<PAGE>   1
================================================================================

                                  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 March 31, 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.)

            3000 NORTHWOODS PARKWAY, BUILDING 330, NORCROSS, GA 30071
                         (Address of principal executive
                               office) (Zip Code)


                                 (770) 798-1300
              (Registrant'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 May 14,
2001 was 11,796,594.

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

<PAGE>   2


                       DIGITAL TRANSMISSION SYSTEMS, INC.
                                    FORM 10-Q

                      FOR THE QUARTER ENDED MARCH 31, 2001

                                      INDEX


<TABLE>
<CAPTION>
PART I.         FINANCIAL INFORMATION                                                           PAGE
<S>                                                                                             <C>

Item 1.         Financial Statements:

                Condensed Consolidated Balance Sheets at March 31, 2001
                     and June 30, 2000 (Unaudited)                                                3

                Condensed Consolidated Statements of Operations for the Three
                        Months ended March 31, 2001 and 2000 (Unaudited)                          4

                Condensed Consolidated Statements of Operations for the Nine
                     Months ended March 31, 2001 and 2000 (Unaudited)                             5

                Condensed Consolidated Statements of Cash Flows for the Nine
                     Months Ended March 31, 2001 and 2000 (Unaudited)                             6

                Notes to Condensed Consolidated  Financial Statements
                     (Unaudited)                                                                  7

Item 2.         Management's Discussion and Analysis of
                Financial Condition and Results of Operations                                    11

Item 3.         Quantitative and Qualitative Disclosure about Market Risk                        20

PART II.                   OTHER INFORMATION

Items 1 - 5                Not applicable                                                        21

Item 6.                    Exhibits and Reports on Form 8-K                                      21

                           Signatures                                                            22
</TABLE>


                                     Page 2

<PAGE>   3


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

                        (in thousands, except share data)

<TABLE>
<CAPTION>

                                                                                 MARCH 31,
                                 ASSETS                                             2001          JUNE 30, 2000
                                                                                 ----------       -------------
<S>                                                                              <C>              <C>
Current assets:
    Cash and cash equivalents                                                     $    689             1,646
    Trade accounts receivable, net of allowances for
      returns and doubtful accounts of $1,485 and $2,313
      at March 31, 2001 and June 30, 2000, respectively                             11,604            10,885
    Accounts receivable from related parties                                            56               161
    Inventories                                                                     12,464            13,117
    Prepaid expenses and other current assets                                          275               507
    Deferred income tax assets                                                       2,225             2,225
                                                                                  --------           -------
                Total current assets                                                27,313            28,541

Property and equipment, net                                                          4,669             4,898
Intangible assets, net                                                              12,129            15,717
Other assets                                                                         3,220             3,121
                                                                                  --------           -------

                Total assets                                                      $ 47,331            52,277
                                                                                  ========           =======

                  LIABILITIES AND SHAREHOLDERS' EQUITY

Current liabilities:
    Notes payable to banks                                                        $ 10,117             7,684
    Accounts payable and accrued liabilities                                        13,582            13,952
    Acquisition payable                                                                 --             7,655
    Accrued payroll and benefits                                                       306               241
    Notes payable to related parties                                                 3,198             3,000
    Current maturities of long term debt                                                77               146
    Current maturities of obligations under capital leases                              14                33
    Warranty accrual                                                                   603             1,112
                                                                                  --------           -------
                Total current liabilities                                           27,897            33,823
                                                                                  --------           -------
Long-term liabilities:
    Long term debt, excluding current maturities                                        --                 4
    Notes payable to related party                                                     721               721
    Obligations under capital leases, excluding current maturities                      --                44
    Deferred income tax liability                                                    2,225             2,225
                                                                                  --------           -------
                Total long-term liabilities                                         30,843            36,817
                                                                                  --------           -------
Shareholders' equity:
    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
         March 31, 2001 and June 30, 2000, respectively                              1,264             1,314
      Series B, convertible, liquidation preference of $7.125 per share,
         454,737 shares issued and outstanding at March 31, 2001                     3,000             3,000
      Series C, convertible, liquidation preference of $2.58 per share,
         2,330,217 shares issued and outstanding at March 31, 2001                   4,809                --
    Common stock - $0.01 par value, 50,000,000 shares authorized;
      11,796,594 and 10,240,070 shares issued and outstanding at
      March 31, 2001 and June 30, 2000, respectively                                   118               102
    Common stock subscribed                                                             --                41
    Additional paid-in capital                                                      32,845            30,299
    Notes receivable from stock sales                                                   --               (63)
    Accumulated deficit                                                            (25,548)          (19,233)
                                                                                  --------           -------
                Total shareholders' equity                                          16,488            15,460
                                                                                  --------           -------

                Total liabilities and shareholders' equity                        $ 47,331            52,277
                                                                                  ========           =======
</TABLE>

See accompanying notes to condensed consolidated financial statements.


                                     Page 3
<PAGE>   4

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


<TABLE>
<CAPTION>

                                                                                 THREE MONTHS ENDED MARCH 31,
                                                                                 ----------------------------
                                                                                    2001               2000
                                                                                  --------           -------
<S>                                                                               <C>                <C>
Net sales                                                                         $ 12,673           $ 3,145
Cost of sales                                                                        8,982             1,957
                                                                                  --------           -------
   Gross profit                                                                      3,691             1,188
                                                                                  --------           -------

Selling, general and administrative                                                  3,177               763
Product development                                                                    459               112
Depreciation and amortization                                                        1,971                79

                                                                                  --------           -------
   Total operating expenses                                                          5,607               954
                                                                                  --------           -------

   Operating (loss) income                                                          (1,916)              234

Other income                                                                             2                --
Interest expense, net                                                                 (350)              (81)
                                                                                  --------           -------

(Loss) income before income taxes                                                   (2,264)              153

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

     Net (loss) income                                                            $ (2,264)          $   153
                                                                                  --------           -------

Preferred stock dividends                                                              (20)               --

     Net (loss) income attributable to common shareholders                        $ (2,284)          $   153
                                                                                  --------           -------

Net (loss) income per share - basic and diluted:
   Net (loss) income per share - basic                                            $  (0.19)          $  0.03
                                                                                  ========           =======
   Net (loss) income per share - diluted                                          $  (0.19)          $  0.01
                                                                                  ========           =======

Weighted average common shares outstanding:
  Basic                                                                             11,734             5,187
                                                                                  --------           -------
  Diluted (1)                                                                       11,734            11,800
                                                                                  --------           -------
</TABLE>

(1)      Potentially dilutive securities not included for the three months ended
         March 31, 2001 as their effect would be anti-dilutive

        See accompanying notes to condensed consolidated financial statements.



                                     Page 4
<PAGE>   5


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


<TABLE>
<CAPTION>

                                                                                  NINE MONTHS ENDED MARCH 31,
                                                                                  ---------------------------
                                                                                    2001              2000
                                                                                  --------           --------
<S>                                                                               <C>                <C>
Net sales                                                                         $ 36,212           $ 6,887
Cost of sales                                                                       25,076             4,289
                                                                                  --------           -------
   Gross profit                                                                     11,136             2,598
                                                                                  --------           -------

Selling, general and administrative                                                 11,077             1,535
Product development                                                                  1,010               519
Depreciation and amortization                                                        4,183               357
                                                                                  --------           -------
   Total operating expenses                                                         16,270             2,411
                                                                                  --------           -------

   Operating (loss) income                                                                               187
                                                                                    (5,134)

Other expense, net                                                                     (58)               --
Interest expense, net                                                               (1,248)             (291)
                                                                                  --------           -------

Loss before income taxes                                                            (6,440)             (104)

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

     Net loss                                                                     $ (6,440)          $  (104)

Preferred stock dividends                                                              (40)               --

     Net loss attributable to common shareholders                                 $ (6,480)          $  (104)
                                                                                  --------           -------

Net loss per share - basic and diluted:
   Net loss per share - basic                                                     $  (0.59)          $ (0.02)
                                                                                  ========           =======
   Net loss per share - diluted                                                   $  (0.59)          $ (0.02)
                                                                                  ========           =======

Weighted average common shares outstanding:
  Basic                                                                             10,973             5,187
                                                                                  --------           -------
  Diluted (1)                                                                       10,973             5,187
                                                                                  --------           -------
</TABLE>

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

        See accompanying notes to condensed consolidated financial statements.



                                     Page 5
<PAGE>   6

               DIGITAL TRANSMISSION SYSTEMS, INC. AND SUBSIDIARIES
                 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

                           (unaudited - in thousands)

<TABLE>
<CAPTION>
                                                                                  NINE MONTHS ENDED MARCH 31,
                                                                                  ---------------------------
                                                                                    2001              2000
                                                                                  --------           -------
<S>                                                                               <C>                <C>
Cash flows from operating activities:
  Net loss                                                                        $ (6,440)          $  (104)
  Adjustments to reconcile net loss
   to net cash (used in) provided by operating activities:
     Depreciation and amortization
                                                                                     4,183               357
  Changes in assets and liabilities:
     Trade and other accounts receivable                                              (719)           (1,096)
     Inventories                                                                       653                81
     Prepaid expenses and other assets
                                                                                       286               (96)
     Accounts payable and other accrued expenses
                                                                                       112             1,491
     Warranty accrual                                                                 (509)                4
                                                                                  --------           -------
Net cash (used in) provided by operating activities                                 (2,434)              637
                                                                                  --------           -------

Cash flows from investing activities:
  Purchases of property and equipment
                                                                                      (871)              (26)
  Additions to capitalized product development costs                                  (105)             (175)

  Acquisition of business, net of cash acquired                                         --            (2,426)
                                                                                  --------           -------
Net cash used in investing activities
                                                                                      (976)           (2,627)
                                                                                  --------           -------

Cash flows from financing activities:
  Net borrowings under line of credit agreement                                      2,433               703
  Proceeds from issuance of Preferred Stock - Series B                                  --             3,000
  Proceeds from issuance of convertible debentures                                      --             1,500
  Proceeds from exercise of stock options                                               20               134
                                                                                  --------           -------
Net cash provided by financing activities                                            2,453             5,337
                                                                                  --------           -------

Net (decrease) increase in cash and cash equivalents                                  (957)            3,347
Cash and cash equivalents at beginning of period                                     1,646               217
                                                                                  --------           -------
Cash and cash equivalents at end of period                                        $    689           $ 3,564
                                                                                  ========           =======

Supplemental disclosure of cash paid for:
    Interest                                                                      $    894           $    98
                                                                                  ========           =======
Supplemental disclosure of non-cash operating and financing activities:
   Conversion of $1,710 of convertible debentures to common stock                       --           $ 1,710
                                                                                  ========           =======
   Issuance of Series C Preferred Stock to reduce acquisition payable             $  4,809                --
                                                                                  ========           =======
   Issuance of common stock to reduce acquisition payable                         $  2,728                --
                                                                                  ========           =======
Detail of acquisition:
   Fair value of net assets acquired at March 31, 2000                                  --             6,693

   Excess of consideration over fair value of net assets at March 31,                   --            18,867
     2000
   Acquisition payable recorded                                                         --           (20,560)
   Common stock issued                                                                  --            (2,500)
                                                                                  --------           -------
   Cash paid for acquisition                                                            --             2,500
   Cash acquired in acquisition                                                         --               (74)
                                                                                  --------           -------
   Net cash paid for acquisition                                                        --           $ 2,426
                                                                                  ========           =======
</TABLE>

     See accompanying notes to consolidated financial statements.


                                     Page 6
<PAGE>   7

               DIGITAL TRANSMISSION SYSTEMS, INC. AND SUBSIDIARIES
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                           MARCH 31, 2001 (UNAUDITED)

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

Digital Transmission Systems, Inc. ("DTS") and subsidiaries (collectively termed
the "Company") designs, manufactures, repairs, refurbishes, and markets a broad
range of products for the wireless telecommunications ("telecom") industry. The
Company's primary customers are 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 wireless and wireline 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 wireless public or
private telecommunications networks. The Company's network access products
enable wireless service providers to give their customers economical, high
quality access to public and private networks and various telecommunications
services. 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. Through its wholly-owned
subsidiary, Asurent Technologies, Inc. ("Asurent Technologies" formerly known as
Telcor Communications, Inc.), the Company also acquires and markets de-installed
and refurbished telecom equipment originally designed and manufactured by
leading telecom equipment suppliers such as Nokia, Lucent, and Ericsson. In
addition, Asurent Technologies offers repair services to its customers on
products from third party vendors. Major customers of DTS and Asurent
Technologies also include Nextel, Alltel Wireless and Alltel Supply, Dobson
Cellular, Lucent, and Verizon.

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
customers.

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 nine months ended March 31, 2001 are not necessarily
indicative of the results that may be expected for the year ended June 30, 2001.
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, 2000.

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.



                                     Page 7
<PAGE>   8
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 2,939,052 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 March 31, 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 March 31, 2001. The total potential number of dilutive
equivalent common shares excluded was 3,283,467 for the three month period ended
March 31, 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

The Company'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
offering wireless services. The Company purchases both new and used hardware for
applications in telecommunications and computer networking required by wireless
service providers. Used hardware is refurbished and tested prior to shipment.
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 purchases de-installed telecom equipment individually and in bulk lots.
Cost is allocated to individual items in bulk purchases based on management's
assessment of each item's value in relation to the total cost of the purchase.
The Company has established a valuation allowance for inventories based on a
review of composition, quantity, and expected future usage or sales of
inventories including expected sales prices. The Company plans on conducting a
complete physical inventory observation for all inventories on hand at June 30,
2001.

5.       COMPREHENSIVE INCOME (LOSS)

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

6.       SEGMENT REPORTING

The Company's operations are classified into two reportable business segments
for the three and nine months ended March 31, 2001: Asurent Technologies, Inc.
(formerly Telcor Communications, Inc.) and DTS. Prior to the acquisition of
Asurent Technologies on March 31, 2000, the Company operated in one reportable
segment: developer of proprietary equipment for wireless service providers. The
Company's two reportable segments are currently managed as separate divisions;
however, the Company is in the process of integrating several functions of the
two divisions.



                                     Page 8
<PAGE>   9
Segment information for the three months ended March 31, 2001:

A reconciliation of the Company's segment information for the three months ended
March 31, 2001 to the respective information in the condensed consolidated
financial statements is as follows:

<TABLE>
<CAPTION>
                                         DTS           ASURENT TECH.         TOTAL
                                       --------        -------------        --------
        <S>                            <C>             <C>                   <C>
        Sales                          $  3,122             9,551            12,673
        Operating loss                   (1,439)             (477)           (1,916)
        Net loss                         (1,543)             (721)           (2,264)
        Total assets                     19,854            27,477            47,331
        Depreciation and amortization     1,632               339             1,971
        Capital expenditures                115                11               126
</TABLE>

Segment information for the nine months ended March 31, 2001:

A reconciliation of the Company's segment information for the nine months ended
March 31, 2001 to the respective information in the condensed consolidated
financial statements is as follows:

<TABLE>
<CAPTION>
                                         DTS           ASURENT TECH.         TOTAL
                                       --------        -------------        --------
        <S>                            <C>             <C>                   <C>

        Sales                          $  7,802            28,410            36,212
        Operating loss                   (3,410)           (1,724)           (5,134)
        Net loss                         (3,788)           (2,652)           (6,440)
        Total assets                     19,854            27,477            47,331
        Depreciation and amortization     3,236               947             4,183
        Capital expenditures                216               655               871
</TABLE>


7.    UNAUDITED PRO FORMA DATA

The following unaudited pro forma combined financial data of Digital
Transmission Systems, Inc. ("DTS") and Asurent Technologies, Inc. (formerly
Telcor Communications, Inc.) combine the consolidated financial information of
DTS for the three and nine months ended March 31, 2000 with the consolidated
financial information of Asurent Technologies for the three and nine months
ended March 31, 2000. We have prepared the unaudited pro forma information using
the purchase method of accounting as if the acquisition took place at the
beginning of the periods presented. The pro forma information does not give
effect to any restructuring costs, expenses due to terminated full-time or
contract employees, discontinued product lines, inventory write-downs, increased
reserves, one-time cost of sales adjustments, merger transactional expenses or
to any potential expense savings or other operating efficiencies that could
result from the merger.

The unaudited pro forma combined financial information is not intended to
represent what the combined company's financial position or results of
operations would have been had the merger occurred at the beginning of the
earliest period presented or to project the combined financial position or
results of operations for any future date or period.

   PRO FORMA DATA - THREE AND NINE MONTHS ENDED MARCH 31, 2000 (000'S OMITTED)

<TABLE>
<CAPTION>

                                                       NINE MONTHS          THREE MONTHS
                                                       ENDED MAR. 31,     ENDED MAR. 31,
                                                            2000                2000
                                                       --------------     ----------------
        <S>                                            <C>                <C>
        Revenues                                         $ 53,204           $  14,651
        (Loss) income before extraordinary items             (311)                728
        Net (loss) income                                    (311)                728
        Net (loss) income per share:
        Basic                                                (.06)                .14
        Diluted                                              (.06)                .06

</TABLE>


                                     Page 9
<PAGE>   10
8.       INTANGIBLE ASSETS

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.

During the quarter ended March 31, 2001, the Company formally changed the name
of its wholly-owned subsidiary from Telcor Communications, Inc. to Asurent
Technologies, Inc. As such, the Company began accelerating the amortization of
that portion of goodwill that was assigned to the value of the inherited trade
name - "Telcor Communications, Inc." - as recorded at the time of acquisition on
March 31, 2000. The accelerated amortization will serve to write off the
remaining balance of the trade name intangible asset by June 30, 2001. The
accelerated amortization resulted in an additional $672,000 in amortization
expense recognized during the quarter ended March 31, 2001. As of March 31,
2001, the unamortized portion of the trade name intangible asset is $3,961,226.



                                    Page 10
<PAGE>   11

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

GENERAL

Digital Transmission Systems, Inc. ("DTS") and subsidiaries (collectively termed
the "Company") designs, manufactures, repairs, refurbishes, and markets a broad
range of products for the wireless telecommunications ("telecom") industry. The
Company's primary customers are 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 wireless and wireline 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 wireless public or
private telecommunications networks. The Company's network access products
enable wireless service providers to give their customers economical, high
quality access to public and private networks and various telecommunications
services. 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. Through its wholly-owned
subsidiary, Asurent Technologies, Inc. ("Asurent Technologies" formerly known as
Telcor Communications, Inc.), the Company also acquires and markets de-installed
and refurbished telecom equipment originally designed and manufactured by
leading telecom equipment suppliers such as Nokia, Lucent, and Ericsson. In
addition, Asurent Technologies offers repair services to its customers on
products from third party vendors. Major customers of DTS and Asurent
Technologies also include Nextel, Alltel Wireless and Alltel Supply, Dobson
Cellular, Lucent, and Verizon.

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
customers.

RESULTS OF OPERATIONS

THREE MONTHS ENDED MARCH 31, 2001 AND MARCH 31, 2000

The following table sets forth certain financial data derived from the Company's
statement of operations for the three months ended March 31, 2001 and March 31,
2000 (dollars in thousands).

<TABLE>
<CAPTION>

                                              THREE MONTHS ENDED               THREE MONTHS ENDED
                                                  MARCH 31, 2001                  MARCH 31, 2000
                                            --------------------------      -------------------------
                                                $           % OF SALES           $        % OF SALES
                                            ----------      ----------      ----------    -----------
<S>                                         <C>             <C>             <C>           <C>
Net Sales                                     12,673            100           3,145          100
Gross Profit                                   3,691             29           1,188           38
Product development                              459              4             112            4
Selling, general and administrative            3,177             25             763           24
Net loss                                      (2,264)           (18)            153            5
</TABLE>



                                    Page 11
<PAGE>   12

NET SALES. Net sales increased by 303%, to $12,673,000 for the three months
ended March 31, 2001 from $3,145,000 for the three months ended March 31, 2000.
The increase in sales was due in large part to the inclusion of revenue from the
Company's' wholly-owned subsidiary, Asurent Technologies, Inc. The sales mix,
and the corresponding percentage of total sales of the Company's products, is
set forth in the chart below (dollars in thousands):

<TABLE>
<CAPTION>
                                                              PERCENTAGE OF
                                                                  TOTAL
                            THREE MONTHS ENDED              THREE MONTHS ENDED
                                 MARCH 31,                      MARCH 31,
                                 ---------                      ---------
                           2001            2000             2001         2000
                         ---------        ---------       ---------    ---------
<S>                      <C>              <C>             <C>          <C>
Flex T1/E1               $   3,122        $   2,938              25           93
Equipment sales              9,386               --              74           --
Other products                 165              207               1            7
                         ---------        ---------       ---------    ---------

Totals                   $  12,673        $   3,145             100          100
                         =========        =========       =========    =========
</TABLE>




Revenues from the Company's FlexT1/E1 product line increased 6% from $2,938,000
for the three months ended March 31, 2000 to $3,122,000 for the three months
ended March 31, 2001 due to greater demand for the Company's network access
products from its two largest customers. Equipment sales of $9,386,000 and $0
were recorded for the three month periods ended March 31, 2001 and 2000,
respectively. The increase is due to the acquisition of Telcor Communications,
Inc. (now Asurent Technologies) on March 31, 2000. The Company began
consolidating the results of operations of Asurent Technologies on April 1, 2000
and, accordingly, no equipment sales were recorded during the three month period
ended March 31, 2000. Asurent Technologies sales for the three month period
ended March 31, 2001 were less than the same period a year ago due to
discontinuance of certain consumer oriented product lines and other products not
targeted to wireless carriers.

GROSS PROFIT. Cost of sales consists of component costs, compensation costs and
the overhead costs related to the production and shipping of the Company's
products, along with the support and warranty expense associated with such
products. Gross profit increased 211% from $1,188,000 for the three month period
ended March 31, 2000 to $3,691,000 for the three month period ended March 31,
2001. As a percentage of sales, gross profit decreased from 38% for the three
month period ended March 31, 2000 to 29% for the three month period ended March
31, 2001. The decrease reflects the inclusion of a significant portion of lower
margin sales of new and refurbished equipment as realized by the Company's
subsidiary, Asurent Technologies, during the three month period ended March 31,
2001. Margins on new and refurbished equipment sales at Asurent Technologies
have historically ranged from 25% to 35% depending upon the product mix and
customer.

PRODUCT DEVELOPMENT. Product development expense consists of personnel costs,
consulting, supplies and prototyping expenses. Product development expenses
increased 310%, to $459,000 for the three months ended March 31, 2001 from
$112,000 for the three months ended March 31, 2000. The increase in product
development expense for the three month period ended March 31, 2001 is primarily
due to increased spending on new development projects. As a percentage of sales,
product development costs remained consistent at 4% of sales for the three month
periods ended March 31, 2001 and 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 increased by 316%, to $3,177,000 for the
three months ended March 31, 2001 from $763,000 for the three months ended March
31, 2000. The increase is attributable to the Company's acquisition of Telcor
Communications, Inc. (now named Asurent Technologies, Inc.) on March 31, 2000.
The Company began consolidating the results of operations of Asurent
Technologies on April 1, 2000 and, as such, no comparable selling, general and
administrative expense was recorded


                                    Page 12
<PAGE>   13
during the three month period ended March 31, 2000. For the three month period
ended March 31, 2001, Asurent Technologies contributed $2,471,000 to total
selling, general and administrative expenses. Excluding the Asurent Technologies
contribution, selling, general and administrative expenses decreased by $57,000,
or 7%, for the three month period ended March 31, 2001 as compared to the same
period ended March 31, 2000. The decrease is attributable to reduced
professional and legal fees as compared to the same period in the prior year. As
of March 31, 2001 the Company had approximately 112 full-time employees
reflecting an increase in overall headcount of 82, from 30 full-time employees
as of March 31, 2000. Total selling, general and administrative costs were 25%
of total sales for the three months ended March 31, 2001 as compared to 24% of
sales for the three months ended March 31, 2000.

NET LOSS. For the three month period ended March 31, 2001, the Company recorded
a net loss of $2,264,000 as compared to a net profit of $153,000 reported for
the three month period ended March 31, 2000. The increase in the net loss is
primarily a result of amortization of intangible assets recorded as a result of
the Asurent Technologies (formerly "Telcor") acquisition on March 31, 2000,
additional selling general and administrative expenses, and increased interest
costs. Interest expense of the Company increased from $81,000 for the three
months ended March 31, 2000 to $350,000 for the three months ended March 31,
2001. Excluding depreciation and amortization charges, the Company would have
recorded operating income of $55,000 for the three month period ended March 31,
2001.

NINE MONTHS ENDED MARCH 31, 2001 AND MARCH 31, 2000

The following table sets forth certain financial data derived from the Company's
statement of operations for the nine months ended March 31, 2001 and March 31,
2000 (dollars in thousands).

<TABLE>
<CAPTION>
                                                    NINE MONTHS ENDED             NINE MONTHS ENDED
                                                      MARCH 31, 2001                MARCH 31, 2000
                                                      -------------                 --------------
                                                   $               % OF SALES     $            % OF SALES
                                               ------------------------------------------------------------
<S>                                            <C>               <C>             <C>             <C>
Net Sales                                       36,212               100          6,887              100
Gross Profit                                    11,136                31          2,598               38
Product development                              1,010                 3            519                8
Selling, general and administrative             11,077                31          1,535               22
Net loss                                        (6,440)              (18)          (104)              (2)
</TABLE>



                                    Page 13
<PAGE>   14
NET SALES. Net sales increased 426%, to $36,212,000 for the nine months ended
March 31, 2001 from $6,887,000 for the nine months ended March 31, 2000. The
sales mix, and the corresponding percentage of total sales of the Company's
products, is set forth in the chart below (dollars in thousands):

<TABLE>
<CAPTION>

                                                              PERCENTAGE OF
                                                                   TOTAL
                            NINE MONTHS ENDED                NINE MONTHS ENDED
                                 MARCH 31,                       MARCH 31,
                                 ---------                      ----------
                           2001            2000            2001         2000
                         -------          -------         -------      -------
<S>                      <C>              <C>             <C>          <C>
Flex T1/E1               $ 7,802          $ 6,548              22           95
Equipment sales           28,000               --              77           --
Other products               410              339               1            5
                         -------          -------         -------      -------

Totals                   $36,212          $ 6,887             100          100
                         =======          =======         =======      =======
</TABLE>


Revenues from the Company's FlexT1/E1 product line increased 19% from $6,548,000
for the nine months ended March 31, 2000 to $7,802,000 for the nine months ended
March 31, 2001. Equipment sales of $28,000,000 and $0 were recorded for the nine
month periods ended March 31, 2001 and 2000, respectively. The increase is due
to the acquisition of Telcor Communications, Inc. (now Asurent Technologies) on
March 31, 2000. The Company began consolidating the results of operations of
Asurent Technologies on April 1, 2000 and, accordingly, no equipment sales were
recorded during the nine month period ended March 31, 2000.

GROSS PROFIT. Cost of sales consists of component costs, compensation costs and
the overhead costs related to the production and shipping of the Company's
products, along with the support and warranty expense associated with such
products. Gross profit increased 329% from $2,598,000 for the nine month period
ended March 31, 2000 to $11,136,000 for the nine month period ended March 31,
2001. As a percentage of sales, gross profit decreased from 38% for the nine
month period ended March 31, 2000 to 31% for the nine month period ended March
31, 2001. The decrease reflects the inclusion of a significant portion of lower
margin sales of new and refurbished equipment as realized by the Company's
subsidiary, Asurent Technologies, Inc. during the nine month period ended March
31, 2001. Margins on new and refurbished equipment sales at Asurent Technologies
have historically ranged from 25% to 35% depending upon the product mix and
customer.

PRODUCT DEVELOPMENT. Product development expense consists of personnel costs,
consulting, supplies and prototyping expenses. Product development expenses
increased 95%, to $1,010,000 for the nine months ended March 31, 2001 from
$519,000 for the nine months ended March 31, 2000. The increase in product
development expense for the nine month period ended March 31, 2001 is primarily
due to increased spending on new development projects and an increase in
engineering headcount. Further, approximately $105,000 of development costs
related to new projects were capitalized for the nine month period ended March
31, 2001 as compared to $175,000 for the nine month period ended March 31, 2000.
As a percentage of sales, product development costs were 3% for the nine months
ended March 31, 2001 and 8% for the nine months ended March 31, 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 increased by 622%, to $11,077,000 for the
nine months ended March 31, 2001 from $1,535,000 for the nine months ended March
31, 2000. The increase is primarily attributable to the Company's acquisition of
Telcor Communications, Inc. (now named Asurent Technologies, Inc.) on March 31,
2000. The Company began consolidating the results of operations of Asurent
Technologies on April 1, 2000 and, as such, no comparable selling, general and
administrative expense was recorded during the nine month period ended March 31,
2000. For the nine month period ended March 31, 2001, Asurent Technologies
contributed $9,008,000 to total selling, general and administrative expenses.
Excluding the Asurent Technologies contribution, selling, general and
administrative expenses increased by $534,000 for the nine


                                    Page 14
<PAGE>   15
month period ended March 31, 2001 as compared to the same period ended March 31,
2000. The increase is attributable to additional personnel compensation costs as
a result of an overall increase in headcount. As of March 31, 2001, the Company
had approximately 112 full-time employees reflecting an increase in overall
headcount of 82, from 30 full-time employees as of March 31, 2000. Total
selling, general and administrative costs were 31% of total sales for the nine
months ended March 31, 2001 as compared to 22% of sales for the nine months
ended March 31, 2000.

NET LOSS. The net loss increased to $6,440,000 for the nine months ended March
31, 2001, from $104,000 for the nine months ended March 31, 2000. The increase
in the net loss is primarily a result of amortization of intangible assets
recorded as a result of the Asurent Technologies (formerly "Telcor") acquisition
on March 31, 2000, additional selling general and administrative expenses, and
increased interest costs. Interest expense of the Company increased from
$291,000 for the nine months ended March 31, 2000 to $1,248,000 for the nine
months ended March 31, 2001. Excluding depreciation and amortization charges,
the Company's operating loss for the nine month period ended March 31, 2001
would have been $951,000 which reflects additional product development charges
and increased general and administrative expenses of the Company.

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 accompanying
financial statements during the nine months ended March 31, 2001, the Company
incurred a net loss of $6,440,000. Although the Company has an accumulated
deficit of $25,548,000 as of March 31, 2001, the Company has made substantial
progress over the past several quarters with respect to its overall financial
position. As of March 31, 2001 total net equity of the Company increased to
$16,488,000 as compared to net equity of $4,811,000 as of March 31, 2000.
Additionally, the Company received monetary support from a significant investor
during fiscal year 2000. Such support enabled the Company to more effectively
manage its cash commitments and indebtedness. Additional equity may be required
during the upcoming quarters in calendar 2001 and the Company is actively
pursuing various financing alternatives.

As of March 31, 2001 the Company's cash position is $689,000. Additionally,
available borrowings under the Company's notes payable to banks at March 31,
2001 is $215,000. Such availability will be utilized in the near term to address
the Company's existing accounts payable, notes payable and inventory purchase
commitments. The Company believes its current cash position and availability
under its credit facilities may be inadequate to address immediate cash
requirements as dictated by the Company's existing commitments. As such, the
Company continues to actively pursuing any and all potential financing
alternatives to raise immediate short-term cash.

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,
securing additional financing with certain financial institutions and the sale
of existing Company assets. 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. The Company has been unsuccessful
to date in obtaining external financing from both current and prospective
investors but plans to continue to seek external funding to further the
Company's strategic direction.

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 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.


                                    Page 15
<PAGE>   16
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 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 March 31, 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 March 31, 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, 2000. The
outstanding amount of the 1997 debentures as of March 31, 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, Digital Transmission Systems, Inc. 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. The former
Telcor shareholders exercised the option (mentioned above) on October 31, 2000
and agreed to sell $4,000,000 of merger consideration to Wi-LAN, Inc.

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
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


                                    Page 16
<PAGE>   17
issued at $3.56 per share (a 25% discount from the market closing price on
January 25, 2000) and are restricted as to trade, pledge, or sale until January
25, 2001. The Company 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 bears a maturity date of April 10, 2001.
Additionally, the revised and amended agreement increased the maximum borrowing
to $2,500,000 and bears interest at prime plus 2 1/4 (10.25% at March 31, 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. DTS was in
compliance with all covenants imposed by the agreement as of March 31, 2001.
Amounts outstanding under the DTS line of credit facility were $1,552,000 and
$2,068,000 at March 31, 2001 and 2000, respectively.

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.

Additionally, the Company's wholly-owned subsidiary, Asurent Technologies, Inc.
("Asurent Technologies" formerly Telcor Communications, Inc.) has a revolving
credit facility with a commercial bank (PNC Bank) at LIBOR plus 2.5% or prime,
whichever is lower, the interest on which is payable monthly. Under the
agreement, Asurent Technologies is allowed to borrow up to 85% of eligible
accounts receivable and 50% of eligible inventory with an established limit of
$11,000,000 as of March 31, 2001. On February 8th, 2001 Asurent Technologies
ammended their agreement with PNC Bank. The new ammendment reduced the
established limit of the line of credit from $17,000,000 to $11,000,000. At
March 31, 2001, amounts outstanding under the Asurent Technologies line of
credit facility are $8,565,000, and the interest rate was 8.0%. The line is
collateralized by Asurent Technologies' trade accounts receivable, inventories,
and all other assets. The Asurent Technologies revolving line of credit is
scheduled to expire on May 11, 2002. Under the agreement, Asurent Technologies
is required to comply with certain covenants which include, but are not limited
to, maintaining minimum requirements for debt to equity, net worth, cash flows,
and capital expenditures. At March 31, 2001, Asurent Technologies was not in
compliance with all covenants imposed by the line of credit agreement.


                                    Page 17
<PAGE>   18
CASH. As of March 31, 2001, the Company had approximately $689,000 in cash and
cash equivalents. For the nine months ended March 31, 2001, $2,434,000 was used
in operating activities as compared to cash provided by operations of $637,000
for the nine months ended March 31, 2000. The net loss for the nine months ended
March 31, 2001 of $6,440,000 includes non-cash charges relating to depreciation
and amortization of $4,183,000. Exclusive of non-cash charges, cash was used in
operations primarily through an increase in accounts receivable of $719,000 and
a net decrease in accounts payable, accrued expenses and warranty costs of
$397,000.

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 purchased $871,000 and $26,000 of property and equipment during the
nine months ended March 31, 2001 and 2000, respectively. In addition, the
Company capitalized certain software development costs paid to outside
contractors. During the nine months ended March 31, 2001, the Company
capitalized $105,000 of such costs as compared to capitalized costs of $175,000
for the nine months ended March 31, 2000.

OTHER MANAGEMENT DISCUSSION AND ANALYSIS

Subsidiary Name Change. On March 1, 2001, the Company's wholly-owned subsidiary,
Telcor Communications, Inc., changed its name from Telcor Communications to
Asurent Technologies, Inc. to reflect the subsidiary's new management structure
and global vision as it enters the new millennium. The Company further plans on
changing its overall corporate identity and structure from Digital Transmission
Systems, Inc. to Asurent, Inc. before the end of calendar year 2001. Asurent,
Inc. will serve as a holding company for two wholly-owned subsidiaries - Asurent
Wireless, Inc. and Asurent Technologies, Inc. The overall corporate identity
change is subject to shareholder approval at the Company's annual shareholder
meeting scheduled for late 2001. Additional details and background information
on the identity change will be properly included with any mailing of shareholder
voting materials.

New Product Direction. The Company had announced previously that it had
intentions of developing products for the LMDS market by licensing and
incorporating W-OFDM technology from Wi-LAN, the Company's major investor. After
developing a business case that reviewed current LMDS competitors, product
standards, frequency allocation in various global markets and investment
requirements, the Company has determined that the investment requirements and
market risk associated with such products do not justify expected returns. The
Company has now abandoned all efforts to develop LMDS products and will continue
to focus on developing products for its core market - network access equipment
for wireless carriers.

Shareholder Debt. On March 22, 2001 the Company notified former shareholder's of
Telcor Communications, Inc. that a $3 million note due and payable on April 1,
2001 would not be paid by the Company until an adequate assessment of the
Company's claims submitted pursuant to its rights under the Agreement and Plan
of Merger By and Among Telcor Communications, Inc., ICT Acquisition Corp. and
Digital Transmission Systems, Inc. has been performed. It is the Company's
position that any amounts deemed owed the Company pursuant to the claims review
can be used to offset any amounts owed the former shareholder's of Telcor.

Management Changes/Consulting Agreement. Lance Weller, co-founder of Telcor
Communications, Inc. (now Asurent Technologies, Inc.), remained an employee of
the Company through February 9, 2001, a little more than 10 months after the
merger with DTS. During that time Mr. Weller was engaged in the management
transition whereby a new President and other officers were recruited and
installed as the operational management team at Asurent Technologies. Through
February 9, 2002 Mr. Weller will be paid a severance compensation, amounting to
a base pay of approximately $20,833 a month, which is in compliance with the
employment agreement he signed at the time of the merger and for which he agreed
to certain non-compete conditions. In return, Mr. Weller has agreed to serve as
a consultant to the Company, assisting in marketing and sales whereby he may be
involved in the purchase and sale of equipment on behalf of the Company but only
under the supervision and consent of the Company's sales management.

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 buildout of the telecommunications infrastructure during the
summer months. The Company's


                                    Page 18
<PAGE>   19
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. The Company's backlog for its network access products at March 31, 2001
is $3,990,019 and is primarily deliverable through June 30, 2001.

NEW ACCOUNTING PRONOUNCEMENTS

In June 1999, the Financial Accounting Standards Board ("FASB") issued Statement
of Financial Accounting Standards ("SFAS") No. 137, "Accounting for Derivative
Instruments and Hedging Activities - Deferral of the Effective Date of FASB
Statement No. 133," which deferred implementation of SFAS 133 until fiscal
quarters of fiscal years beginning after June 15, 2000.

SFAS 133 requires all derivatives to be carried on the balance sheet at fair
value. Changes in the fair value of derivatives must be recognized in the
Company's Consolidated Statement of Operations when they occur; however there is
an exception for derivatives that qualify as hedges as defined by SFAS 133. If a
derivative qualifies as a hedge, a company can elect to use "hedge accounting"
to eliminate or reduce the income statement volatility that would arise from
reporting changes in a derivative's fair value.

In June 2000, the FASB issued SFAS No. 138, "Accounting for Derivative
Instruments and Hedging Activities - an amendment of FASB Statement No. 133."
SFAS No.138 adds to the guidance related to accounting for derivative
instruments and hedging activities. This statement should be adopted
concurrently with SFAS 133. The adoption of both SFAS 133 and 138 has not
materially impacted the Company's financial results.

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 is no later than the fourth quarter of fiscal years beginning after
December 15, 1999. The Company believes that implementation of SAB 101 will not
have a material impact on the Company's financial statements.

In March 2000, the FASB issued FASB Interpretation No. 44 (FIN 44), "Accounting
for Certain Transactions involving Stock Compensation - an Interpretation of
Accounting Principles Board Opinion No. 25." FIN 44 provides guidance for
certain issues that arose in applying APB 25. The provisions were effective July
1, 2000, and, generally, are applied prospectively. Adoption of FIN 44 has not
materially impacted the Company's financial results.

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


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<PAGE>   20
adverse outcomes in such litigation; (xii) failure to successfully implement the
Company's Year 2000 modification plans substantially as scheduled and budgeted;
and (xiii) 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 March 31, 2001, the Company's total
variable rate debt obligations was $10,117,000. 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 $101,000.



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<PAGE>   21
                           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 March 31, 2001.

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


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<PAGE>   22
                                   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:   May 14, 2001                       By:     /s/ Andres C. Salazar
                                               ------------------------------
                                                      Andres C. Salazar
                                                    Chief Executive Officer


Date:   May 14, 2001                       By:    /s/  Clive N. W. Marsh
                                               --------------------------------
                                               Clive N. W. Marsh, V.P. Finance
                                               (Principal Accounting Officer)




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