consideration still due to the
former Telcor shareholders. According to the agreement, Wi-LAN acquired
$6,100,000 of the original $20 million acquisition payable for $500,000 in cash
and $5,600,000 by issuing the former Telcor shareholders a right to receive
$5,600,000 of Wi-LAN common shares based on the market value of Wi-LAN shares on
July 17, 2000, subject to a specified maximum number of shares. Wi-LAN may
redeem all or part of the right for cash. In addition, Wi-LAN granted the former
Telcor shareholders an option exercisable by August 31, 2000, to sell between
$2,000,000 and $4,000,000 of additional merger consideration to Wi-LAN for the
issuance of a right to receive Wi-LAN shares of equivalent value, based on the
market value of Wi-LAN shares at October 30, 2000, subject to a specified
maximum number of shares. On August 31, 2000, the former shareholders of Telcor
exercised the aforementioned option and sold $4,000,000 of merger consideration
to Wi-LAN in exchange for Wi-LAN shares as discussed above.

On November 30, 2000, the Company paid down the entire remaining acquisition
payable balance of $7,655,400 (as of November 30, 2000) through the issuance of
common and Preferred stock. The Company issued 638,273 shares of its common
stock valued at $2.064 per share and remitted a cash payment of $117,605 to the
former shareholders of Telcor as final consideration owed to the former Telcor
shareholders under the amended merger agreement. The value of $2.064 per share
represents the share value calculated by the parties pursuant to the terms of
the merger agreement as executed on March 31, 2000. Further, the Company issued
683,543 common shares valued at $2.064 per share and 2,330,217 shares of Series
C Preferred Stock convertible into the Company's common stock at $2.064 per
share to Wi-LAN, Inc. also reflecting final payment of all remaining merger
consideration then payable. The total consideration paid under the above
transactions was $7,655,400 and represented the final payments for all amounts
owed under the merger agreement, as amended, to the former shareholders of
Telcor and to Wi-LAN, Inc.

SUMMARY OF TRANSACTION CONSIDERATION

<Table>
<Caption>
                                                                   TOTAL
DATE               PAYMENT TO TELCOR STOCKHOLDERS                  CONSIDERATION PAID
----               ------------------------------                  ------------------
<S>                <C>                                             <C>
March 31, 2000     $2,500,000 in cash                                 $ 2,500,000
March 31, 2000     338,983 common shares at $7.375/share              $ 2,500,000
June 16, 2000      $500,000 in cash                                   $   500,000
June 29, 2000      1,350,000 common shares at $5.90/share             $ 7,965,000
Oct. 31, 2000      $117,605 in cash                                   $   117,605
Oct. 31, 2000      638,273 common shares at $2.064/share              $ 1,317,395
                                                                      -----------
                   Subtotal:                                          $14,900,000
                                                                      -----------
</Table>

                                        12
<PAGE>   14

<Table>
<Caption>
                   PAYMENT TO WI-LAN AS CONSIDERATION
                   FOR ASSUMING OBLIGATION OF
                   CONSIDERATION PAYABLE TO TELCOR                 TOTAL
DATE               STOCKHOLDERS                                    CONSIDERATION PAID
----               ----------------------------------------------  ------------------
<S>                <C>                                             <C>
June 29, 2000      657,559 common shares at $5.90/share               $ 3,879,600
November 30, 2000  683,543 common shares at $2.064/share              $ 1,410,832
November 30, 2000  Issuance of Preferred Stock Series C               $ 4,809,568
                                                                      -----------
                   Subtotal:                                          $10,100,000
                                                                      -----------
                   Total all consideration paid:                      $25,000,000
                                                                      -----------
</Table>

NAME CHANGE

Telcor Communications, Inc. was renamed Asurent Technologies, Inc. during March
2001.

DISCONTINUANCE OF ACQUIRED BUSINESS UNIT

In late fiscal 2001, the Company's Board of Directors approved a plan to divest
Asurent Technologies, Inc. -- formerly Telcor Communications -- from DTS.
Asurent Technologies will continue to operate while the Board seeks and
evaluates several divestiture alternatives. The financial statements have been
reclassified to account for the operating results of Asurent Technologies as
discontinued operations (See Note 15 to the accompanying consolidated financial
statements). The following discussion relates only to the Company's continuing
operations. The decision for divestiture was based on a thorough strategic and
financial review of the Company's operations and subsidiaries coupled with the
consideration of the severe macroeconomic conditions in the telecommunications
industry. The Company decided to only retain those segments that will
potentially provide self-generated profitable growth in the near-term, as access
to external financing to provide working capital has been extremely difficult to
obtain in recent periods.

LIQUIDITY AND CAPITAL RESOURCES

OVERVIEW.  The accompanying financial statements have been prepared on a going
concern basis, which contemplates the realization of assets and the satisfaction
of liabilities in the normal course of business. As shown in the financial
statements during the years ended June 30, 2001 and 2000, the Company's
continuing operations incurred losses of $853,000 and $1,700,000, respectively.
Although a significant portion of the current year loss from operations is
attributable to non-cash depreciation and amortization charges, the Company
continues to require additional capital to properly service its indebtedness and
fund future product development initiatives. Additional equity may be required
during fiscal year 2002 and the Company is actively pursuing various financing
alternatives. The Company attempted to raise capital throughout fiscal 2001 and
was unable to secure adequate financing to assure the long term growth and
profitability of the entire organization given the severity of the current
downturn in the telecommunications industry. As such, the Board of Directors of
the Company decided to approve a plan to divest of Asurent Technologies.
Following the discontinuance, the Company will focus on the continued growth and
profitability of its network access product division (Asurent Wireless) and
continue to explore financing alternatives for working capital and product
development initiatives throughout fiscal 2002.

The financial statements do not include any adjustments relating to the
recoverability and classification of assets and liabilities that might be
necessary should the Company be unable to continue as a going concern. The
Company's continuation as a going concern is dependent upon its ability to
generate sufficient cash flow to meet its obligations on a timely basis, to
comply with the terms of its financing agreements, to obtain additional
financing or refinancing as may be required, and ultimately to attain
profitability. The Company is actively pursuing additional equity or debt
financing through discussions with potential lenders and investors.

Potential additional sources of cash for use in future periods may include, but
are not limited to, private or public placements of the Company's securities and
securing additional financing with certain financial institutions. In the event
the Company is able to raise additional capital, the Company intends on using
such proceeds to accelerate product development initiatives, add additional
personnel as may be required and to pay down existing and any additional
indebtedness.

EQUITY.  On October 14, 1998, NASDAQ delisted the Company because the Company
did not meet the listing requirement of minimum net assets. The Company's
securities are currently traded on the OTC Bulletin Board. The delisting action
has hampered the Company's efforts to raise capital through a private placement
of its stock with qualified investors. However, the Company employed several
programs in an effort to help the Company preserve cash which, in the

                                        13
<PAGE>   15

first and second fiscal quarters of 1999, was used to fund severance costs of
terminated employees, to fund payroll and essential expenses and the purchase of
supplies from critical vendors. First, a group of employees and affiliates
volunteered to forego or delay salary, commission and other compensation
payments through a restricted stock for cash program offered by Board resolution
on August 10, 1998. Under that program a total of approximately 395,612 common
shares were approved by the Board to compensate those employees and affiliates
in return for cancellation of salary or other compensation payments totaling
$52,320 and a delay of payment of another $62,206. These shares could not be
pledged, sold or traded until November 30, 1999 at which time, under Rule 144,
the restricted legend was removed from the certificates and the certificates are
now freely tradable. Secondly, another program to preserve cash has been to work
out extended payment terms with certain key material suppliers for overdue
amounts payable. The Company completed formal negotiations with three critical
suppliers and established extended payment terms (over a 12 month period) for
overdue amounts payable. Third, non-critical suppliers have been offered
settlements in the form of uniform terms and reduced but immediate cash payments
for cancellation of long standing past due amounts. A total of $402,000 of
amounts payable have been settled for a reduced amount under these conditions.
The Company has recorded an extraordinary gain of $359,000 to reflect the
settlement transactions closed during the third quarter of fiscal 1999 which is
included in the accompanying financial statements.

On December 29, 1999, the Company entered into an agreement with Wi-LAN Inc.
("Wi-LAN"), a leading provider of wireless data communications technology and
products, to sell Wi-LAN $1.5 million in convertible debentures (the "1999
debentures"). The debentures, convertible into the Company's common stock at any
time by the holder, have a four-year term with a 10% interest rate with
principal and interest due at maturity. The Company has no buy-back provision,
and the conversion rate is one share per $1 in debentures, which approximated
the fair value of the Company's common stock on the date the Company entered
into the agreement. On January 7, 2000, a closing on the Wi-LAN debentures was
held whereby the Company received the proceeds from the first tranche of the
debentures of $400,000. The remaining $1,100,000 in proceeds from the issuance
of debentures was received prior to March 31, 2000. In connection with various
transactions subsequent to the sale of the $1.5 million in debentures and
through June 30, 2001, Wi-LAN has converted $1,278,900 of the 1999 debentures
into 1,278,900 shares of the Company's common stock. The outstanding amount of
these 1999 debentures as of June 30, 2001 is $221,100. In connection with the
agreement, Wi-LAN also received an option to purchase additional debentures of
$1.5 million with similar terms but at a conversion rate to be determined by the
market price of the Company's common stock at the time the option is exercised.
The expiration on the option to purchase additional debentures of $1.5 million
is January 7, 2002.

Apart from the transactions described above, in January 2000, Wi-LAN purchased
1,738,159 shares of the Company's common stock from MicroTel, another DTS
shareholder, and the outstanding $2 million in debentures (the "1997
debentures") with outstanding warrants from Finova Mezzanine Capital, a DTS
lender. By converting $1,310,000 of the 1997 debentures, Wi-LAN received
1,310,000 shares of the Company's common stock and gained over 50% of the
outstanding common stock of the Company. Through the transaction with Finova,
Wi-LAN also received outstanding warrants for 702,615 shares of common stock at
an exercise price of $1 per share which expire in March 2004. All 702,615
warrants remain outstanding and exercisable as of June 30, 2001.

Additionally, Wi-LAN converted another $190,000 of the 1997 debentures into
190,000 shares of the Company's common stock through June 30, 2001. The
outstanding amount of the 1997 debentures as of June 30, 2001 is $500,000.

On March 31, 2000, Wi-LAN purchased 454,737 shares of the Company's Series B
preferred stock for $3 million in cash. The Company's Series B Preferred Stock
is convertible into common shares at $7.125 per share, the market closing price
of the Company's common stock on March 30, 2000.

In June 2000, the Company announced that Wi-LAN Inc. entered into a purchase and
assignment agreement with the two former shareholders of Telcor to acquire the
right to receive approximately 31% of the merger consideration still due to the
former Telcor shareholders. According to the agreement, Wi-LAN acquired
$6,100,000 of the original $20 million acquisition payable for $500,000 in cash
and $5,600,000 by issuing the former Telcor shareholders a right to receive
$5,600,000 of Wi-LAN common shares based on the market value of Wi-LAN shares on
July 17, 2000, subject to a specified maximum number of shares. Wi-LAN may
redeem all or part of the right for cash. In addition, Wi-LAN granted the former
Telcor shareholders an option exercisable by August 31, 2000, to sell between
$2,000,000 and $4,000,000 of additional merger consideration to Wi-LAN for the
issuance of a right to receive Wi-LAN shares of equivalent value, based on the
market value of Wi-LAN shares at October 30, 2000, subject to a specified
maximum number of shares. On August 31, 2000, the former shareholders of Telcor
exercised the aforementioned option and sold $4,000,000 of merger consideration
to Wi-LAN in exchange for Wi-LAN shares as discussed above.

On November 30, 2000, the Company paid down the entire remaining acquisition
payable balance of $7,655,400 through the issuance of common and Preferred
stock. The Company issued 638,273 shares of its common stock valued at $2.064
per share and remitted a cash payment of $117,605 to the former shareholders of
Telcor as final consideration owed to the former Telcor shareholders under the
amended merger agreement. The value of $2.064 per share represents the share

                                        14
<PAGE>   16

value calculated by the parties pursuant to the terms of the merger agreement as
executed on March 31, 2000. Further, the Company issued 683,543 common shares
valued at $2.064 per share and 2,330,217 shares of Series C Preferred Stock
convertible into the Company's common stock at $2.064 per share to Wi-LAN, Inc.
also reflecting final payment of all remaining merger consideration then
payable. The total consideration paid under the above transactions was
$7,655,400 and represented the final payments for all amounts owed under the
merger agreement, as amended, to the former shareholders of Telcor and to
Wi-LAN, Inc.

On January 25, 2000, the Board of Directors of the Company approved a plan
whereby certain compensation obligations of the Company to employees and Board
members could be satisfied through the issuance of restricted common stock at
the option of the holder. Approximately 30,000 shares of the Company's common
stock were issued to satisfy such obligations. The shares were issued at $3.56
per share (a 25% discount from the market closing price on January 25, 2000) and
were restricted as to trade, pledge, or sale until January 25, 2001. The Company
has recorded $143,000 in compensation expense to reflect the satisfaction of
these obligations which represented the fair market value of the shares issued.

LINE OF CREDIT ARRANGEMENTS.  On April 10, 1997, DTS established a bank line of
credit agreement with Silicon Valley Bank which makes available $2,500,000 in
borrowings with availability based on DTS's accounts receivable. The loan was
amended on March 18, 1998 to increase the maximum eligible borrowing to the
lesser of $4,000,000 or 80% of eligible receivables plus 30% of eligible
inventory, as defined, through the maturity date of April 10, 2000. The loan is
secured by DTS's assets and bears interest at the rate of prime plus 2.25%. A
net worth covenant was amended on March 16, 1998, requiring DTS to maintain a
net worth of $1,000,000. In September 1998, DTS agreed to a UCC filing whereby
all assets of DTS became collateral under the Agreement. The loan requires a
monthly monitoring fee of $1,000 and a commitment fee of 0.125% due monthly on
the unused portion of the facility. The agreement term is two years with an
automatic renewal each year unless written notice of termination is given by one
of the parties. DTS issued 60,000 two year warrants to Silicon Valley Bank at a
strike price of $5.25 each as consideration for the amended agreement. On
February 25, 1999, DTS signed an amendment to the loan agreement with Silicon
Valley Bank which modified previous loan covenants and revised the maximum
borrowing amount to $1,500,000. The revised covenants are primarily based upon
minimum monthly and quarterly revenue levels. As consideration for the amended
agreement, DTS issued 250,000 two year warrants for common stock of the Company
at $0.119 per share which represents the market price of the Company's common
stock at the close of business on December 2, 1998 when the new agreement was
reached.

On February 24, 2000, DTS signed an additional amendment to the loan agreement
with Silicon Valley Bank which modified previous terms. Under the modified
terms, the revised loan agreement had a maturity date of April 10, 2001.
Additionally, the revised and amended agreement increased the maximum borrowing
to $2,500,000 with interest at prime plus 2.25% (9.00% at June 30, 2001).
Covenants under the agreement were further revised to require certain minimum
quarterly revenue and monthly income requirements.

On February 16, 2001, DTS signed an additional amendment to the loan agreement
with Silicon Valley Bank which modified previous terms. Under the modified
terms, covenants imposed by the agreement were revised. All revenue and income
covenants previously enforced were removed and replaced with a single covenant
requiring a minimum level of net tangible equity on a monthly basis. After the
recording of numerous significant asset write-downs taken in late fiscal 2001
due to the planned divestiture of Asurent Technologies, the Company was
subsequently not in compliance with the consolidated monthly minimum net
tangible equity requirement imposed by Silicon Valley Bank. As the line of
credit provided by Silicon Valley Bank is used primarily in the operations of
Asurent Wireless, the Company will seek to have its covenants under the
aforementioned line of credit agreement revised so that only the financial
results of DTS excluding Asurent Technologies are subject to calculation in the
revised covenants. The Company plans on obtaining a waiver for non-compliance at
June 30, 2001 from Silicon Valley Bank and, in addition, the Company intends on
securing an amendment to the loan agreement with respect to revised covenants in
October 2001.

On April 10, 2001, DTS signed an additional amendment to the loan agreement with
Silicon Valley Bank that extended the maturity date of the loan agreement to
April 10, 2002. No other terms of the agreement were changed.

CASH.  As of June 30, 2001, the Company had approximately $146,000 in cash and
cash equivalents. For the year ended June 30, 2001, $1,084,000 was used in
continuing operating activities as compared to cash provided by continuing
operations of $300,000 for the year ended June 30, 2000. The loss from
continuing operations for the period ended June 30, 2001 of $853,000 includes
non-cash charges relating to depreciation and amortization of $527,000.
Exclusive of the fiscal 2001 non-cash charges, cash was used in operations
primarily through an increase in accounts receivable and inventory of $217,000
and $324,000, respectively, and a decrease in accounts payable and accrued
liabilities of $699,000.

Heretofore, the Company has been able to satisfy its immediate short-term cash
requirements through increasing product sales and accelerating collections
coupled with managing vendor accounts and relationships.

The Company purchased $320,000 and $88,000 of property, plant and equipment
during the years ended June 30, 2001 and 2000, respectively. In addition, the
Company capitalized certain software development costs paid to outside

                                        15
<PAGE>   17

contractors. During the year ended June 30, 2001, the Company capitalized
$105,000 of such costs as compared to capitalized costs of $174,000 for the year
ended June 30, 2000.

MANAGEMENT AND EMPLOYMENT AGREEMENTS

By agreement of the Board of Directors of the Company, Wi-LAN has a services
agreement with the Company's Chief Executive Officer ("CEO") which provides for
the CEO to provide services to Wi-LAN. Wi-LAN has accrued or paid the Company's
CEO $80,833 and $65,439 during the years ended June 30, 2001 and 2000,
respectively. The Company is also reimbursed by Wi-LAN for payments made by the
Company to certain Wi-LAN United States-based sales personnel who provide
services to Wi-LAN. The Company has recorded a receivable from Wi-LAN for these
amounts of $25,000 and $161,000 at June 30, 2001 and 2000, respectively.
Additionally, the Company has accrued or paid $61,000 and $251,000 in interest
expense to Wi-LAN related to convertible debentures held by Wi-LAN during the
years ended June 30, 2001 and 2000, respectively.

SEASONALITY

The Company's sales have been subject to quarterly fluctuations mainly due to
the purchasing cycle of the Company's major customers. Other fluctuations occur
due to increased build-out of the telecommunications infrastructure during
certain months of the year. The Company's business plan is to continue the
diversification of its product offerings, further develop its distribution
channels and further expand its customer base. The Company believes that the
implementation of this plan will decrease the seasonality of its sales. The
Company operates with a moderate level of backlog for each product line due to
advance purchase commitments and production lead times. At June 30, 2001, the
Company's order backlog totaled $2,018,000.

LEGAL PROCEEDINGS

The Company is involved in various claims and legal actions arising in the
ordinary course of business. In the opinion of management, the ultimate
disposition of these matters will not have a material adverse effect on the
Company's financial position, results of operations, or liquidity.

NEW ACCOUNTING PRONOUNCEMENTS

In December 1999, the Securities and Exchange Commission issued Staff Accounting
Bulletin No. 101 ("SAB 101"), Revenue Recognition in Financial Statements. SAB
101 summarizes existing guidance on revenue recognition. The implementation date
of SAB 101 for the Company was for the quarter ended June 30, 2001. The
implementation of SAB 101 did not have a material impact on the Company's
financial statements.

In March 2000, the Financial Accounting Standards Board ("FASB") issued FASB
Interpretation No. 44 (FIN 44), Accounting for Certain Transactions involving
Stock Compensation -- an Interpretation of APB Opinion No. 25. FIN 44 provides
guidance for certain issues that arose in applying APB Opinion No. 25. The
provisions of FIN 44 were effective for the Company on July 1, 2000. Adoption of
FIN 44 did not materially affect the Company's financial results.

In June 2001, the FASB issued Statement No. 141, Business Combinations, and
Statement No. 142, Goodwill and Other Intangible Assets. Statement 141 requires
that the purchase method of accounting be used for all business combinations
initiated after June 30, 2001, as well as all purchase method business
combinations completed after June 30, 2001. Statement 141 also provides that
intangible assets acquired in a purchase method business combination must meet
certain specified criteria in order to be recognized and reported apart from
goodwill, noting that any purchase price allocable to an assembled workforce may
not be accounted for separately.

Statement 142 will require that goodwill and intangible assets with indefinite
useful lives no longer be amortized, but instead tested for impairment at least
annually in accordance with the provisions of Statement 142. Statement 142 will
also require that intangible assets with estimable useful lives be amortized
over their respective estimated useful lives to their estimated residual values,
and reviewed for impairment in accordance with FASB Statement No. 121,
Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
Be Disposed Of.

The Company is required to adopt the provisions of Statement 141 immediately,
and Statement 142 effective July 1, 2002. Furthermore, goodwill and intangible
assets determined to have an indefinite useful life acquired in a purchase
business combination completed after June 30, 2001, but before Statement 142 is
adopted in full will not be amortized, but will continue to be evaluated for
impairment in accordance with the appropriate pre-Statement 142 accounting
literature. The Company does not expect Statement 141 or 142 to have a
significant impact on its financial statements.

Also, in June 2001, the FASB issued Statement No. 143, Accounting for Asset
Retirement Obligations. Statement 143 requires entities to record the fair value
of a liability for an asset retirement obligation in the period in which it is
incurred.

                                        16
<PAGE>   18

When the liability is initially recorded, the entity capitalizes a cost by
increasing the carrying amount of the related long-lived asset. Over time, the
liability is accreted to its present value each period, and the capitalized cost
is depreciated over the useful life of the related asset. Upon settlement of the
liability, an entity either settles the obligation for its recorded amount or
incurs a gain or loss upon settlement. Statement 143 is effective for the
Company beginning July 1, 2002. The Company does not expect Statement 143 to
have a significant impact on its financial statements.

IMPORTANT CONSIDERATIONS RELATED TO FORWARD-LOOKING STATEMENTS

It should be noted that this discussion contains forward-looking statements
which are subject to substantial known and unknown risks and uncertainties.
There are a number of factors which could cause actual results to differ
materially from those anticipated in statements made herein. Such factors
include, but are not limited to, changes in general economic conditions, the
growth rate of the market for the Company's products and services, the effect of
competitive products and pricing, and the irregular pattern of revenues, as well
as a number of other risk factors which could affect the future performance of
the Company.

ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

Please see pages F-1 through F-23.

ITEM 9.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE

None.

                                        17
<PAGE>   19

                                    PART III

ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

The information required herein will be included in the Company's Proxy
Statement for the Annual Meeting of Shareholders to be filed with the Commission
in October 2001 under the captions "Election of Directors" and "Executive
Officers" and is incorporated by reference herein.

ITEM 11.  EXECUTIVE COMPENSATION

The information required herein will be included in the Company's Proxy
Statement for the Annual Meeting of Shareholders to be filed with the Commission
in October 2001 under the captions "Election of Directors" and "Executive
Officers" and is incorporated by reference herein.

ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The information required herein will be included in the Company's Proxy
Statement for the Annual Meeting of Shareholders to be filed with the Commission
in October 2001 under the captions "Election of Directors" and "Executive
Officers" and is incorporated by reference herein.

ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

The information required herein will be included in the Company's Proxy
Statement for the Annual Meeting of Shareholders to be filed with the Commission
in October 2001 under the captions "Election of Directors" and "Executive
Officers" and is incorporated by reference herein.

ITEM 14.  EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K

(a) Supplemental schedules

Schedule I -- Valuation and Qualifying Accounts

(b) Reports on Form 8-K.

None.

                                        18
<PAGE>   20

                          INDEPENDENT AUDITORS' REPORT

The Board of Directors
Digital Transmission Systems, Inc.

Under date of August 31, 2001, we reported on the consolidated balance sheets of
Digital Transmission Systems, Inc. and subsidiaries as of June 30, 2001 and
2000, and the related consolidated statements of operations, shareholders'
equity (deficit) and cash flows for each of the years in the three-year period
ended June 30, 2001, as contained in the annual report on Form 10-K for the year
2001. In connection with our audits of the aforementioned consolidated financial
statements, we also audited the related consolidated financial statement
schedule as listed in the accompanying index. This financial statement schedule
is the responsibility of the Company's management. Our responsibility is to
express an opinion on this financial statement schedule based on our audits.

In our opinion, such financial statement schedule, when considered in relation
to the basic consolidated financial statements taken as a whole, presents
fairly, in all material respects, the information set forth therein.

Our report dated August 31, 2001, contains an explanatory paragraph that states
that the Company has suffered recurring losses from operations, which raise
substantial doubt about its ability to continue as a going concern. The
consolidated financial statements and financial statement schedule do not
include any adjustments that might result from the outcome of that uncertainty.

/s/ KPMG LLP

Atlanta, Georgia
August 31, 2001

                                        19
<PAGE>   21

                       DIGITAL TRANSMISSION SYSTEMS, INC.

                SCHEDULE I -- VALUATION AND QUALIFYING ACCOUNTS
                                (000'S OMITTED)

<Table>
<Caption>
                                        BALANCE AT
                                        BEGINNING    CHARGED TO COSTS                            BALANCE AT
                                        OF PERIOD      AND EXPENSES     OTHER   DEDUCTIONS(1)   END OF PERIOD
                                        ----------   ----------------   -----   -------------   -------------
<S>                                     <C>          <C>                <C>     <C>             <C>
Allowance for Doubtful Accounts and
  Returns:
  Year ended June 30, 1999                  733            528            --          --            1,261
  Year ended June 30, 2000                1,261            129            --        (999)             391
  Year ended June 30, 2001                  391             --            --         (23)             368
Inventory Reserve:
  Year ended June 30, 1999                1,327             50            --        (445)             932
  Year ended June 30, 2000                  932             --            --         (99)             833
  Year ended June 30, 2001                  833             50            --         (75)             808
Warranty Reserve:
  Year ended June 30, 1999                  618             81          (405)        (97)             197
  Year ended June 30, 2000                  197              3            --          --              200
  Year ended June 30, 2001                  200            345            --        (345)             200
Deferred tax valuation allowance
  Year ended June 30, 1999                6,944             --           180          --            7,124
  Year ended June 30, 2000                7,124             --           148          --            7,272
  Year ended June 30, 2001                7,272             --          8,538         --           15,810
</Table>

(1) Inventory and accounts receivable deductions of reserve consist of
    write-offs of previously reserved amounts. Deductions of warranty reserve is
    based on satisfaction of respective warranty liability.

                                        20
<PAGE>   22

                                   SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.

<Table>
<S>                                                   <C>
                                                      DIGITAL TRANSMISSION SYSTEMS, INC.
September 28, 2001                                    /s/ Andres C Salazar
                                                      -----------------------------------------------------
                                                      by: Andres C. Salazar,
                                                         Chief Executive Officer
</Table>

Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant in
the capacities and on the dates indicated.

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

/s/ Andres C. Salazar                 Chief Executive Officer, Director (Principal         September 28, 2001
---------------------------------       Executive Officer)
Andres C. Salazar

/s/ Clive N. W. Marsh                 Vice President -- Finance and Administration         September 28, 2001
---------------------------------
Clive N. W. Marsh

/s/ Ed Kantor                         Director                                             September 28, 2001
---------------------------------
Ed Kantor
</Table>

                                        21
<PAGE>   23

              DIGITAL TRANSMISSION SYSTEMS, INC. AND SUBSIDIARIES

                         INDEX TO FINANCIAL STATEMENTS

<Table>
<Caption>
                                                              PAGE
                                                              ----
<S>                                                           <C>
Independent Auditors' Report                                  F-2
Consolidated Balance Sheets as of June 30, 2001 and 2000      F-3
Consolidated Statements of Operations for the Years ended
  June 30, 2001, 2000, and 1999                               F-4
Consolidated Statements of Shareholders' Equity (Deficit)
  for the Years ended June 30, 2001, 2000, and 1999           F-5
Consolidated Statements of Cash Flows for the Years ended
  June 30, 2001, 2000, and 1999                               F-6
Notes to Consolidated Financial Statements                    F-7
</Table>

                                       F-1
<PAGE>   24

                          INDEPENDENT AUDITORS' REPORT

The Board of Directors
Digital Transmission Systems, Inc.:

We have audited the accompanying consolidated balance sheets of Digital
Transmission Systems, Inc. and subsidiaries as of June 30, 2001 and 2000, and
the related consolidated statements of operations, shareholders' equity
(deficit), and cash flows for each of the years in the three-year period ended
June 30, 2001. These consolidated financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.

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

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Digital Transmission
Systems, Inc. and subsidiaries as of June 30, 2001 and 2000, and the results of
their operations and their cash flows for each of the years in the three-year
period ended June 30, 2001 in conformity with accounting principles generally
accepted in the United States of America.

The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in note 1(b) to the
financial statements, the Company has suffered recurring losses from operations,
which raises substantial doubt about its ability to continue as a going concern.
Management's plans in regard to these matters are also described in note 1(b).
The financial statements do not include any adjustments that might result from
the outcome of this uncertainty.

/s/ KPMG LLP

Atlanta, Georgia
August 31, 2001

                                       F-2
<PAGE>   25

              DIGITAL TRANSMISSION SYSTEMS, INC. AND SUBSIDIARIES
                          Consolidated Balance Sheets
                             June 30, 2001 and 2000
                (in thousands, except share and per share data)

<Table>
<Caption>
                                                                2001      2000
                                                              --------   -------
<S>                                                           <C>        <C>
                                     ASSETS
Current assets:
  Cash and cash equivalents                                   $    146       996
  Trade accounts receivable, net of allowances for returns
    and doubtful accounts of $368 and $391 at June 30, 2001
    and 2000, respectively                                       1,638     1,285
  Accounts receivable from related party                            25       161
  Inventories                                                    1,446     1,172
  Prepaid expenses and other current assets                         --       248
  Net assets of discontinued operations                             --    26,169
                                                              --------   -------
         Total current assets                                    3,255    30,031
Property and equipment, net                                        227       326
Intangible assets, net                                             382       385
Other assets                                                       324       272
                                                              --------   -------
         Total assets                                         $  4,188    31,014
                                                              ========   =======

                 LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
Current liabilities:
  Notes payable to banks                                      $  1,646     1,172
  Accounts payable                                               1,332     1,479
  Accrued liabilities                                              341       964
  Acquisition payable                                               --     7,655
  Accrued payroll and benefits                                     449       213
  Notes payable to related parties                               3,000     3,000
  Current maturities of long-term debt                              --       150
  Warranty accrual                                                 200       200
  Net liabilities of discontinued operations                    11,001        --
                                                              --------   -------
         Total current liabilities                              17,969    14,833
Notes payable to related parties                                   721       721
                                                              --------   -------
         Total liabilities                                      18,690    15,554
                                                              --------   -------
Shareholders' equity (deficit):
  Preferred stock, $0.01 par value, 10,000,000 shares
    authorized:
    Series A, convertible, liquidation preference of $1.00
     per share; 1,264,333 and 1,314,333 shares issued and
     outstanding at June 30, 2001 and 2000, respectively         1,264     1,314
    Series B, convertible, liquidation preference of $7.125
     per share; 454,737 shares issued and outstanding            3,000     3,000
    Series C, convertible, liquidation preference of $2.58
     per share; 2,330,217 shares issued and outstanding at
     June 30, 2001                                               4,810        --
  Common stock -- $0.01 par value; 50,000,000 shares
    authorized; 11,814,119 and 10,240,070 shares issued and
    outstanding at June 30, 2001 and 2000, respectively            118       102
  Common stock subscribed                                          302        41
  Additional paid-in capital                                    33,314    30,299
  Notes receivable from stock sales                                 --       (63)
  Accumulated deficit                                          (57,310)  (19,233)
                                                              --------   -------
         Total shareholders' equity (deficit)                  (14,502)   15,460
                                                              --------   -------
Commitments and contingencies (note 12)
         Total liabilities and shareholders' equity
          (deficit)                                           $  4,188    31,014
                                                              ========   =======
</Table>

See accompanying notes to consolidated financial statements.

                                       F-3
<PAGE>   26

              DIGITAL TRANSMISSION SYSTEMS, INC. AND SUBSIDIARIES
                     Consolidated Statements of Operations
                   Years ended June 30, 2001, 2000, and 1999
                     (in thousands, except per share data)

<Table>
<Caption>
                                                                2001      2000     1999
                                                              --------   ------   ------
<S>                                                           <C>        <C>      <C>
Net sales                                                     $ 11,811   10,085    7,538
Cost of sales                                                    6,765    6,333    4,764
                                                              --------   ------   ------
      Gross profit                                               5,046    3,752    2,774
                                                              --------   ------   ------
Selling, general, and administrative expenses                    3,379    3,698    2,161
Product development costs                                        1,527      759    1,353
Depreciation and amortization                                      527      421      853
                                                              --------   ------   ------
         Total operating expenses                                5,433    4,878    4,367
                                                              --------   ------   ------
         Operating loss                                           (387)  (1,126)  (1,593)
Interest expense, net of interest income                          (472)    (463)    (651)
Gain on sale of subsidiary                                          --       --    1,461
Other income (expense), net                                          6     (111)      --
                                                              --------   ------   ------
         Total other income (expense), net                        (466)    (574)     810
                                                              --------   ------   ------
         Loss before income taxes and extraordinary item          (853)  (1,700)    (783)
Income taxes                                                        --       --       --
                                                              --------   ------   ------
         Loss before extraordinary item                           (853)  (1,700)    (783)
Extraordinary gain on settlement of trade payables                  --       --      359
                                                              --------   ------   ------
         Loss from continuing operations                          (853)  (1,700)    (424)
Discontinued operations:
  Loss from operations of discontinued subsidiary (less
    applicable income taxes of $-0-)                           (21,122)  (2,115)      --
  Loss on disposal of subsidiary, including provision of
    $2,037 for operating losses during phase-out period
    (less applicable income taxes of $-0-)                     (16,102)      --       --
                                                              --------   ------   ------
         Net loss                                              (38,077)  (3,815)    (424)
Series B, preferred stock dividends                               (162)     (41)      --
Series C, preferred stock dividends                               (140)      --       --
                                                              --------   ------   ------
         Net loss attributable to common shareholders         $(38,379)  (3,856)    (424)
                                                              ========   ======   ======
Net loss per share -- basic and diluted:
  Before extraordinary item                                   $  (0.10)   (0.31)   (0.18)
  Extraordinary gain on settlement of trade payables                --       --     0.08
  Loss from discontinued operations of subsidiary                (3.33)   (0.37)      --
                                                              --------   ------   ------
         Net loss per share -- basic and diluted              $  (3.43)   (0.68)   (0.10)
                                                              ========   ======   ======
Weighted-average common shares outstanding                      11,182    5,670    4,318
                                                              ========   ======   ======
</Table>

See accompanying notes to consolidated financial statements.

                                       F-4
<PAGE>   27

              DIGITAL TRANSMISSION SYSTEMS, INC. AND SUBSIDIARIES
           Consolidated Statements of Shareholders' Equity (Deficit)
                   Years ended June 30, 2001, 2000, and 1999
                                 (in thousands)
<Table>
<Caption>
                                                               PREFERRED STOCK,     PREFERRED STOCK,     PREFERRED STOCK,
                                                                   SERIES A             SERIES B             SERIES C
                                                              ------------------   ------------------   ------------------
                                                               NUMBER               NUMBER               NUMBER
                                                              OF SHARES            OF SHARES            OF SHARES
                                                               ISSUED     AMOUNT    ISSUED     AMOUNT    ISSUED     AMOUNT
                                                              ---------   ------   ---------   ------   ---------   ------
<S>                                                           <C>         <C>      <C>         <C>      <C>         <C>
Balance at June 30, 1998                                           --     $  --        --      $  --         --     $  --
Exchange of convertible debentures for Series A preferred
 stock                                                          1,314     1,314        --         --         --        --
Exercise of stock options                                          --        --        --         --         --        --
Issuance of stock in lieu of compensation                          --        --        --         --         --        --
Stock compensation expense                                         --        --        --         --         --        --
Issuance of warrants in connection with financing                  --        --        --         --         --        --
Net loss                                                           --        --        --         --         --        --
                                                                -----     ------      ---      ------     -----     ------
Balance at June 30, 1999                                        1,314     1,314        --         --         --        --
Conversion of convertible debentures to common stock               --        --        --         --         --        --
Deferred financing costs on conversion of debentures               --        --        --         --         --        --
Issuance of stock in lieu of interest on convertible
 debentures                                                        --        --        --         --         --        --
Issuance of stock for exercise of options in connection with
 severance agreement                                               --        --        --         --         --        --
Exercise of stock options                                          --        --        --         --         --        --
Issuance of stock in connection with acquisition                   --        --        --         --         --        --
Issuance of stock to reduce acquisition payable                    --        --        --         --         --        --
Issuance of stock in lieu of compensation                          --        --        --         --         --        --
Issuance of warrants in connection with financing                  --        --        --         --         --        --
Issuance of Series B preferred stock                               --        --       455      3,000         --        --
Dividend on Series B preferred stock to be paid in common
 stock                                                             --        --        --         --         --        --
Net loss                                                           --        --        --         --         --        --
                                                                -----     ------      ---      ------     -----     ------
Balance at June 30, 2000                                        1,314     1,314       455      3,000         --        --
Issuance of stock to reduce acquisition payable                    --        --        --         --         --        --
Payment of dividend on Series B preferred stock with common
 stock                                                             --        --        --         --         --        --
Conversion of convertible debenture interest into common
 stock                                                             --        --        --         --         --        --
Employee stock purchases                                           --        --        --         --         --        --
Exercise of stock options                                          --        --        --         --         --        --
Preferred stock Series A conversion into common stock             (50)      (50)       --         --         --        --
Payment of trade payables through issuance of common stock         --        --        --         --         --        --
Issuance of Series C preferred stock                               --        --        --         --      2,330     4,810
Dividend on Series B preferred stock to be paid in common
 stock                                                             --        --        --         --         --        --
Dividend on Series C preferred stock to be paid on common
 stock                                                             --        --        --         --         --        --
Forgiveness of shareholder notes receivable                        --        --        --         --         --        --
Net loss                                                           --        --        --         --         --        --
                                                                -----     ------      ---      ------     -----     ------
Balance at June 30, 2001                                        1,264     $1,264      455      $3,000     2,330     $4,810
                                                                =====     ======      ===      ======     =====     ======

<Caption>

                                                                 COMMON STOCK
                                                              ------------------
                                                               NUMBER                COMMON     ADDITIONAL     UNEARNED
                                                              OF SHARES              STOCK       PAID-IN        STOCK
                                                               ISSUED     AMOUNT   SUBSCRIBED    CAPITAL     COMPENSATION
                                                              ---------   ------   ----------   ----------   ------------
<S>                                                           <C>         <C>      <C>          <C>          <C>
Balance at June 30, 1998                                        4,191      $ 42        --         11,462         (56)
Exchange of convertible debentures for Series A preferred
 stock                                                             --        --        --             --          --
Exercise of stock options                                          59         1        --              1          --
Issuance of stock in lieu of compensation                         396         4        --             --          --
Stock compensation expense                                         --        --        --             --          56
Issuance of warrants in connection with financing                  --        --        --            188          --
Net loss                                                           --        --        --             --          --
                                                               ------      ----       ---         ------         ---
Balance at June 30, 1999                                        4,646        47        --         11,651          --
Conversion of convertible debentures to common stock            2,779        28        --          2,751          --
Deferred financing costs on conversion of debentures               --        --        --            (79)         --
Issuance of stock in lieu of interest on convertible
 debentures                                                        48        --        --            251          --
Issuance of stock for exercise of options in connection with
 severance agreement                                              167         2        --            833          --
Exercise of stock options                                         224         2        --            141          --
Issuance of stock in connection with acquisition                  339         3        --          2,497          --
Issuance of stock to reduce acquisition payable                 2,007        20        --         11,825          --
Issuance of stock in lieu of compensation                          30        --        --            143          --
Issuance of warrants in connection with financing                  --        --        --            286          --
Issuance of Series B preferred stock                               --        --        --             --          --
Dividend on Series B preferred stock to be paid in common
 stock                                                             --        --        41             --          --
Net loss                                                           --        --        --             --          --
                                                               ------      ----       ---         ------         ---
Balance at June 30, 2000                                       10,240       102        41         30,299          --
Issuance of stock to reduce acquisition payable                 1,321        13        --          2,715          --
Payment of dividend on Series B preferred stock with common
 stock                                                             26        --       (41)            41          --
Conversion of convertible debenture interest into common
 stock                                                             57         1        --             60          --
Employee stock purchases                                           62         1        --            117          --
Exercise of stock options                                          39        --        --             23          --
Preferred stock Series A conversion into common stock              50         1        --             49          --
Payment of trade payables through issuance of common stock         19        --        --             10          --
Issuance of Series C preferred stock                               --        --        --             --          --
Dividend on Series B preferred stock to be paid in common
 stock                                                             --        --       162             --          --
Dividend on Series C preferred stock to be paid on common
 stock                                                             --        --       140             --          --
Forgiveness of shareholder notes receivable                        --        --        --             --          --
Net loss                                                           --        --        --             --          --
                                                               ------      ----       ---         ------         ---
Balance at June 30, 2001                                       11,814      $118       302         33,314          --
                                                               ======      ====       ===         ======         ===

<Caption>

                                                                NOTES
                                                              RECEIVABLE                     TOTAL
                                                                 FROM                    SHAREHOLDERS'
                                                                STOCK      ACCUMULATED      EQUITY
                                                                SALES        DEFICIT       (DEFICIT)
                                                              ----------   -----------   -------------
<S>                                                           <C>          <C>           <C>
Balance at June 30, 1998                                         (63)        (14,953)        (3,568)
Exchange of convertible debentures for Series A preferred
 stock                                                            --              --          1,314
Exercise of stock options                                         --              --              2
Issuance of stock in lieu of compensation                         --              --              4
Stock compensation expense                                        --              --             56
Issuance of warrants in connection with financing                 --              --            188
Net loss                                                          --            (424)          (424)
                                                                 ---         -------        -------
Balance at June 30, 1999                                         (63)        (15,377)        (2,428)
Conversion of convertible debentures to common stock              --              --          2,779
Deferred financing costs on conversion of debentures              --              --            (79)
Issuance of stock in lieu of interest on convertible
 debentures                                                       --              --            251
Issuance of stock for exercise of options in connection with
 severance agreement                                              --              --            835
Exercise of stock options                                         --              --            143
Issuance of stock in connection with acquisition                  --              --          2,500
Issuance of stock to reduce acquisition payable                   --              --         11,845
Issuance of stock in lieu of compensation                         --              --            143
Issuance of warrants in connection with financing                 --              --            286
Issuance of Series B preferred stock                              --              --          3,000
Dividend on Series B preferred stock to be paid in common
 stock                                                            --             (41)            --
Net loss                                                          --          (3,815)        (3,815)
                                                                 ---         -------        -------
Balance at June 30, 2000                                         (63)        (19,233)        15,460
Issuance of stock to reduce acquisition payable                   --              --          2,728
Payment of dividend on Series B preferred stock with common
 stock                                                            --              --             --
Conversion of convertible debenture interest into common
 stock                                                            --              --             61
Employee stock purchases                                         (19)             --             99
Exercise of stock options                                         --              --             23
Preferred stock Series A conversion into common stock             --              --             --
Payment of trade payables through issuance of common stock        --              --             10
Issuance of Series C preferred stock                              --              --          4,810
Dividend on Series B preferred stock to be paid in common
 stock                                                            --              --            162
Dividend on Series C preferred stock to be paid on common
 stock                                                            --              --            140
Forgiveness of shareholder notes receivable                       82              --             82
Net loss                                                          --         (38,077)       (38,077)
                                                                 ---         -------        -------
Balance at June 30, 2001                                          --         (57,310)       (14,502)
                                                                 ===         =======        =======
</Table>

See accompanying notes to consolidated financial statements.

                                       F-5
<PAGE>   28

              DIGITAL TRANSMISSION SYSTEMS, INC. AND SUBSIDIARIES
                     Consolidated Statements of Cash Flows
                   Years ended June 30, 2001, 2000, and 1999
                                 (in thousands)

<Table>
<Caption>
                                                                2001      2000      1999
                                                              --------   -------   -------
<S>                                                           <C>        <C>       <C>
Cash flows from operating activities:
  Net loss                                                    $(38,077)   (3,815)     (424)
  Less loss from discontinued operations, net of income
    taxes                                                       37,224     2,115        --
                                                              --------   -------   -------
        Loss from continuing operations                           (853)   (1,700)     (424)
  Adjustments to reconcile net loss to net cash (used in)
    provided by operating activities:
    Depreciation and amortization                                  527       421       853
    Gain on sale of subsidiary                                      --        --    (1,461)
    Provision for losses on accounts receivable                     --       129       528
    Provision for inventory obsolescence                            50        --        50
    Provision for warranty reserve                                 345         3        81
    Extraordinary gain on settlement of trade payables              --        --      (359)
    Stock compensation expense                                      --        --        56
    (Increase) decrease in:
      Trade accounts receivable                                   (217)     (281)      371
      Inventories                                                 (324)     (269)    1,342
      Prepaid expenses and other assets                            196      (338)      (62)
    Increase (decrease) in:
      Accounts payable and accrued liabilities                    (699)    2,288      (492)
      Accrued payroll and benefits                                 236        47       (81)
      Warranty accrual                                            (345)       --       (97)
                                                              --------   -------   -------
        Net cash (used in) provided by continuing operations    (1,084)      300       305
        Net cash provided by (used in) discontinued
        operations                                                 330      (353)       --
                                                              --------   -------   -------
        Net cash (used in) provided by operating activities       (754)      (53)      305
                                                              --------   -------   -------
Cash flows from investing activities:
  Payments for business acquired, net of cash acquired              --    (2,426)       --
  Purchases of property and equipment                             (320)      (88)      (85)
  Additions to software development costs                         (105)     (174)     (136)
                                                              --------   -------   -------
        Net cash used in investing activities                     (425)   (2,688)     (221)
                                                              --------   -------   -------
Cash flows from financing activities:
  Repayments of long-term debt                                    (150)     (430)       --
  Repayment of acquisition payable                                (117)     (500)       --
  Net borrowings (payments) under notes payable to banks           474      (193)       36
  Proceeds from sale of convertible debentures to a related
    party                                                           --     1,500        --
  Proceeds from exercise of stock options                           23       143         2
  Proceeds from issuances of common stock                           99        --         4
  Proceeds from issuance of Series B preferred stock to a
    related party                                                   --     3,000        --
                                                              --------   -------   -------
        Net cash provided by financing activities                  329     3,520        42
                                                              --------   -------   -------
        Net (decrease) increase in cash and cash equivalents      (850)      779       126
Cash and cash equivalents at beginning of year                     996       217        91
                                                              --------   -------   -------
Cash and cash equivalents at end of year                      $    146       996       217
                                                              ========   =======   =======
Supplemental disclosure of cash paid for interest             $    198       115       158
                                                              ========   =======   =======
Supplemental disclosures of noncash operating and financing
  activities:
  Issuance of note receivable in conjunction with a
    subsidiary liability                                      $     --        --       127
                                                              ========   =======   =======
  Conversion of convertible debentures plus accrued interest
    to Series A preferred stock                               $     --        --     1,314
                                                              ========   =======   =======
  Conversion of convertible debentures and accrued interest
    to common stock                                           $     61     2,951        --
                                                              ========   =======   =======
  Issuance of warrants in connection with financing           $     --       286       188
                                                              ========   =======   =======
  Acquisition of business in exchange for acquisition
    payable                                                   $     --    20,000        --
                                                              ========   =======   =======
  Issuance of common stock in connection with acquisition     $     --     2,500        --
                                                              ========   =======   =======
  Issuance of common stock to reduce acquisition payable      $  2,728    11,845        --
                                                              ========   =======   =======
  Issuance of Series C preferred stock to reduce acquisition
    payable                                                   $  4,810        --        --
                                                              ========   =======   =======
  Issuance of common stock in lieu of compensation            $     --       143         4
                                                              ========   =======   =======
  Issuance of common stock in payment of trade payables       $     10        --        --
                                                              ========   =======   =======
Sale of subsidiary:
  Assets disposed of                                          $     --        --       981
  Liabilities disposed of                                           --        --    (2,442)
                                                              --------   -------   -------
                                                              $     --        --    (1,461)
                                                              ========   =======   =======
</Table>

See accompanying notes to consolidated financial statements.
                                       F-6
<PAGE>   29

              DIGITAL TRANSMISSION SYSTEMS, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                             JUNE 30, 2001 AND 2000

(1)   BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

     (A)  DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION

         Digital Transmission Systems, Inc. and subsidiaries (the "Company" or
         "DTS") designs, manufactures, repairs, refurbishes, and markets a broad
         range of products for the telecommunications ("telecom") industry. The
         Company's primary customers are long-distance carriers, domestic
         wireless service providers, including those offering cellular telephone
         services and Personal Communication Services ("PCS"), and domestic and
         international resellers/integrators who sell to and service end users
         with telecom equipment.

         The Company's products of original design, consisting of proprietary
         software and hardware modules, facilitate the control, monitoring, and
         efficient transmission of high-speed digital information through public
         or private telecommunications networks. The Company's network access
         products enable telecommunications service providers to give their
         customers economical, high quality access to public and private
         networks and various telecommunications services. These services
         include voice and high speed data transmission, access to the Internet
         and video and desktop conferencing.

         In July 2001, the Company's Board of Directors approved a plan to
         discontinue operations of the Company's wholly-owned subsidiary,
         Asurent Technologies, Inc. (formerly Telcor Communications,
         Inc.) -- (see note 15). Asurent Technologies, Inc. acquires and markets
         de-installed and refurbished telecom equipment originally designed and
         manufactured by leading telecom equipment suppliers.

         The consolidated financial statements include accounts of DTS and its
         subsidiaries. All significant intercompany balances and transactions
         have been eliminated in consolidation.

         Management of the Company has made a number of estimates and
         assumptions relating to the reporting of assets and liabilities and the
         disclosure of contingent liabilities at the date of the consolidated
         financial statements and the reported amounts of revenues and expenses
         during the reported periods to prepare these consolidated financial
         statements in conformity with accounting principles generally accepted
         in the United States of America. Actual results could differ from those
         estimates.

         The markets for the Company's telecom products are characterized by
         significant risk as a result of rapid changes in technology,
         competitors with significant financial resources, frequent new product
         and service introductions, and mergers and acquisition activity in the
         telecom industry. Furthermore, the Company's business is also subject
         to additional significant risks such as availability of capital,
         history of operating losses, concentrations with major customers,
         inability to integrate acquired companies, dependency on major
         suppliers, protection of intellectual property rights, dependence on
         key personnel, and new laws or regulations affecting the telecom
         industry. As a result, negative developments in the Company's markets
         or in managing these additional risks could have an adverse effect on
         the Company's financial position, results of operations and liquidity.

     (B)  GOING CONCERN MATTERS

         The accompanying financial statements have been prepared on a going
         concern basis, which contemplates the realization of assets and the
         satisfaction of liabilities in the normal course of business. As shown
         in the financial statements, during the years ended June 30, 2001,
         2000, and 1999, the Company incurred losses from continuing operations
         of $853,000, $1,700,000, and $424,000, respectively, and has an
         accumulated deficit of $57,310,000 as of June 30, 2001. These factors,
         among others, raise substantial doubt about the Company's ability to
         continue as a going concern for a reasonable period of time.

         The financial statements do not include any adjustments relating to the
         recoverability and classification of assets and liabilities that might
         be necessary should the Company be unable to continue as a going
         concern. The Company's continuation as a going concern is dependent
         upon its ability to generate sufficient cash flow to meet its
         obligations on a timely basis, to comply with the terms of its
         financing agreements, to obtain additional financing or refinancing as
         may be required, and ultimately to attain profitability. The Company is
         actively pursuing additional equity or debt financing through
         discussions with potential lenders and investors.

                                       F-7
<PAGE>   30

     (C)  CASH AND CASH EQUIVALENTS

         Cash and cash equivalents include cash on deposit in demand or money
         market accounts with commercial banks. All cash and cash equivalents
         are carried at cost which approximates market. For purposes of the
         consolidated statements of cash flows, the Company considers all highly
         liquid investments with original maturities of three months or less to
         be cash equivalents.

     (D)  INVENTORIES

         Inventories are stated at the lower of cost or market. Cost is
         determined using average cost which approximates the first-in,
         first-out (FIFO) method. The Company has established a valuation
         allowance for inventories based on a review of the composition,
         quantity, and expected future usage or sales of inventories including
         expected sales prices.

     (E)  PROPERTY AND EQUIPMENT

         Property and equipment are stated at cost less accumulated depreciation
         and amortization. Depreciation and amortization on property and
         equipment are provided using the straight-line method over the
         estimated useful lives of the assets as follows:

<Table>
<S>                                                           <C>
               Computer equipment                             3 years
               Test equipment                                 1-3 years
               Software                                       3 years
               Furniture and fixtures                         6-10 years
               Leasehold improvements                         3-5 years
</Table>

         Leasehold improvements are amortized using the straight-line method
         over the estimated useful life of the improvements or the lease term,
         whichever is shorter. Amortization of assets held under capital lease
         arrangements is included in depreciation and amortization.

     (F)  INTANGIBLE ASSETS

         Intangible assets consist of capitalized software development costs.
         The Company capitalizes software development costs from the time
         technological feasibility of the product is established until the
         product is available for sale to customers. Substantially all of the
         Company's software development costs have been paid to third party
         contractors. Software development costs are amortized using the greater
         of (1) the straight-line method over the estimated useful life of the
         product (not to exceed three years) or (2) the ratio of current
         revenues to total current and anticipated revenues for each product.
         The carrying value of software development costs is reviewed for
         impairment by the Company by comparing the carrying values to the
         future undiscounted net operating cash flows expected to be derived
         from the underlying products. If such a review indicates impairment,
         the Company uses fair value in determining the amount that should be
         written off.

     (G)  PRODUCT DEVELOPMENT

         Product development costs consist principally of compensation and
         benefits paid to the Company's employees and are expensed as incurred.

     (H)  IMPAIRMENT OF LONG-LIVED ASSETS AND LONG-LIVED ASSETS TO BE DISPOSED
OF

         The Company reviews long-lived assets for impairment whenever events or
         changes in circumstances indicate that the carrying amount of an asset
         may not be recoverable. Recoverability of assets to be held and used is
         measured by a comparison of the carrying amount of an asset to future
         net cash flows expected to be generated by the asset. If such assets
         are considered to be impaired, the impairment to be recognized is
         measured by the amount by which the carrying amount of the assets
         exceeds the fair value of the assets. Assets to be disposed of are
         reported at the lower of the carrying amount or fair value less costs
         to sell.

     (I)  FINANCIAL INSTRUMENTS

         Financial instruments which potentially subject the Company to
         concentrations of credit risk are primarily cash, cash equivalents, and
         accounts receivable. The Company's cash equivalents are held on deposit
         in demand or money market accounts with commercial banks.

         Accounts receivable arise from sales of products to long-distance
         carriers, wireless service providers, and resellers/integrators in the
         telecommunications industry, domestically and internationally.
         Generally, the Company requires no collateral on trade receivables, but
         believes that credit risks are substantially mitigated by its credit
         evaluation process. The Company maintains an allowance for returns and
         doubtful accounts, but

                                       F-8
<PAGE>   31

         historically has not experienced significant losses related to doubtful
         accounts. The amount of losses on doubtful accounts could differ
         materially from the allowance recorded in these consolidated financial
         statements.

     (J)  REVENUE RECOGNITION

         Revenue from the sale of products is recognized at the time of
         shipment. The Company estimates and records provisions for sales
         returns and warranty obligations in the period the sale is reported,
         based on historical experience and other relevant factors.

         Certain of the Company's contractual arrangements allow for limited
         rights of return. Management of the Company has provided an allowance
         for expected sales returns related to these customers based on
         historical return rates and expected future returns on sales to these
         customers. The amount of sales returns could differ materially from the
         allowance recorded in these consolidated financial statements.

     (K)  WARRANTY ACCRUAL

         The Company warrants its products against defects in design, materials,
         and workmanship for periods ranging from two to five years. A provision
         for estimated future costs relating to warranty obligations is recorded
         when the products are shipped based on historical experience.

         Certain of the Company's product lines have been recently introduced to
         the market and, therefore, limited historical data is available against
         which to base estimates of future warranty obligations. Management of
         the Company has provided for warranty expense related to these new
         products based on the historical repair costs of established product
         lines, as well as recent and expected repair costs of these new
         products. The amount of warranty expense could differ materially from
         the accrual recorded in these consolidated financial statements.

     (L)  INCOME TAXES

         Income taxes are accounted for under the asset and liability method.
         Deferred income tax assets and liabilities are recognized for the
         future tax consequences attributable to differences between the
         financial statement carrying amounts of existing assets and liabilities
         and their respective tax bases and operating loss and tax credit
         carryforwards. Deferred income tax assets and liabilities are measured
         using enacted tax rates expected to apply to taxable income in the
         years in which those temporary differences are expected to be recovered
         or settled. The effect on deferred income tax assets and liabilities of
         a change in tax rates is recognized in the consolidated statement of
         operations in the period that includes the enactment date.

     (M)  STOCK OPTION PLANS

         The Company accounts for its stock option plans in accordance with
         Statement of Financial Accounting Standards No. 123, Accounting for
         Stock-Based Compensation ("SFAS No. 123"), which encourages entities to
         recognize as compensation expense over the vesting period the fair
         value of all stock-based awards on the date of grant. Alternatively,
         SFAS No. 123 allows entities to continue to apply the provisions of
         Accounting Principles Board ("APB") Opinion No. 25 and provide pro
         forma disclosures for employee stock-based awards as if the fair-value
         based method of SFAS No. 123 had been applied. As such, compensation
         expense would be recorded only if the current market price of the
         underlying stock as of the date of grant exceeded the exercise price.
         The Company has elected to continue applying the provisions of APB
         Opinion No. 25 and include the pro forma disclosures required under
         SFAS No. 123.

     (N)  EARNINGS (LOSS) PER SHARE

         Basic earnings (loss) per share ("EPS") is calculated as income (loss)
         available to common shareholders divided by the weighted-average number
         of common shares outstanding during each period. Diluted EPS is
         calculated as income (loss) available to common shareholders divided by
         the weighted-average number of common shares outstanding during each
         period plus the effect of any potential dilutive common shares, such as
         those attributable to convertible debt, convertible preferred stock,
         warrants, or stock options.

         A total of 1,304,000 common shares related to the potential conversion
         of warrants, options and convertible Series B and Series C preferred
         stock were excluded from the computation of diluted net loss per share
         in the year ended June 30, 2001, because the exercise price of these
         securities was greater than the average market price of the Company's
         common stock. In addition, the Company excluded all remaining
         convertible preferred stock, warrants, outstanding stock options and
         convertible debentures from the calculations of diluted net loss per
         share as all such securities are anti-dilutive for all periods
         presented. The total number of shares excluded was 5,598,000,
         3,140,000, and 256,000 for the years ended June 30, 2001, 2000, and
         1999, respectively.

                                       F-9
<PAGE>   32

     (O)  COMPREHENSIVE INCOME (LOSS)

         No statements of comprehensive income (loss) have been included in the
         accompanying consolidated financial statements since comprehensive loss
         and net loss presented in the accompanying consolidated statements of
         operations would be the same.

     (P)  FAIR VALUE OF FINANCIAL INSTRUMENTS

         The carrying amounts of cash and cash equivalents, trade accounts
         receivable, accounts receivable from related party, notes payable to
         banks, accounts payable, accrued liabilities, and accrued payroll and
         benefits approximate fair value because of the short maturity of these
         instruments.

         The carrying amount of the $3 million in notes payable to related
         parties approximates fair value because of the short maturity of these
         notes.

         The fair value of $721,000 in notes payable to related parties is
         estimated by discounting the future cash flows of these instruments at
         rates currently offered to the Company for similar debt instruments of
         comparable maturities by the Company's bankers. The fair value of these
         notes payable approximates the carrying value.

     (Q)  RECENT ACCOUNTING PRONOUNCEMENTS

         In December 1999, the Securities and Exchange Commission issued Staff
         Accounting Bulletin No. 101 ("SAB 101"), Revenue Recognition in
         Financial Statements. SAB 101 summarizes existing guidance on revenue
         recognition. The implementation date of SAB 101 for the Company was for
         the quarter ended June 30, 2001. The implementation of SAB 101 did not
         have a material impact on the Company's financial statements.

         In March 2000, the Financial Accounting Standards Board ("FASB") issued
         FASB Interpretation No. 44 (FIN 44), Accounting for Certain
         Transactions involving Stock Compensation -- an Interpretation of APB
         Opinion No. 25. FIN 44 provides guidance for certain issues that arose
         in applying APB Opinion No. 25. The provisions of FIN 44 were effective
         for the Company on July 1, 2000. Adoption of FIN 44 did not materially
         affect the Company's financial results.

         In June 2001, the FASB issued Statement No. 141, Business Combinations,
         and Statement No. 142, Goodwill and Other Intangible Assets. Statement
         141 requires that the purchase method of accounting be used for all
         business combinations initiated after June 30, 2001, as well as all
         purchase method business combinations completed after June 30, 2001.
         Statement 141 also provides that intangible assets acquired in a
         purchase method business combination must meet certain specified
         criteria in order to be recognized and reported apart from goodwill,
         noting that any purchase price allocable to an assembled workforce may
         not be accounted for separately.

         Statement 142 will require that goodwill and intangible assets with
         indefinite useful lives no longer be amortized, but instead tested for
         impairment at least annually in accordance with the provisions of
         Statement 142. Statement 142 will also require that intangible assets
         with estimable useful lives be amortized over their respective
         estimated useful lives to their estimated residual values, and reviewed
         for impairment in accordance with FASB Statement No. 121, Accounting
         for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be
         Disposed Of.

         The Company is required to adopt the provisions of Statement 141
         immediately, and Statement 142 effective July 1, 2002. Furthermore,
         goodwill and intangible assets determined to have an indefinite useful
         life acquired in a purchase business combination completed after June
         30, 2001, but before Statement 142 is adopted in full will not be
         amortized, but will continue to be evaluated for impairment in
         accordance with the appropriate pre-Statement 142 accounting
         literature. The Company does not expect Statement 141 or 142 to have a
         significant impact on its financial statements.

         Also, in June 2001, the FASB issued Statement No. 143, Accounting for
         Asset Retirement Obligations. Statement 143 requires entities to record
         the fair value of a liability for an asset retirement obligation in the
         period in which it is incurred. When the liability is initially
         recorded, the entity capitalizes a cost by increasing the carrying
         amount of the related long-lived asset. Over time, the liability is
         accreted to its present value each period, and the capitalized cost is
         depreciated over the useful life of the related asset. Upon settlement
         of the liability, an entity either settles the obligation for its
         recorded amount or incurs a gain or loss upon settlement. Statement 143
         is effective for the Company beginning July 1, 2002. The Company does
         not expect Statement 143 to have a significant impact on its financial
         statements.

                                       F-10
<PAGE>   33

     (R)  RECLASSIFICATIONS

         Reclassifications were made to certain amounts in the 2000 and 1999
         financial statements to conform with the presentation in the 2001
         consolidated financial statements.

(2)   ACQUISITION OF ASURENT TECHNOLOGIES, INC.

         On March 31, 2000, a wholly-owned subsidiary of the Company consummated
         a merger with Asurent Technologies, Inc. and subsidiaries ("Asurent
         Technologies") -- (formerly Telcor Communications, Inc.), a leading
         reseller of new and refurbished wireless and wireline telecom equipment
         based in Duluth, Georgia. The merger consideration payable to the
         shareholders of Asurent Technologies was $25 million in a combination
         of the Company's common stock, cash, and an acquisition payable. The
         amount of $5 million of consideration was paid at closing consisting of
         $2.5 million in cash and $2.5 million in common stock (338,983 shares
         with a value of $7.375 per share representing the closing price of DTS
         common stock a few days before and after the announcement date). The
         remaining consideration of $20 million was due and payable in cash or
         the Company's common stock (at fair value at the date of issuance), at
         the Company's option, on or before October 30, 2000. The acquisition
         payable was unsecured and non-interest bearing. Subsequent to the
         closing of the acquisition, the former Asurent Technologies
         shareholders became DTS shareholders and loaned the Company $3 million.

         The acquisition was accounted for using the purchase method of
         accounting, and accordingly, the purchase price was allocated to assets
         acquired and liabilities assumed based on their fair values on March
         31, 2000. A summary of the acquisition is as follows (in thousands):

<Table>
<S>                                                           <C>
             Purchase price                                   $ 25,000
             Legal, accounting, and other acquisition costs        560
                                                              --------
                    Total purchase price                        25,560
                                                              --------
             Fair value of assets acquired                      28,023
             Fair value of liabilities assumed                 (18,710)
                                                              --------
                    Fair value of tangible net assets
                  acquired                                       9,313
                                                              --------
                    Excess of total purchase price over
                  tangible net assets acquired                $ 16,247
                                                              ========
</Table>

         See note 15 for discussion of discontinued operation of Asurent
         Technologies.

(3)   RELATED PARTY TRANSACTIONS

     (A)  WI-LAN, INC.

         On December 29, 1999, the Company entered into an agreement with Wi-LAN
         Inc. ("Wi-LAN"), a leading provider of wireless data communications
         technology and products, to sell Wi-LAN $1.5 million in convertible
         debentures (the "1999 debentures"). The debentures, convertible into
         the Company's common stock at any time by the holder, have a four-year
         term with a 10% interest rate with principal and interest due at
         maturity. The Company has no buy-back provision, and the conversion
         rate is one share per $1 in debentures, which approximated the fair
         value of the Company's common stock on the date the Company entered
         into the agreement. On January 7, 2000, a closing on the Wi-LAN
         debentures was held whereby the Company received the proceeds from the
         first tranche of the debentures of $400,000. The remaining $1,100,000
         in proceeds from the issuance of debentures was received prior to March
         31, 2000. In connection with various transactions subsequent to the
         sale of the $1.5 million in debentures and through June 30, 2000,
         Wi-LAN converted $1,278,900 of the 1999 debentures into 1,278,900
         shares of the Company's common stock. The outstanding amount of these
         1999 debentures as of June 30, 2001 is $221,100. In connection with the
         agreement, Wi-LAN also received an option to purchase additional
         debentures of $1.5 million with similar terms but at a conversion rate
         to be determined by the market price of the Company's common stock at
         the time the option is exercised. The expiration on the option to
         purchase additional debentures of $1.5 million is January 7, 2002.

         Apart from the transactions described above, in January 2000, Wi-LAN
         purchased 1,738,159 shares of the Company's common stock from MicroTel,
         another DTS shareholder, and the outstanding $2 million in debentures
         (the "1997 debentures") with outstanding warrants from Finova Mezzanine
         Capital, a DTS lender. By converting $1,310,000 of the 1997 debentures,
         Wi-LAN received 1,310,000 shares of the Company's common stock and
         gained over 50% of the outstanding common stock of the Company. Through
         the transaction with Finova, Wi-LAN also received outstanding warrants
         for 702,615 shares of common stock at an exercise price of $1 per share
         which expire in March 2004. All 702,615 warrants remain outstanding and
         exercisable as of June 30, 2001.

                                       F-11
<PAGE>   34

         Additionally, Wi-LAN converted another $190,000 of the 1997 debentures
         into 190,000 shares of the Company's common stock through June 30,
         2000. The outstanding amount of the 1997 debentures as of June 30, 2001
         is $500,000.

         On March 31, 2000, Wi-LAN purchased 454,737 shares of the Company's
         Series B preferred stock for $3 million in cash. The Company's Series B
         Preferred Stock is convertible into common shares at $7.125 per share,
         the market closing price of the Company's common stock on March 30,
         2000.

         In June 2000, DTS announced that Wi-LAN entered into a purchase and
         assignment agreement with the two former shareholders of Asurent
         Technologies to acquire the right to receive approximately 31% of the
         merger consideration still due to the former Asurent Technologies
         shareholders. According to the agreement, Wi-LAN acquired $6,100,000 of
         the original $20 million acquisition payable for $500,000 in cash and
         $5,600,000 by issuing the former Asurent Technologies shareholders a
         right to receive $5,600,000 of Wi-LAN common shares based on the market
         value of Wi-LAN shares on July 17, 2000, subject to a specified maximum
         number of shares. Wi-LAN may redeem all or part of the right for cash.
         In addition, Wi-LAN granted the former Asurent Technologies
         shareholders an option which was exercisable by August 31, 2000, to
         sell between $2,000,000 and $4,000,000 of additional merger
         consideration to Wi-LAN for the issuance of a right to receive Wi-LAN
         shares of equivalent value, based on the market value of Wi-LAN shares
         at October 30, 2000, subject to a specified maximum number of shares.
         On August 31, 2000, the former shareholders of Telcor exercised the
         aforementioned option and sold $4,000,000 of merger consideration to
         Wi-LAN in exchange for Wi-LAN shares as discussed above.

         On November 30, 2000, the Company issued 2,330,217 shares of the
         Company's Series C preferred stock to Wi-LAN for a $4.8 million
         reduction of the acquisition payable. The Company's Series C preferred
         stock is convertible into common shares at $2.58 per share.

         Also on November 30, 2000, the Company issued 638,273 shares of common
         stock to the former Asurent Technologies shareholders for a reduction
         in the outstanding acquisition payable of $1,317,395.

         In addition, on November 30, 2000, the Company issued 683,543 shares of
         common stock to Wi-LAN for a $1,410,832 reduction of the acquisition
         payable.

         Wi-LAN also has a services agreement with the Company's Chief Executive
         Officer ("CEO") which provides for the CEO to provide services to
         Wi-LAN. Wi-LAN has accrued or paid the Company's CEO $80,833 and
         $65,439 during the years ended June 30, 2001 and 2000, respectively,
         which has not been reflected in the Company's consolidated financial
         statements. The Company is also reimbursed by Wi-LAN for payments made
         by the Company to certain Wi-LAN United States-based sales personnel
         who provide services to Wi-LAN. The Company has recorded a receivable
         from Wi-LAN for these amounts of $25,000 and $161,000 at June 30, 2001
         and 2000, respectively, in the accompanying consolidated balance
         sheets. Additionally, the Company has accrued or paid $61,000 and
         $251,000 in interest expense to Wi-LAN related to convertible
         debentures held by Wi-LAN during the years ended June 30, 2001 and
         2000, respectively.

     (B)  EMPLOYEES AND BOARD OF DIRECTORS

         On January 25, 2000, the Board of Directors of the Company approved a
         plan whereby certain compensation obligations of the Company to
         employees and Board members could be satisfied through the issuance of
         restricted common stock at the option of the holder. Approximately
         30,000 shares of the Company's common stock were issued during the year
         ended June 30, 2000 to satisfy such obligations. The shares were issued
         at $3.56 per share (a 25% discount from the market closing price on
         January 25, 2000) and were restricted as to trade, pledge, or sale
         until January 25, 2001. The Company has recorded $143,000 in
         compensation expense to reflect the satisfaction of these obligations
         which represented the fair market value of the shares issued.

         In November 2000, the Company offered 800,000 shares of its common
         stock to be purchased by employees. As of June 30, 2001, a total of
         62,422 shares were issued to employees under this offer for cash of
         $98,780 and notes receivable of $18,825, which were subsequently
         forgiven and expensed.

                                       F-12
<PAGE>   35

(4)   INVENTORIES

         Inventories consist of the following at June 30, 2001 and 2000 (in
         thousands):

<Table>
<Caption>
                                                                 2001     2000
                                                                ------    -----
<S>                                                             <C>       <C>
            Raw materials                                       $1,478    1,498
            Work in process                                        184      182
            Finished goods                                         592      325
                                                                ------    -----
                                                                 2,254    2,005
            Less valuation allowances                             (808)    (833)
                                                                ------    -----
                                                                $1,446    1,172
                                                                ======    =====
</Table>

(5)   PROPERTY AND EQUIPMENT

         Property and equipment consists of the following at June 30, 2001 and
         2000 (in thousands):

<Table>
<Caption>
                                                                 2001       2000
                                                                -------    ------
<S>                                                             <C>        <C>
            Computer equipment                                  $   712       626
            Test equipment                                        1,678     1,618
            Software                                                517       389
            Furniture and fixtures                                  178       144
            Leasehold improvements                                  229       217
                                                                -------    ------
                                                                  3,314     2,994
            Less accumulated depreciation and amortization       (3,087)   (2,668)
                                                                -------    ------
                                                                $   227       326
                                                                =======    ======
</Table>

         Depreciation and amortization relating to property and equipment for
         the years ended June 30, 2001, 2000, and 1999 was approximately
         $419,000, $209,000, and $497,000, respectively.

(6)   INTANGIBLE ASSETS

         The Company capitalized software development costs of $105,000,
         $174,000, and $136,000 during the years ended June 30, 2001, 2000, and
         1999, respectively. Amortization expense relating to these assets was
         $108,000, $212,000, and $356,000, for the years ended June 30, 2001,
         2000, and 1999, respectively.

(7)   NOTES PAYABLE TO BANKS

     (A)  DTS CREDIT FACILITY

         The Company maintains a revolving credit facility with a commercial
         bank whereby it may borrow the lesser of $2,500,000 or 80% of eligible
         receivables, as defined.

         Amounts outstanding under the facility were $1,646,000 and $1,172,000
         at June 30, 2001 and 2000, respectively. The amount available for
         additional borrowings under this facility was $21,000 as of June 30,
         2001. Advances accrue interest at the prime rate plus 2.25% (9.00% and
         11.75% at June 30, 2001 and 2000, respectively) are payable monthly,
         and are secured by accounts receivable, inventory, and certain other
         assets, as defined. The credit facility expires on April 10, 2002. A
         commitment fee of .125% of the unused portion of the line and a $1,000
         collateral fee are payable monthly.

         In connection with a March 1998 amendment to the credit facility, the
         Company issued warrants to the lender enabling the lender to purchase
         60,000 shares of the Company's common stock at $5.50 per share. The
         warrants are exercisable at any time and expire in March 2003. All
         60,000 warrants remain outstanding and exercisable as of June 30, 2001.

         In consideration of an amendment to the credit facility executed in
         December 1998, the Company issued warrants to the lender to purchase
         250,000 shares of the Company's common stock at $0.119 per share which
         expire in December 2003. The fair market value of the warrants was
         insignificant. All 250,000 warrants remain outstanding and exercisable
         as of June 30, 2001.

         Covenants under the facility include a minimum level of net tangible
         equity on a monthly basis and restrict the Company from paying
         dividends. The Company was not in compliance with all covenants as of
         June 30, 2001, and has not yet obtained a waiver from the bank.

                                       F-13
<PAGE>   36

     (B)  ASURENT TECHNOLOGIES CREDIT FACILITY

         The Company's wholly-owned subsidiary, Asurent Technologies, maintains
         a revolving credit facility with a commercial bank whereby it may
         borrow the lesser of 85% of eligible accounts receivable and 50% of
         eligible inventory (limited to $7 million in borrowings), as defined,
         or $11 million. Advances under the facility bear interest at LIBOR plus
         2.5% or prime, whichever Asurent Technologies selects at the date of
         the advance, payable monthly.

         Amounts outstanding under the facility were $6,002,581 at June 30, 2001
         and are included in net liabilities of discontinued operations in the
         consolidated balance sheet. The amount available for borrowing under
         this facility was $344,058 as of June 30, 2001. The facility is secured
         by Asurent Technologies' trade accounts receivable, inventories, and
         all other assets and expires on May 11, 2002.

         Under the terms of the facility, Asurent Technologies is required to
         comply with certain covenants which include, but are not limited to,
         dividend restrictions, maintaining minimum requirements for debt to
         equity, net worth, cash flows, and capital expenditures. At June 30,
         2001, Asurent Technologies was not in compliance with certain of these
         covenants and had not obtained a waiver for those covenants for which
         it was not in compliance.

         In connection with approvals needed for the merger with Asurent
         Technologies, the Company issued warrants to the lender to purchase
         60,000 shares of the Company's common stock at $7.375 per share. The
         warrants are exercisable at any time and expire in May 2003. The
         Company recorded the fair value of the warrants of $286,000, which was
         estimated using the Black Scholes option pricing model, as financing
         costs and additional paid-in capital. All 60,000 warrants remain
         outstanding and exercisable as of June 30, 2001.

(8)   NOTES PAYABLE TO RELATED PARTIES AND LONG-TERM DEBT

         Notes payable to related parties and long-term debt consists of the
         following at June 30, 2001 and 2000 (in thousands):

<Table>
<Caption>
                                                                 2001      2000
                                                                ------    ------
<S>                                                             <C>       <C>
           Note payable to related party (former Asurent
             Technologies shareholder and DTS shareholder),
             accrues interest at 6%, unsecured, principal
             and interest payable was due at maturity on
             April 1, 2001                                      $2,500     2,500
           Note payable to related party (former Asurent
             Technologies shareholder and DTS shareholder),
             accrues interest at 6%, unsecured, principal
             and interest payable was due at maturity on
             April 1, 2001                                         500       500
           Convertible debentures, 1997 debentures,
             subordinated to notes payable to banks, payable
             to a related party, principal payable at
             maturity in September 2003 through January 2004
             with interest at 10%                                  500       500
           Convertible debentures, 1999 debentures,
             subordinated to notes payable to banks, payable
             to a related party, principal and interest at
             10% payable at maturity on February 5, 2004           221       221
           Various notes payable; principal and interest due
             monthly at rates ranging from 6.5% to 10%              --       150
                                                                ------    ------
                    Total notes payable to related parties
                      and long-term debt                         3,721     3,871
           Less current maturities of notes payable to
             related parties and long-term debt                 (3,000)   (3,150)
                                                                ------    ------
                    Notes payable to related parties and
                      long-term debt, excluding current
                      maturities                                $  721       721
                                                                ======    ======
</Table>

                                       F-14
<PAGE>   37

     As of June 30, 2001, the future maturities of notes payable to related
     parties are as follows (in thousands):

<Table>
<Caption>
YEAR ENDING JUNE 30,
--------------------
<S>                                                           <C>
      2002                                                    $3,000
      2003                                                        --
      2004                                                       721
                                                              ------
                                                              $3,721
                                                              ======
</Table>

     On September 25, 1997, the Company issued $4 million of 11.5% subordinated
     convertible debentures due September 25, 2002 (the "1997 debentures"). The
     Debenture Purchase Agreement (the "Debenture Agreement") contained numerous
     rights, privileges, and conditions in favor of the lenders. The 1997
     debentures are convertible at any time by the lenders into common stock of
     the Company at a conversion price of $10.25 per share, subject to
     adjustment in certain events. The 1997 debentures are redeemable by the
     Company after September 1999 provided that (a) the Company pays the lender
     additional interest such that the lender would receive an effective
     compounded 20% interest rate from inception of the debenture or (b) the
     20-day average bid price for the Company's stock exceeds $15.00 per share.

     The 1997 debentures may be put to the Company for redemption at the option
     of the lender at any time prior to maturity if (a) there is a change in
     control, as defined in the Debenture Agreement, (b) the Company's common
     stock is delisted from NASDAQ, or (c) the Company's common stock ceases to
     be publicly traded at the sum of the principal amount of the debentures
     tendered for redemption, plus unpaid interest outstanding related to the
     debentures, plus 15% interest on outstanding principal and interest amounts
     due, plus any expenses and costs owed to the lender as set forth in the
     Debenture Agreement. The Debenture Agreement also imposed certain
     covenants, as defined.

     On February 5, 1999, the 1997 debentures were restructured as part of the
     sale of the Company's subsidiary, SouthTech, Inc. As part of the
     restructuring, $1,000,000 in principal of the debentures were assumed by
     the acquiring company. In addition, $1,000,000 in principal was converted
     along with accrued but unpaid interest of $314,333 into 1,314,333 shares of
     Series A preferred stock which bear no dividends and are convertible into
     common stock at a ratio of one for one at any time.

     The remaining $2,000,000 in 1997 debentures were restructured in February
     1999 to convert into one share of common stock per $1 in debentures and
     bear interest at 10% per annum. Interest was payable after February 5,
     2000, (i) on each June 1, September 1, and February 1 until and including
     February 1, 2002 (ii) on the first day of each month commencing March 1,
     2002 and (iii) on the final maturity date of February 5, 2004. Monthly
     interest payments shall be accompanied by payments of principal on the
     first day of each month (i) beginning on February 1, 2002, in the amount of
     $55,555 each, and (ii) beginning on February 1, 2003 in the amount of
     $111,111 each, and (iii) all remaining principal shall become due on
     February 5, 2004.

     On January 7, 2000, Wi-LAN purchased the remaining $2,000,000 in 1997
     debentures from Finova Mezzanine Capital, a DTS lender. Wi-LAN converted
     $1,500,000 of the 1997 debentures into 1,500,000 shares of the Company's
     common stock during the year ended June 30, 2000. The outstanding amount of
     the 1997 debentures as of June 30, 2001 is $500,000, which is due beginning
     September 2003 through January 2004.

     On December 29, 1999, the Company entered into an agreement to sell $1.5
     million in subordinated convertible debentures (the "1999 debentures") due
     February 5, 2004 to Wi-LAN to raise additional working capital. The new
     debentures have a four-year term with a 10% interest rate with principal
     and interest due at maturity. Wi-LAN converted $1,278,900 of the 1999
     debentures into 1,278,900 shares of the Company's common stock during the
     year ended June 30, 2000.

                                       F-15
<PAGE>   38

(9)   INCOME TAXES

     A reconciliation of the expected income tax benefit (at the Federal
     statutory income tax rate of 34%) to the actual income tax benefit reported
     in the consolidated statements of operations is as follows (in thousands):

<Table>
<Caption>
                                                                 2001       2000      1999
                                                                -------    ------    ------
<S>                                                             <C>        <C>       <C>
           Computed "expected" income tax benefit at Federal
             statutory income tax rate of 34%                   $  (290)    (578)     (144)
           State income taxes, net of Federal effect                (34)     (67)      (17)
           Increase in valuation allowance allocated to
             income tax expense                                   8,538      148       180
           (Increase) decrease in net operating loss
             carryforward related to discontinued operations     (8,241)     285        --
           Other, net                                                27      212       (19)
                                                                -------    -----     -----
                    Actual income tax benefit                   $    --       --        --
                                                                =======    =====     =====
</Table>

     The income tax effects of the temporary differences that give rise to
     significant portions of the Company's deferred income tax assets and
     liabilities at June 30, 2001 and 2000 are presented below (in thousands):

<Table>
<Caption>
                                                                 2001       2000
                                                                -------    ------
<S>                                                             <C>        <C>
           Deferred income tax assets:
             Current:
               Allowances for returns and doubtful accounts     $   278       287
               Inventory valuation allowances                       307       317
               Accrued expenses not deducted for income tax
                  purposes                                          196       125
                                                                -------    ------
                                                                    781       729
                                                                -------    ------
           Noncurrent:
             Property and equipment, principally due to
               differences in depreciation                           14        14
             Net operating loss carryforwards                    14,574     6,088
             Product development tax credit carryforwards           441       441
                                                                -------    ------
                                                                 15,029     6,543
                                                                -------    ------
                    Gross deferred income tax assets             15,810     7,272
           Less valuation allowance                             (15,810)   (7,272)
                                                                -------    ------
                    Deferred income tax assets, net of
                      valuation allowance                       $    --        --
                                                                =======    ======
</Table>

     The valuation allowance for deferred income tax assets as of June 30, 2001
     and 2000 was $15,810,000 and $7,272,000, respectively. The net increase in
     the total valuation allowance for the years ended June 30, 2001, 2000, and
     1999 was approximately $8,538,000, $148,000, and $180,000, respectively. In
     assessing the realizability of deferred income tax assets, management
     considers whether it is more likely than not that some portion or all of
     the deferred income tax assets will not be realized. The ultimate
     realization of deferred income tax assets is dependent upon the generation
     of future taxable income during the periods in which the temporary
     differences resulting in the deferred tax assets become deductible.
     Management considers the scheduled reversal of deferred income tax
     liabilities, projected future taxable income, and tax planning strategies
     in making this assessment. In order to fully realize the deferred income
     tax assets, the Company will need to generate future taxable income of
     approximately $38,000,000 prior to the expiration of the net operating loss
     carryforwards beginning in 2005. Based upon the level of historical taxable
     income and projections for future taxable income over the periods in which
     the deferred income tax assets are deductible, management believes it is
     more likely than not the Company will not realize the benefits of these
     deductible differences.

     At June 30, 2001, the Company has net operating loss carryforwards for
     federal income tax purposes of approximately $38,000,000 which are
     available to offset future federal taxable income, if any, through 2021. In
     addition, the Company has product development tax credit carryforwards of
     approximately $441,000 which are available to reduce future federal regular
     income taxes, if any, and have expiration dates beginning in 2005.

     On January 7, 2000, the Company experienced an ownership change as defined
     in Internal Revenue Code Section 382. Net operating loss carryforwards and
     product development tax credit carryforwards of $19,887,000 and $441,000,
     respectively, are subject to an annual limitation of $639,561.

                                       F-16
<PAGE>   39

(10)  SHAREHOLDERS' EQUITY (DEFICIT)

     (A)  SERIES A PREFERRED STOCK

         On February 5, 1999, the Company completed the restructuring of the
         1997 debentures. In connection with this restructuring, the Company
         issued 1,314,333 shares of Series A preferred stock ("Series A
         preferred stock") to the lender at $1.00 per share in exchange for $1
         million of the 1997 debentures and accrued interest of $314,333.

         The holder of the Series A preferred stock is not entitled to receive
         dividends. The holder of the Series A preferred stock shall have the
         right to convert any or all of such shares into the Company's common
         stock as is determined by dividing $1.00 for each share of Series A
         preferred stock by the conversion price of $1.00 per share. The holder
         of the Series A preferred stock is not entitled to any voting rights as
         stockholder.

         In the event of any voluntary or involuntary sale of all or a
         substantial portion of the Company's capital stock, a substantial
         portion of the assets, or any merger or consolidation of the Company
         with another entity, or any liquidation or dissolution of the Company,
         the holder of the Series A preferred stock shall be entitled to
         receive, prior to the receipt of any assets by holders of all other
         equity securities of the Company, a cash amount equal to $1.00 for each
         share of Series A preferred stock.

         The Company may, at the option of the Board of Directions, redeem all
         shares of the Series A preferred stock by paying, in cash, an amount
         equal to the redemption price, which is equal to $1.00 for each share
         of Series A preferred stock adjusted for any stock dividends,
         combinations, or splits with respect to such shares.

     (B)  SERIES B PREFERRED STOCK

         In connection with the acquisition of Asurent Technologies on March 31,
         2000, the Company issued 454,737 shares of Series B preferred stock
         ("Series B preferred stock") to Wi-LAN at $7.125 per share for net
         proceeds totaling $3,000,000.

         The holder of the Series B preferred stock is entitled to a 5%
         dividend, payable annually in arrears in common stock at the market
         price of the common stock on the due date of dividend payment. The
         dividend payable as of June 30, 2001 of approximately $162,000 has been
         reflected as common stock subscribed in the accompanying consolidated
         balance sheet. The holder of the Series B preferred stock may convert
         any or all of such shares into a number of shares of common stock
         determined by dividing $7.125 by the conversion price of $7.125. The
         holder of the Series B preferred stock is not entitled to any voting
         rights as stockholder of the Company prior to conversion.

         In the event of any voluntary or involuntary sale of all or a
         substantial portion of the Company's capital stock, a substantial
         portion of the Company's assets, any merger or consolidation of the
         Company with another entity, or any liquidation or dissolution of the
         Company, voluntary or involuntary, the holder of the Series B preferred
         stock shall be entitled to receive, prior to the receipt of any assets
         by holders of all other equity securities of the Company (other than
         the holder of the Company's Series A preferred stock who shall receive
         a preferential distribution of $1.00 per share ahead of the Series B
         preferred stock), a cash amount equal to $7.125 for each share of
         Series B preferred stock adjusted for any stock dividends, combinations
         or splits with respect to such shares.

         The Company may, at the option of the Board of Directors, redeem all
         shares of the Series B preferred stock by paying in cash an amount
         equal to 110% of the redemption price. The redemption price is equal to
         $7.125 for each share adjusted for any stock dividends, combinations,
         or splits with respect to such shares. Written notice of this
         redemption must be provided at least 60 days prior to redemption, but
         no more than 75 days prior to the date on which the Company desires to
         redeem shares of Series B preferred stock.

     (C)  SERIES C PREFERRED STOCK

         In connection with a pay down of the acquisition payable, the Company
         issued 2,330,217 shares of Series C preferred stock ("Series C
         preferred stock") to Wi-LAN at $2.064 per share for a total reduction
         of the acquisition payable of $4,810,000.

         The holder of the Series C preferred stock is entitled to a 5%
         dividend, payable annually in arrears in common stock at the market
         price of the common stock on the due date of dividend payment. The
         dividend payable as of June 30, 2001 of approximately $140,000 has been
         reflected as common stock subscribed in the accompanying consolidated
         balance sheet. The holder of the Series C preferred stock may convert
         any or all of such shares into a number of shares of common stock
         determined by dividing $2.58 for each share of Series C preferred stock
         by the conversion price of $2.58 per share. The holder of Series C
         preferred stock is not entitled to any voting rights as stockholder of
         the Company prior to conversion.

                                       F-17
<PAGE>   40

         In the event of any voluntary or involuntary sale of all or a
         substantial portion of the Company's capital stock, a substantial
         portion of the Company's assets, any merger or consolidation of the
         Company with another entity, or any liquidation or dissolution of the
         Company, voluntary or involuntary, the holder of the Series C preferred
         stock shall be entitled to receive, prior to the receipt of any assets
         by holders of all other equity securities of the Company (other than
         the holder of the Company's Series A preferred stock who shall receive
         a preferential distribution of $1.00 per share and the holder of the
         Company's Series B preferred stock who shall receive a preferential
         distribution of $7.125 per share), a cash amount equal to $2.58 for
         each share of Series C preferred stock adjusted for any stock
         dividends, combinations, or splits with respect to such shares.

         The Company may, at the option of the Board of Directors, redeem all
         shares of the Series C preferred stock by paying in cash an amount
         equal to 110% of the redemption price. The redemption price is equal to
         $2.58 per share adjusted for any stock dividends, combinations, or
         splits with respect to such shares. Written notice of this redemption
         must be provided at least 60 days prior to redemption, but no more than
         75 days prior to the date on which the Company desires to redeem shares
         of Series C preferred stock.

     (D)  WARRANTS

         In connection with a March 1998 amendment to the Company's revolving
         credit facility, the Company issued warrants to a commercial bank
         enabling the bank to purchase 60,000 shares of the Company's common
         stock at $5.50 per share. The warrants are exercisable at any time and
         expire in March 2003. All 60,000 warrants remain outstanding and
         exercisable as of June 30, 2001.

         In connection with a December 1998 amendment to the Company's revolving
         credit facility, the Company issued warrants to a commercial bank
         enabling the bank to purchase 250,000 shares of the Company's common
         stock at an exercise price of $0.119 per share. The warrants are
         exercisable at any time and expire in December 2003. The fair market
         value of the warrants at the date of issuance was insignificant. All
         250,000 warrants remain outstanding and exercisable as of June 30,
         2001.

         In connection with a February 1999 restructuring to the Company's 1997
         debentures, the Company issued warrants to the holders which enables
         them to purchase 702,615 shares of the Company's common stock at $1.00
         per share. The warrants are exercisable at any time and expire in March
         2004. The Company recorded the fair value of the warrants of $188,000,
         which was estimated using the Black Scholes option pricing model, as
         financing costs and additional paid-in capital. All 702,615 warrants
         remain outstanding and exercisable as of June 30, 2001.

         In connection with approvals needed for the merger with Asurent
         Technologies in March 2000, the Company issued warrants to a commercial
         bank to purchase 60,000 shares of the Company's common stock at $7.375
         per share. The warrants are exercisable at any time and expire in May
         2003. The Company recorded the fair value of the warrants of $286,000,
         which was estimated using the Black-Scholes option pricing model, as
         financing costs and additional paid-in capital. All 60,000 warrants
         remain outstanding and exercisable as of June 30, 2001.

     (E)  STOCK OPTION PLANS

         Effective October 1992, the Board of Directors adopted the 1992 Stock
         Incentive Plan (the "1992 Plan") which provides for the grant of stock
         options for up to 840,946 shares of common stock. The 1992 Plan also
         permits the Board of Directors to grant stock appreciation rights,
         stock bonuses, and restricted stock awards in accordance with the
         provisions of the Plan. The Plan remains in effect until October 2002
         unless sooner terminated by the Board of Directors.

         Effective January 1996, the Board of Directors adopted the 1996 Stock
         Incentive Plan (the "1996 Plan") which provided for the grant of stock
         options for up to 200,000 shares of common stock. Through various
         amendments, shareholders of the Company have voted to increase the
         number of shares of common stock authorized under the 1996 Plan to
         2,000,000 shares. The 1996 Plan also permits the Board of Directors to
         grant stock appreciation rights, stock bonuses, and restricted stock
         awards in accordance with the provisions of the Plan. The Plan remains
         in effect until January 2006 unless sooner terminated by the Board of
         Directors.

         Options granted under the 1992 and 1996 Plans may be incentive stock
         options or nonqualified stock options, as determined by the Board of
         Directors at the time of grant. Incentive stock options are granted at
         a price not less than the fair market value of the stock on the grant
         date, and nonqualified options are granted at a price to be determined
         by the Board of Directors provided that such exercise price is not less
         than 85% of the fair market value of the stock on the grant date.
         Option vesting terms are established by the Board of

                                       F-18
<PAGE>   41

         Directors at the time of grant, and presently range from three to five
         years. The expiration date of options granted under the 1992 and 1996
         Plans are determined at the time of grant and may not exceed ten years
         from the date of the grant.

         As of June 30, 2001, there were no options available for grant under
         the 1992 Plan, and there were 881,009 options available for grant under
         the 1996 Plan.

         The Company also issues options to members of the Board of Directors as
         compensation for board representation and attendance. Options are
         issued at the fair market value at the date of grant and vest at the
         conclusion of each fiscal year. As of June 30, 2001, 12,000 of these
         options were outstanding of which 12,000 were exercisable.

         On August 10, 1998, the Board of Directors approved a reissuance of
         employee options whereby all optionholders under the 1992 and 1996
         Plans could forfeit their outstanding options and receive instead new
         options at an exercise price of $0.75, the fair market value of the
         Company's stock on the approval date. The reissued options vest
         quarterly over three years, but none could be exercised prior to
         February 10, 1999. Options for 305,894 shares were cancelled and
         reissued under the terms of this arrangement.

         The per share weighted-average fair value of all stock options granted
         during the years ended June 30, 2001, 2000 and 1999 was $1.88, $3.25,
         and $0.33, respectively, on the date of grant using the Black Scholes
         option-pricing model with the following weighted-average assumptions:
         2001 -- expected dividend yield 0%, expected volatility 100%, risk-free
         interest rate of 5.0% and an expected life of five years;
         2000 -- expected dividend yield 0%, expected volatility 100%, risk-free
         interest rate of 5.38%, and an expected life of five years;
         1999 -- expected dividend yield 0%, expected volatility 50%, risk-free
         interest rate of 5.8%, and an expected life of five years.

         The Company applies APB Opinion No. 25 in accounting for its stock
         option plans and, accordingly, no compensation cost has been recognized
         in the consolidated financial statements for stock options issued with
         exercise prices at fair value. Had the Company determined compensation
         cost based on the fair value at the grant date for its stock options
         under SFAS No. 123, the Company's net loss would have been adjusted to
         the pro forma amounts indicated below (in thousands, except per share
         data):

<Table>
<Caption>
                                                                                    YEAR ENDED JUNE 30,
                                                                                 -------------------------
                                                                                   2001      2000    1999
                                                                                 --------   ------   -----
           <S>                                              <C>                  <C>        <C>      <C>
           Net loss attributable to common shareholders...  As reported          $(38,379)  (3,856)   (424)
                                                            Pro forma             (38,890)  (5,095)   (602)
           Net loss per share.............................  As reported          $  (3.43)   (0.68)  (0.10)
                                                            Pro forma               (3.48)   (0.90)  (0.14)
</Table>

         Pro forma net loss reflects only options granted during the years ended
         June 30, 1996 through 2001. Therefore, the full impact of calculating
         compensation cost for stock options under SFAS No. 123 is not reflected
         in the pro forma loss amounts presented above because compensation cost
         is reflected over the options' vesting periods ranging from one to five
         years, and compensation cost for options granted prior to July 1, 1995
         is not considered.

                                       F-19
<PAGE>   42

         The following summarizes stock option activity for the years ended June
         30, 2001, 2000, and 1999:

<Table>
<Caption>
                                                                         EXERCISE PRICE PER
                                                                               SHARE
                                                           NUMBER OF  ------------------------  WEIGHTED
                                                            SHARES             RANGE            AVERAGE
                                                           ---------  ------------------------  --------
<S>                                                        <C>        <C>                       <C>
                  Outstanding at June 30, 1998              698,115   $    .0085 - 11.490
                                                                      ========================
                    Granted                                 708,085          .375 - .75             .575
                    Exercised                              (59,149)         .0085 - .213           .0305
                    Canceled or expired                    (650,155)       .067 - 12.875            4.72
                                                           ---------  ------------------------
                  Outstanding at June 30, 1999              696,896         .375 - 4.73            0.585
                                                           ---------  ========================
                    Granted                                 90,098          3.03 - 5.56             3.97
                    Exercised                              (390,507)         .47 - .75               .68
                    Canceled or expired                    (66,972)          .375 - .75              .61
                                                           ---------  ------------------------
                  Outstanding at June 30, 2000              329,515          .47 - 5.56             1.12
                                                           ---------  ------------------------
                    Granted                                 988,015          .80 - 5.25             2.65
                    Exercised                              (39,247)          .47 - .75               .65
                    Canceled or expired                    (159,292)         .75 - 5.25             4.42
                                                           ---------  ------------------------
                  Outstanding at June 30, 2001             1,118,991  $      .47 - 5.56             2.57
                                                           =========  ========================
</Table>

         The following table summarizes information about stock options
         outstanding and exercisable as of June 30, 2001:

<Table>
<Caption>
                    OPTIONS OUTSTANDING
------------------------------------------------------------       OPTIONS EXERCISABLE
                        NUMBER        WEIGHTED-                ---------------------------
                     OUTSTANDING       AVERAGE     WEIGHTED-       NUMBER        WEIGHTED-
       RANGE OF           AT          REMAINING     AVERAGE    EXERCISABLE AT     AVERAGE
       EXERCISE        JUNE 30,      CONTRACTUAL   EXERCISE       JUNE 30,       EXERCISE
        PRICES           2001           LIFE         PRICE          2001           PRICE
     ------------   --------------   -----------   ---------   ---------------   ---------
<S>  <C>            <C>              <C>           <C>         <C>               <C>
     $  .47 - .75      205,417          7.13       $ 0.68          205,417       $ 0.68
       .80 - 3.03      553,324          8.92         1.77          141,333         2.01
      3.04 - 5.56      360,250          9.40         4.88          81,617          4.21
                    --------------                             ---------------
     $ .47 - 5.56     1,118,991         8.75         2.57          428,367         1.81
     ============   ==============   ===========   =========   ===============   =========
</Table>

         At June 30, 2001, the weighted-average remaining contractual life of
         outstanding options was 8.75 years. At June 30, 2001, 2000, and 1999,
         the number of options exercisable was 428,367, 264,908, and 310,565,
         respectively, and the weighted-average exercise price of those options
         was $1.81, $.82, and $.71, respectively.

     (E)  NOTES RECEIVABLE FROM STOCK SALES

         Notes receivable from stock sales resulted from the exercise of stock
         options for full recourse promissory notes during the year ended June
         30, 1998 and the purchase of common stock by employees during the year
         ended June 30, 2001. These notes were forgiven and expensed during the
         year ended June 30, 2001.

     (F)  STOCK COMPENSATION EXPENSE

         Unearned compensation expense of $269,000 was recorded as a reduction
         of shareholders' equity for the fiscal year ended June 30, 1996 for
         62,089 options issued at an exercise price less than fair market value.
         Compensation expense of approximately $56,000 was recorded in the
         consolidated statements of operations during the year ended June 30,
         1999 for the options that vested during that year.

     (G)  STOCK OPTION MODIFICATION

         In June 2000, the Company modified the terms of the outstanding stock
         options held by the Company's former president in connection with a
         severance agreement. These modifications included an acceleration of
         vesting of all unvested options that would have vested through June 30,
         2001. Additionally, the Company remitted $110,999 to the former
         President to be used to exercise all vested options. As a result, the
         Company has reflected $835,000 in compensation expense in the
         accompanying 2000 consolidated statement of operations to reflect the
         fair value of the shares issued under this arrangement.

                                       F-20
<PAGE>   43

(11)  MAJOR CUSTOMERS, SUPPLIERS, AND INTERNATIONAL SALES

     Sales to customers who individually accounted for more than 10% of the
     Company's sales during the years ended June 30, 2001, 2000, and 1999, were
     as follows (in thousands, except percentages):

<Table>
<Caption>
                                        SALES, YEARS ENDED JUNE 30,      ACCOUNTS RECEIVABLE AS OF JUNE 30,
                                       -----------------------------     -----------------------------------
        CUSTOMER                       2001        2000        1999       2001           2000          1999
        --------                       -----       -----       -----     -------         -----         -----
        <S>                            <C>         <C>         <C>       <C>             <C>           <C>
          A                            65.6%       60.0%       30.3%     $1,217           $14          $449
          B                            30.8%       34.5%       29.6%        415           782           667
</Table>

     Purchases from any individual supplier or sales to international customers
     did not exceed 10% during any of the years included in the accompanying
     consolidated financial statements.

(12)  COMMITMENTS AND CONTINGENCIES

     (A)  LEASES

         The Company leases office and warehouse facilities from an irrevocable
         trust for the benefit of the children of the former Asurent
         Technologies shareholders. The lease is for a five-year period with a
         monthly rental of $76,000. Rental expense paid to the trust for the
         years ended June 30, 2001 and 2000 was approximately $932,000 and
         $229,000, respectively.

         Rental expense under all lease agreements for the years ended June 30,
         2001, 2000, and 1999, was approximately $1,761,000, $694,000, and
         $356,000, respectively.

         Future minimum lease payments under non-cancelable operating leases
         (with initial or remaining lease terms in excess of one year) as of
         June 30, 2001 are as follows (in thousands):

<Table>
<Caption>
                                                             OPERATING
YEAR ENDING JUNE 30,                                          LEASES
--------------------                                         ---------
<S>                                                          <C>
       2002                                                   $1,074
       2003                                                      960
       2004                                                      170
       2005                                                       14
       2006                                                       14
       Thereafter                                                 55
                                                              ------
    Total future minimum lease payments                       $2,287
                                                              ======
</Table>

     (B)  401(K) PLAN

         The Company sponsors a Digital Transmission Systems 401(k) Savings Plan
         ("DTS Plan") for the benefit of eligible employees and their
         beneficiaries. Under the DTS Plan, employees may elect to contribute
         from 1% to 20% of their gross compensation to the plan. The Company
         matches 25% of employee contributions up to 6% of their eligible
         compensation. The Company can also make an additional annual
         discretionary contribution that is allocated to employees based upon
         relative levels of compensation. The Company recorded expense of
         approximately $21,000, $52,000, and $27,000 for matching contributions
         to the DTS Plan for the years ended June 30, 2001, 2000, and 1999,
         respectively. The Company did not make any discretionary contributions
         to the DTS Plan during the years ended June 30, 2001, 2000, and 1999.

     (C)  LEGAL MATTERS

         The Company is involved in various claims and legal actions arising in
         the ordinary course of business. In the opinion of management, based in
         part upon the advice of counsel, the ultimate disposition of these
         matters will not have a material adverse effect on the Company's
         financial position, results of operations, or liquidity.

(13)  BUSINESS SEGMENT INFORMATION

     The Company operates in one reportable segment: developer of proprietary
     equipment for telecommunication companies. Asurent Technologies was treated
     as a separate reportable segment prior to the decision to dispose of this
     operation (see note 15).

                                       F-21
<PAGE>   44

(14)  CREATION AND SALE OF SOUTHTECH, INC.

     At its April 1998 meeting, the DTS Board of Directors approved the creation
     of a wholly owned subsidiary -- SouthTech, Inc. ("SouthTech") whose
     business purpose was the administration and growth of the Company's
     international business. The subsidiary was legally created as a Georgia
     corporation in July 1998. The SKYPLEX and DIV product lines and associated
     intellectual property together with the payables and receivables pertaining
     to the sales realized from those product lines form the assets and
     liabilities transferred. Since its creation, investment capital had been
     sought for the subsidiary in order to fund its operating losses which had
     been substantial. Cash resources of the Company had been used for the
     purposes of developing the SKYPLEX product line, a set of microwave radio
     products utilizing spread spectrum technology, and developing sales
     distribution channels in Latin America, Asia Pacific, and the Mid-East
     global sectors.

     The Company entertained an offer from a private group of investors to buy
     SouthTech in the latter part of 1998, but the offer was later withdrawn on
     November 10, 1998. In late November 1998, Chapala Communications, Inc.
     ("Chapala"), a Georgia based company, offered to purchase the stock of
     SouthTech. The sale involved the transfer of certain assets and liabilities
     of SouthTech to Chapala. The transaction resulted in approximately $981,000
     of assets and $2,442,000 of liabilities being transferred to Chapala which
     resulted in a net gain of $1,461,000 which has been recorded in the
     accompanying fiscal 1999 financial statements. In accordance with Statement
     of Financial Accounting Standards No. 125 Accounting for Transfers and
     Servicing of Financial Assets and Extinguishments of Liabilities, the
     Company derecognized the liabilities that were transferred to SouthTech
     upon obtaining formal, legally binding releases of such liabilities from
     the respective creditors.

     As additional consideration for the sale, the Company received 19.5% of
     Chapala voting stock ownership in the form of 1,000,000 shares of $0.001
     par value Series A voting Preferred Stock. Each share of Series A Preferred
     Stock shall be convertible into the number of fully paid and nonassessable
     shares of Common Stock obtained by dividing (a) the aggregate Series A
     Preferred Stock Liquidation Preference of the shares to be converted, by
     (b) the conversion price. The initial conversion price is $0.484 per share
     subject to adjustment, as defined. Any conversion of Series A Preferred
     Stock into Common Stock in accordance with the above conversion formula is
     limited with respect to total ownership after conversion. Such a limitation
     is 19.5% of outstanding common stock after conversion. Conversion of the
     Series A Preferred Stock to common stock is at the option of the holder and
     is not redeemable by Chapala.

     SouthTech was later merged into Chapala and the resulting entity was named
     LinkaNet Labs, Inc. ("LinkaNet"). The Company has valued its investment in
     Chapala using the equity method. The Company has assigned zero value to its
     interest in LinkaNet within the accompanying financial statements and has
     no obligations to fund LinkaNet's future operations or present liabilities.
     Since inception, LinkaNet has incurred significant losses from operations.
     In the event that the operations of LinkaNet ultimately attain
     profitability, the Company will appropriately adjust its interest in
     LinkaNet. It is not anticipated that such an adjustment will have a
     material impact on the Company's results of operations in future periods.

     In connection with the sale of SouthTech, the Company received a note from
     SouthTech in the amount of $127,000 at June 30, 1999. The note represents a
     portion of the vendor liability that was not assumed by Chapala. The
     Company also deferred $127,000 of the gain associated with the sale as of
     June 30, 1999. As a result of additional negotiations with Chapala during
     fiscal 2000, the Company deemed the remaining $127,000 note receivable from
     Chapala as uncollectible and appropriately reversed the note balance
     against the remaining deferred revenue balance. Accordingly, as of June 30,
     2001 and 2000, there are no amounts outstanding with respect to the sale of
     the international subsidiary.

     The SouthTech purchase and sale transaction was closed on February 5, 1999.

(15)  DISPOSITION OF BUSINESS

     In July 2001, the Board of Directors of the Company approved a plan to
     dispose of the operations of the Company's wholly owned subsidiary, Asurent
     Technologies. Asurent Technologies was acquired by the Company in March
     2000. The accompanying financial statements have been restated to reflect
     Asurent Technologies as a discontinued operation for all periods presented.

                                       F-22
<PAGE>   45

     The operating results of discontinued operations are as follows:

<Table>
<Caption>
                                                                          2001      2000
                                                                         -------   -------
          <S>                                                            <C>       <C>
          Revenues                                                       $35,455     9,043
          Loss before income taxes                                       (21,122)   (2,115)
          Income tax benefit                                                  --        --
          Net loss from discontinued operations                          (21,122)   (2,115)
</Table>

                                       F-23