<PAGE>


================================================================================

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

                                    FORM 10-Q

              {X} QUARTERLY REPORT UNDER SECTION 13 OR 15(D) OF THE
                         SECURITIES EXCHANGE ACT OF 1934

                For the Quarterly Period Ended September 30, 2001

              { }TRANSITION REPORT UNDER 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 registrant as specified in its charter)


                 DELAWARE                            58-2037949
       (State or other jurisdiction of             (IRS Employer
        incorporation or organization)          Identification No.)

             3400 RIVER GREEN COURT, DULUTH, GA         30096
          (Address of principal executive office)     (Zip Code)


                                 (770) 622-1200
                (Issuer's telephone number, including area code)

                                 NOT APPLICABLE
              (Former name, former address and former fiscal year,
                          if changed since last report)

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 [  ]

The number of shares outstanding of the registrant's common stock as of November
14, 2001 was 11,814,119.

================================================================================


<PAGE>

                       DIGITAL TRANSMISSION SYSTEMS, INC.
                                    FORM 10-Q

                    FOR THE QUARTER ENDED SEPTEMBER 30, 2001

                                      INDEX


<TABLE>
<CAPTION>
PART I.         FINANCIAL INFORMATION                                                                      PAGE
<S>                                                                                                        <C>
Item 1.            Financial Statements:

                       Condensed Consolidated Balance Sheets at September 30, 2001
                      and June 30, 2001 (Unaudited)                                                         3

                       Condensed Consolidated Statements of Operations for the Three
                     Months ended September 30, 2001 and 2000 (Unaudited)                                   4

                       Condensed Consolidated Statements of Cash Flows for the Three
                     Months ended September 30, 2001 and 2000 (Unaudited)                                   5

                       Notes to Condensed Consolidated Financial Statements
                     (Unaudited)                                                                           6

Item 2.            Management's Discussion and Analysis of
                       Financial Condition and Results of Operations                                       8

PART II.          OTHER INFORMATION

Items 1 - 5                Not applicable                                                                 15

Item 6.                    Exhibits and Reports on Form 8-K                                               15

                           Signatures                                                                     16
</TABLE>


                                     Page 2
<PAGE>


               DIGITAL TRANSMISSION SYSTEMS, INC. AND SUBSIDIARIES
                      Condensed Consolidated Balance Sheets
                                   (unaudited)

                        (in thousands, except share data)


<TABLE>
<CAPTION>
                                                                              SEPTEMBER 30,       JUNE 30,
                                 ASSETS                                           2001              2001
                                                                                ---------         ---------
<S>                                                                             <C>                     <C>
Current assets:
    Cash and cash equivalents                                                   $      --               146
    Trade accounts receivable, net of allowances for
      returns and doubtful accounts of $287 and $368
      at September 30, 2001 and June 30, 2001, respectively                           922             1,638
    Accounts receivable from related parties                                            7                25
    Inventories                                                                     1,866             1,446
                                                                                ---------         ---------
                Total current assets                                                2,795             3,255

Property and equipment, net                                                           194               227
Intangible assets, net                                                                367               382
Other assets                                                                          303               324
                                                                                ---------         ---------

                Total assets                                                    $   3,659             4,188
                                                                                =========         =========

                  LIABILITIES AND SHAREHOLDERS' EQUITY

Current liabilities:
    Notes payable to banks                                                      $   1,383             1,646
    Accounts payable and accrued liabilities                                        2,320             1,673
    Accrued payroll and benefits                                                      428               449
    Notes payable to related parties                                                3,000             3,000
    Warranty accrual                                                                  199               200
    Net liabilities of discontinued operations                                     10,431            11,001
                                                                                ---------         ---------
                Total current liabilities                                          17,761            17,969
                                                                                ---------         ---------

    Notes payable to related party                                                    721               721

                                                                                ---------         ---------
                Total liabilities                                                  18,482            18,690
                                                                                ---------         ---------
Shareholders' 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 shares issued and outstanding                                    1,264             1,264
      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                                   4,810             4,810
    Common stock - $0.01 par value, 50,000,000 shares authorized;
      11,814,119 shares issued and outstanding at September 30, 2001
      and June 30, 2001                                                               118               118
    Common stock subscribed                                                           403               302
    Additional paid-in capital                                                     33,314            33,314
    Accumulated deficit                                                           (57,732)          (57,310)
                                                                                ---------         ---------
                Total shareholders' deficit                                       (14,823)          (14,502)
                                                                                ---------         ---------

                Total liabilities and shareholders' deficit                     $   3,659             4,188
                                                                                =========         =========
</TABLE>


See accompanying notes to condensed consolidated financial statements.


                                    Page 3
<PAGE>


               DIGITAL TRANSMISSION SYSTEMS, INC. AND SUBSIDIARIES
                 Condensed Consolidated Statements Of Operations
                                   (unaudited)
                      (in thousands, except per share data)


<TABLE>
<CAPTION>
                                                                   THREE MONTHS ENDED SEPTEMBER 30,
                                                                   --------------------------------
                                                                       2001               2000
                                                                    ----------         ----------
<S>                                                                 <C>                <C>
Net sales                                                           $    1,878         $    2,419
Cost of sales                                                            1,166              1,279
                                                                    ----------         ----------
   Gross profit                                                            712              1,140
                                                                    ----------         ----------

Selling, general and administrative                                        602                864
Product development                                                        311                201
Depreciation and amortization                                               33                 57

                                                                    ----------         ----------
   Total operating expenses                                                946              1,122
                                                                    ----------         ----------

        Operating (loss) income                                           (234)                18

Other income (expense)                                                       6                (70)
Interest expense, net                                                      (93)              (119)
                                                                    ----------         ----------

        Loss before income taxes                                          (321)              (171)

Income taxes                                                                --                 --
                                                                    ----------         ----------

        Loss from continuing operations                                   (321)              (171)

Discontinued operations:
        Loss from discontinued operations of subsidiary                     --             (1,041)
                                                                    ----------         ----------

        Net loss                                                          (321)            (1,212)

Series B, preferred stock dividends                                        (41)                --
Series C, preferred stock dividends                                        (60)                --
                                                                    ----------         ----------

        Net loss attributable to common shareholders                $     (422)        $   (1,212)
                                                                    ==========         ==========

Net loss per share - basic and diluted:
   Loss from continuing operations                                  $    (0.04)        $    (0.02)
   Loss from discontinued operations of subsidiary                          --         $    (0.10)
                                                                    ----------         ----------

   Net loss per share - basic and diluted                           $    (0.04)        $    (0.12)
                                                                    ==========         ==========

Weighted average common shares outstanding:
  Basic                                                                 11,814             10,240
                                                                    ----------         ----------
  Diluted (1)                                                           11,814             10,240
                                                                    ----------         ----------
</TABLE>

(1) Potentially dilutive securities not included as their effect would be
anti-dilutive

See accompanying notes to condensed consolidated financial statements.


                                     Page 4
<PAGE>

               DIGITAL TRANSMISSION SYSTEMS, INC. AND SUBSIDIARIES

                 Condensed Consolidated Statements of Cash Flows
                                   (unaudited)
                                 (in thousands)


<TABLE>
<CAPTION>
                                                                 THREE MONTHS ENDED SEPTEMBER 30
                                                                 -------------------------------
                                                                    2001             2000
                                                                  --------         --------
<S>                                                               <C>              <C>
Cash flows from operating activities:
  Net loss                                                        $   (321)        $ (1,212)
  Less:  Loss from discontinued operations                              --            1,041
                                                                  --------         --------
            Loss from continuing operations                           (321)            (171)
  Adjustments to reconcile net loss
   to net cash provided by (used in) operating activities:
     Depreciation and amortization                                      33               57
     Amortization of software development costs                         15               62

  Changes in assets and liabilities:
     Accounts receivable                                               734              688
     Inventories                                                      (420)            (306)
     Prepaid expenses and other assets                                  21              109
     Accounts payable and accrued liabilities                          626             (877)
     Warranty accrual                                                   (1)              (3)
                                                                  --------         --------
Net cash provided by (used in) continuing operations                   687             (441)
Net cash (used in) provided by discontinued operations                (570)             122
                                                                  --------         --------

Net cash provided by (used in) operating activities                    117             (319)
                                                                  --------         --------

Cash flows from investing activities:
  Purchases of property and equipment                                   --              (49)
  Additions to capitalized software development costs                   --              (71)
                                                                  --------         --------
Net cash used in investing activities                                   --             (120)
                                                                  --------         --------

Cash flows from financing activities:
  Net payments under notes payable to banks                           (263)             (86)
                                                                  --------         --------
Net cash used in financing activities                                 (263)             (86)
                                                                  --------         --------

Net decrease in cash and cash equivalents                             (146)            (525)
Cash and cash equivalents at beginning of period                       146              996
                                                                  --------         --------
Cash and cash equivalents at end of period                        $     --         $    471
                                                                  ========         ========

Supplemental disclosure of cash paid for:
    Interest                                                      $     44         $     42
                                                                  ========         ========
</TABLE>



See accompanying notes to condensed consolidated financial statements.


                                     Page 5
<PAGE>


               DIGITAL TRANSMISSION SYSTEMS, INC. AND SUBSIDIARIES
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                         SEPTEMBER 30, 2001 (UNAUDITED)

1.  DESCRIPTION OF THE BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES.

Digital Transmission Systems, Inc. ("DTS") and subsidiaries, Asurent Wireless
("AW") and Asurent Technologies ("AT"), (collectively termed the "Company")
designs, manufactures, repairs and markets a broad range of products for the
telecommunications ("telecom") industry. AW'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.

AW'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. AW'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 AW
serves include high feature density, modularity, quality performance and
compactness. AW's products meet these requirements and are suitable for both
wireline and wireless service environments. Major customers of AW include Nextel
Communications, Nextel Partners, Alltel Wireless and Alltel Supply.

AW 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. AW 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 (AT - formerly Telcor
Communications). The business, which includes a repair services unit, continued
to operate while the Company evaluated divestiture alternatives for AT. The
financial statements have been reclassified to account for the operating results
of AT as discontinued operations. 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. For further information refer to Note 6
to the condensed consolidated financial statements.

The consolidated 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, and to obtain additional
financing or refinancing as may be required. Heretofore, the Company has been
able to satisfy its immediate short-term cash requirements through increasing
equipment sales and accelerating collections coupled with managing vendor
accounts and relationships. The Company is actively pursuing additional equity
financing through discussions with potential investors.

The accompanying unaudited consolidated financial statements have been prepared
in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q. Accordingly, they
do not include all of the information and footnotes required by generally
accepted accounting principles for complete financial statements. The financial
information included herein is unaudited; however, the information reflects all
adjustments (consisting solely of normal recurring adjustments) that are, in the
opinion of management, necessary for a fair presentation of the financial
position, results of operations and cash flows for the interim periods.
Operating results for the three months ended September 30, 2001 are not
necessarily indicative of the results that may be expected for the year ended
June 30, 2002. For further information, refer to the financial statements and
footnotes thereto included in the Company's Form 10-K for the year ended June
30, 2001.


                                     Page 6
<PAGE>

There have been no changes to the accounting policies of the Company during the
periods presented. For a description of these policies, see Note 1 of the Notes
to Financial Statements in the Company's Annual Report on Form 10-K.

2. INCOME (LOSS) PER COMMON 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 5,922,519 of additional common shares related to the potential
conversion of warrants and shares attributable to convertible securities were
excluded from the computation of diluted net loss per share in the three months
ended September 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 the three months ended September 30, 2001. The total potential
number of dilutive equivalent common shares excluded was 6,172,519 for the three
month period ended September 30, 2001.

3. LEGAL MATTERS

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.

4. INVENTORIES

AW's products, 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. AW
purchases new hardware for applications in telecommunications and computer
networking. Cost is determined using average cost which approximates the
first-in, first-out (FIFO) method. AW 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.

5. 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.

6. SALE OF DISCONTINUED SUBSIDIARY - SUBSEQUENT EVENT

The Company's subsidiary - Asurent Technologies ("AT") - completed a transaction
on October 10, 2001 in which it sold to Somera Communications, Inc. ("Somera") a
substantial portion of its assets. Although AT conducted its business operations
normally during the three months ended September 30, 2001, all financial results
of AT have been reported as discontinued operations for the year ended June 30,
2001 and for the three months ended September 30, 2001 given the Company's
decision in late fiscal 2001 to divest of AT. The significant terms of the
transaction called for Somera to purchase certain accounts receivable, inventory
and property, plant and equipment of AT at book value as of August 31, 2001
coupled with the assumption of certain AT liabilities as defined in the
agreement. Somera paid $6,000,000 in cash to AT as consideration for the asset
purchase. The proceeds from the transaction were used to pay down AT's secured
creditors, including PNC Bank, as of the transaction date. Immediately following
the sale, the Company began liquidating all remaining assets of AT in order to
pay down unsecured trade debt. AT expects to record a gain on the aforementioned
transaction during the quarter ending December 31, 2001.


                                     Page 7
<PAGE>


ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

GENERAL

Digital Transmission Systems, Inc. ("DTS") and subsidiaries, Asurent Wireless
("AW") and Asurent Technologies ("AT"), (collectively termed the "Company")
designs, manufactures, repairs and markets a broad range of products for the
telecommunications ("telecom") industry. AW'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.

AW'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. AW'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 AW
serves include high feature density, modularity, quality performance and
compactness. AW's products meet these requirements and are suitable for both
wireline and wireless service environments. Major customers of AW include Nextel
Communications, Nextel Partners, Alltel Wireless and Alltel Supply.

AW 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. AW also utilizes telecommunications equipment resellers
and agents in the United States and other countries to market to private network
customers.

RESULTS OF OPERATIONS

THREE MONTHS ENDED SEPTEMBER 30, 2001 AND SEPTEMBER 30, 2000

The following table sets forth certain financial data derived from the Company's
condensed consolidated statement of operations for the three months ended
September 30, 2001 and September 30, 2000 (dollars, in thousands):


<TABLE>
<CAPTION>
                                             THREE MONTHS ENDED             THREE MONTHS ENDED
                                             SEPTEMBER 30, 2001             SEPTEMBER 30, 2000
                                           ----------------------        ------------------------
                                             $         % OF SALES           $          % OF SALES
                                           ------      ----------        ------        ----------
<S>                                        <C>         <C>               <C>           <C>
Net sales                                   1,878            100          2,419            100
Gross profit                                  712             38          1,140             47
Selling, general and administrative           602             32            864             36
Depreciation and amortization                  33              2             57              2
Product development                           311             17            201              8
Loss from continuing operations              (321)           (17)          (171)            (7)
</TABLE>


                                     Page 8
<PAGE>


NET SALES. Net sales decreased 22% to $1,878,000 for the three months ended
September 30, 2001 from $2,421,000 for the three months ended September 30,
2000. The sales mix, and the corresponding percentage of total sales of AW's
products, is set forth in the chart below (dollars, in thousands):

<TABLE>
<CAPTION>
                                                  PERCENTAGE OF
                                                      TOTAL
                    THREE MONTHS ENDED          THREE MONTHS ENDED
                       SEPTEMBER 30,              SEPTEMBER 30,
                  ----------------------        -----------------
                    2001           2000         2001         2000
                  -------        -------        ----         ----
<S>               <C>            <C>             <C>           <C>
Flex T1/E1        $ 1,878        $ 2,232         100%          90%
Microflex              --            187          --           10
                  -------        -------        ----         ----
Totals            $ 1,878        $ 2,419         100%         100%
                  =======        =======        ====         ====
</TABLE>


For the three months ended September 30, 2001, revenues from AW's FlexT1/E1
product line decreased 16% from $2,232,000 for the three months ended September
30, 2000 to $1,878,000 for the three months ended September 30, 2001. The
decrease is primarily due to a shift to more conservative capital spending in
the wireless carrier market during recent months. Further, network
infrastructure investments of AW's primary customers were delayed due to
expectations of reduced subscriber growth as a result of current economic
conditions in the marketplace. The Company expects capital spending by its
customers to gradually increase and return to more normal and historical levels
in future periods as the overall condition of the U.S. economy and the
telecommunications marketplace improves. AW did not recognize any revenue from
the sale of Microflex products during the quarter ended September 30, 2001. For
the quarter ended September 30, 2000, the Company sold approximately $187,000 of
product from AW's Microflex product line. During the quarter ended September 30,
2000, AW received a large order for its Microflex product from one of its
significant customers. No such order was received during the quarter ended
September 30, 2001.

GROSS PROFIT. Cost of sales consists of component costs, compensation costs and
the overhead costs related to the production and shipping of AW's products,
along with the support and warranty expense associated with such products. Gross
profit decreased 38% from $1,140,000 for the three month period ended September
30, 2000, to $712,000 for the three month period ended September 30, 2001 due to
the accompanying decrease in sales noted for the same period. As a percentage of
sales, gross profit decreased from 47% to 38% of sales for the three month
period ended September 30, 2001 as compared to the same period ended September
30, 2000. The decrease is due to a lower margin product mix for sales recorded
during the three months ended September 30, 2001. The Company expects margins at
AW to stabilize at approximately 40% for the remainder of the fiscal year.

PRODUCT DEVELOPMENT. Product development expense consists of personnel costs,
consulting, supplies and prototyping expenses. Product development expenses
increased 55%, to $311,000 for the three months ended September 30, 2001 from
$201,000 for the three months ended September 30, 2000. The increase in product
development expense for the three month period ended September 30, 2001 is
primarily due to increased spending on new development projects and additional
engineering headcount as compared to the three months ended September 30, 2000.
Further, no product development costs related to new projects were capitalized
for the three month period ended September 30, 2001 as compared to $71,000 for
the three month period ended September 30, 2000. As a percentage of sales,
product development costs were 17% for the three months ended September 30, 2001
and 8% for the three months ended September 30, 2000.

SELLING, GENERAL AND ADMINISTRATIVE. Selling expense consists primarily of
compensation costs for sales and marketing personnel, travel, consulting, trade
show and advertising expenses. General and administrative expense consists
primarily of occupancy costs and compensation expenses for administrative and
finance personnel, as well as accounting, legal and consulting fees. Selling,
general and administrative expense decreased by 30%, to $602,000 for the three
months ended September 30, 2001 from $864,000 for the three months ended
September 30, 2000. The decrease is primarily attributable to reduced headcount
during the quarter ended September 30, 2001 as compared to


                                     Page 9
<PAGE>


September 30, 2000. Total selling, general and administrative costs were 32% of
total sales for the three months ended September 30, 2001 as compared to 36% of
sales for the three months ended September 30, 2000.

LOSS FROM CONTINUING OPERATIONS. For the three month period ended September 30,
2001 the Company recorded a loss from continuing operations of $321,000 as
compared to a loss from continuing operations of $171,000 reported for the three
month period ended September 30, 2000. The increase in the loss from continuing
operations is primarily a result of decreased sales and associated gross margins
realized during the quarter ended September 30, 2001 as compared to the quarter
ended September 30, 2000, offset by a decrease in selling, general and
administrative expenses.

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 three months ended September 30, 2001 and 2000, the
Company's continuing operations incurred losses of $321,000 and $171,000,
respectively. The Company continues to require additional capital to properly
service its debt and fund future product development. 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
(formerly Telcor Communications). The Company is now focusing on the continued
growth and profitability of its network access product division (Asurent
Wireless or "AW") and will 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.

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 September 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.


                                    Page 10
<PAGE>


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 September 30, 2001.

Additionally, Wi-LAN converted another $190,000 of the 1997 debentures into
190,000 shares of the Company's common stock through September 30, 2001. The
outstanding amount of the 1997 debentures as of September 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, which was payable in either cash or stock at a
value of $2.064 per share under the terms of the merger agreement, 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.

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. 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.


                                    Page 11
<PAGE>

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% (8.25% at September 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. 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. 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 September 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 November 2001.

CASH. For the three months ended September 30, 2001, cash of $687,000 was
provided by continuing operating activities as compared to cash used in
continuing operations of $441,000 for the three months ended September 30, 2000.
The loss from continuing operations for the three months ended September 30,
2001 of $321,000 includes non-cash charges relating to depreciation and
amortization of $33,000 and interest expense of $93,000. During the three months
ended September 30, 2001 cash was provided by continuing operating activities
primarily through a decrease in accounts receivable of $734,000 and an increase
in accounts payable of $647,000 offset by an increase in inventories of
$420,000.

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 $0 and $49,000 of property, plant and equipment during the
three months ended September 30, 2001 and 2000, respectively. In addition, the
Company capitalized certain software development costs paid to outside
contractors. During the three months ended September 30, 2001, the Company
capitalized $0 of such costs as compared to capitalized costs of $71,000 for the
three months ended September 30, 2000.

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.

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.

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.


                                    Page 12
<PAGE>

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.

In August 2001, the Financial Accounting Standards Board issued FASB Statement
No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets
(Statement 144), which supersedes both FASB Statement No. 121, Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of
(Statement 121) and the accounting and reporting provisions of APB Opinion No.
30, Reporting the Results of Operations--Reporting the Effects of Disposal of a
Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring
Events and Transactions (Opinion 30), for the disposal of a segment of a
business (as previously defined in that Opinion). Statement 144 retains the
fundamental provisions in Statement 121 for recognizing and measuring impairment
losses on long-lived assets held for use and long-lived assets to be disposed of
by sale, while also resolving significant implementation issues associated with
Statement 121. For example, Statement 144 provides guidance on how a long-lived
asset that is used as part of a group should be evaluated for impairment,
establishes criteria for when a long-lived asset is held for sale, and
prescribes the accounting for a long-lived asset that will be disposed of other
than by sale. Statement 144 retains the basic provisions of Opinion 30 on how to
present discontinued operations in the income statement but broadens that
presentation to include a component of an entity (rather than a segment of a
business). Unlike Statement 121, an impairment assessment under Statement 144
will never result in a write-down of goodwill. Rather, goodwill is evaluated for
impairment under Statement No. 142, Goodwill and Other Intangible Assets.

The Company is required to adopt Statement 144 no later than July 1, 2002.
Management does not expect the adoption of Statement 144 for long-lived assets
held for use to have a material impact on the Company's financial statements
because the impairment assessment under Statement 144 is largely unchanged from
Statement 121. The provisions of Statement 144 for assets held for sale or other
disposal generally are required to be applied prospectively after the adoption
date to newly initiated disposal activities. Therefore, management cannot
determine the potential effects that adoption of Statement 144 will have on the
Company's financial statements.


                                    Page 13
<PAGE>


IMPORTANT CONSIDERATIONS RELATED TO FORWARD-LOOKING STATEMENTS

Certain statements contained in this filing which are not statements of
historical fact constitute forward-looking statements within the meaning of the
Private Securities Litigation Reform Act (the Act). In addition, certain
statements in future filings by the Company with the Securities and Exchange
Commission, in press releases, and in oral and written statements made by or
with the approval of the Company which are not statements of historical fact
constitute forward-looking statements within the meaning of the Act. Examples of
forward-looking statements include, but are not limited to: (i) projections of
revenue, income or loss, earnings or loss per share, the payment or nonpayment
of dividends, capital structure and other financial items; (ii) statements of
plans and objectives of the Company's management or Board of Directors,
including those relating to products or services; (iii) statements of future
economic performance; and (iv) statements of assumptions underlying such
statements. Words such as "believes," "anticipates," "expects," "intends,"
"targeted," and similar expressions are intended to identify forward-looking
statements but are not the exclusive means of identifying such statements.

Forward-looking statements involve risks and uncertainties which may cause
actual results to differ materially from those in such statements. Factors that
could cause actual results to differ from those discussed in the forward-looking
statements include, but are not limited to: (i) the strength of the U.S. economy
in general and relevant foreign economies; (ii) the Company's performance under
current and future contracts; (iii) inflation and interest rate fluctuations;
(iv) timely and successful implementation of processing systems to provide new
products, improved functionality and increased efficiencies; (v) technological
changes; (vi) acquisitions; (vii) the ability to increase market share and
control expenses; (viii) changes in laws or regulations or other industry
standards affecting the Company's business which require significant product
redevelopment efforts; (ix) the effect of changes in accounting policies and
practices as may be adopted by the Financial Accounting Standards Board; (x)
changes in the Company's organization, compensation and benefit plans; (xi) the
costs and effects of litigation and of unexpected or adverse outcomes in such
litigation and (xii) the success of the Company at managing the risks involved
in the foregoing.

Such forward-looking statements speak only as of the date on which statements
are made, and the Company undertakes no obligation to update any forward-looking
statement to reflect events or circumstances after the date on which such
statement is made to reflect the occurrence of unanticipated events.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK

The Company is exposed to market risk from changes in interest rates on variable
rate indebtedness. The Company's primary interest rate risk relates to its
variable rate bank credit facilities. At September 30, 2001, the Company's total
variable rate debt obligations was $1,383,000. A hypothetical 1% increase in the
Company's variable interest rate for a duration of one year would result in
additional interest expense of approximately $14,000.


                                    Page 14
<PAGE>

                           PART II. OTHER INFORMATION


PART II. OTHER INFORMATION
--------------------------------------------------------------------------------

ITEMS 1 - 5 ARE NOT APPLICABLE.

ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K

(A)      EXHIBITS

         None.

(B)      REPORTS ON FORM 8-K

         The registrant did not file any reports on Form 8-K during the three
months ended September 30, 2001.

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


                                    Page 15

<PAGE>


                                   SIGNATURES

Pursuant to the requirements 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.


                                          Digital Transmission Systems, Inc.



Date:   November 14, 2001                 By:  /s/ Andres C. Salazar
                                              -------------------------------
                                               Andres C. Salazar,
                                               Chief Executive Officer


Date:   November 14, 2001                 By:  /s/  Clive N. W. Marsh
                                              -----------------------
                                               Clive N. W. Marsh, Controller
                                               (Principal Accounting Officer)


                                    Page 16