<PAGE>   1

                                  UNITED STATES

                       SECURITIES AND EXCHANGE COMMISSION

                             WASHINGTON, D.C. 20549

                                    FORM 10-Q

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

                  For the Quarterly Period Ended June 30, 2000

                                       OR

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

     FOR THE TRANSITION PERIOD FROM _________________ TO __________________

                       Commission File Number: 000-26485
--------------------------------------------------------------------------------

                            PARADYNE NETWORKS, INC.
--------------------------------------------------------------------------------
             (Exact name of registrant as specified in its charter)

             Delaware                                     75-2658219
 -------------------------------                       ----------------
 (State or other jurisdiction of                       (I.R.S. Employer
incorporation or organization)                        Identification No.)

                 8545 126TH AVENUE NORTH, LARGO, FLORIDA 33773
--------------------------------------------------------------------------------
                   (Address, including zip code, of principal
                     executive offices, including zip code)

                                 (727) 530-2000
--------------------------------------------------------------------------------
              (Registrant's telephone number, including area code)

                                      None
--------------------------------------------------------------------------------
              (Former name, former address and former fiscal year,
                         if changed since last report)

         Indicate by check mark whether the Registrant (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 July 31, 2000 was 31,641,804.




<PAGE>   2

                             PARADYNE NETWORKS, INC.
                       FOR THE PERIOD ENDED JUNE 30, 2000


                                      INDEX



<TABLE>
<S>      <C>                                                                               <C>
                                 PART I FINANCIAL INFORMATION
ITEM 1.  Financial Statements:
         Condensed Consolidated Balance Sheets at June 30, 2000 and
         December 31, 1999                                                                  1

         Condensed Consolidated Statements of Income for the
         Three and Six Months Ended June 30, 2000 and June 30, 1999                         2

         Condensed Consolidated Statements of Cash Flows for the
         Six Months Ended June 30, 2000 and June 30, 1999                                   3

         Notes to Consolidated Financial Statements                                         4

ITEM 2.  Management's Discussion and Analysis of Financial
         Condition and Results of Operations                                                6

ITEM 3.  Quantitative and Qualitative Disclosures about Market Risk                         9

                                  PART II OTHER INFORMATION

ITEM 2.  Changes in Securities                                                              9

ITEM 4.  Submission of Matters to a Vote of Security Holders                                9

ITEM 5.  Other Information                                                                 10

ITEM 6.  Exhibits and Reports on Form 8-K                                                  10

SIGNATURES                                                                                 10
</TABLE>


<PAGE>   3

                          PART I. FINANCIAL INFORMATION

ITEM 1.  FINANCIAL STATEMENTS

                             PARADYNE NETWORKS, INC.
                      CONDENSED CONSOLIDATED BALANCE SHEETS
                       (IN THOUSANDS EXCEPT SHARE AMOUNTS)

<TABLE>
<CAPTION>
                                                                                         JUNE 30,
                                                                                           2000             DECEMBER 31,
                                                                                        UNAUDITED               1999
                                                                                        ----------          ------------
<S>                                                                                     <C>                 <C>
                                      ASSETS
Current assets:
  Cash and cash equivalents                                                             $   45,144          $   62,885
  Accounts receivable less allowance for doubtful accounts of $4,737 and $4,022
      at June 30, 2000 and December 31, 1999, respectively                                  42,575              29,548
  Income tax receivables                                                                     6,476               2,010
  Inventories (Note 2)                                                                      52,537              13,252
  Prepaid expenses and other current assets                                                  3,587               3,201
                                                                                        ----------          ----------
           Total current assets                                                            150,319             110,896

Property, plant and equipment, less accumulated depreciation of $20,993 and
     $15,502 at June 30, 2000 and December 31, 1999, respectively                           19,925              17,297
Other assets                                                                                 8,850               2,292
                                                                                        ----------          ----------
           Total assets                                                                 $  179,094          $  130,485
                                                                                        ==========          ==========

                   LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
  Accounts payable                                                                      $   30,194          $    8,367
  Current portion of debt                                                                    5,158                 434
  Payroll & benefit related liabilities                                                      8,403               7,887
  Other current liabilities                                                                 14,350               7,857
                                                                                        ----------          ----------
          Total current liabilities                                                         58,105              24,545
Long term debt                                                                                 420                 256
                                                                                        ----------          ----------
          Total liabilities                                                                 58,525              24,801

Stockholders' equity:
   Preferred stock, par value $.001; 5,000,000 shares authorized, none issued
        or outstanding
   Common stock, par value $.001; 60,000,000 shares authorized, 31,597,698 and
        30,835,511 shares issued and outstanding as of June 30, 2000 and
        December 31, 1999, respectively                                                         32                  31
   Additional paid-in capital                                                              104,428              93,487
   Retained earnings                                                                        18,269              14,528
   Other equity adjustments                                                                 (2,160)             (2,362)
                                                                                        ----------          ----------
          Total stockholders' equity                                                       120,569             105,684
                                                                                        ----------          ----------
          Total liabilities and stockholders' equity                                    $  179,094          $  130,485
                                                                                        ==========          ==========
</TABLE>


                                       1
<PAGE>   4

                            PARADYNE NETWORKS, INC.
                  CONDENSED CONSOLIDATED STATEMENTS OF INCOME
                     (IN THOUSANDS EXCEPT PER HARE AMOUNTS)
                                   UNAUDITED

<TABLE>
<CAPTION>
                                                                  THREE MONTHS ENDED                  SIX MONTHS ENDED
                                                                       JUNE 30,                            JUNE 30,
                                                             ---------------------------         ----------------------------
                                                                2000              1999             2000                1999
                                                             ---------         ---------         ---------          ---------
<S>                                                          <C>               <C>               <C>                <C>
Revenues:
Sales                                                        $  74,788         $  52,164         $ 137,740          $ 103,133
Services                                                           809               416             2,088                891
Royalties                                                            0               200               250              2,818
                                                             ---------         ---------         ---------          ---------
               Total Revenues                                   75,597            52,780           140,078            106,842
               Total cost of sales                              44,714            30,099            82,082             60,065
                                                             ---------         ---------         ---------          ---------
Gross Margin                                                    30,883            22,681            57,996             46,777

Operating expenses:
   Research and development                                     10,492             9,067            20,023             17,835
   Selling, general & administrative                            18,803            13,800            34,041             27,663
   Amortization of intangible assets and
    deferred stock compensation                                    376               135               452                135
                                                             ---------         ---------         ---------          ---------
            Total operating expenses                            29,671            23,002            54,516             45,633
                                                             ---------         ---------         ---------          ---------

Operating Income                                                 1,212              (321)            3,480              1,144
Other (income) expenses:
   Interest, net                                                  (780)              258            (1,617)               692
   Other, net                                                      128               311              (325)            (2,541)
                                                             ---------         ---------         ---------          ---------

Income before provision for income tax                           1,864              (890)            5,422              2,993
Provision for income tax                                           578              (280)            1,681              1,235
                                                             ---------         ---------         ---------          ---------

Net Income                                                   $   1,286         $    (610)        $   3,741          $   1,758
                                                             =========         =========         =========          =========

Weighted average number of common shares outstanding
   Basic                                                        31,584            26,356            31,428             26,124
   Diluted                                                      33,341            26,356            33,441             27,477
Earnings per common share
   Basic                                                     $    0.04         $   (0.02)        $    0.12          $    0.07
   Diluted                                                   $    0.04         $   (0.02)        $    0.11          $    0.06
Consolidated Statements of Comprehensive Income
   Net Income                                                    1,286              (610)            3,741              1,758
   Translation Adjustments                                           6               430                 9                494
                                                             ---------         ---------         ---------          ---------
   Comprehensive Income                                      $   1,292         $    (180)        $   3,750          $   2,252
                                                             =========         =========         =========          =========
</TABLE>


                                       2
<PAGE>   5

                             PARADYNE NETWORKS, INC.
                CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (IN THOUSANDS)
                                    UNAUDITED

<TABLE>
<CAPTION>
                                                                                              SIX MONTHS ENDED
                                                                                                  JUNE 30,
                                                                                        -----------------------------
                                                                                           2000                1999
                                                                                        ---------           ---------
<S>                                                                                     <C>                 <C>
Cash flows from operating activities:
Net income                                                                              $   3,741           $   1,758
Adjustments to reconcile net income to cash provided by
     operating activities:
Increase in allowance for bad debts                                                           715                 344
Depreciation and amortization (includes amortization of intangible assets and
   deferred stock compensation of $606 and $441, respectively)                              3,930               2,967
(Increase) decrease in:
     Receivables                                                                          (10,691)              1,856
     Inventories                                                                          (37,064)              1,148
     Prepaid expenses and other current assets                                               (847)                227
Increase (decrease) in:
     Accounts Payable                                                                      20,618                 706
     Payroll and benefit related liabilities                                                 (973)             (1,577)
     Other current liabilities                                                              6,303                 150
                                                                                        ---------           ---------
           Net cash provided by (used in) operating activities                            (14,268)              7,579
                                                                                        ---------           ---------
Cash flows (used) in/provided by investing activities:
     Cash used to acquire business                                                         (3,100)                 --
     Capital expenditures                                                                  (5,012)             (2,236)
     Proceeds from sale of property, plant and equipment                                       --                  23
                                                                                        ---------           ---------
           Net cash used in investing activities                                           (8,112)             (2,213)
                                                                                        ---------           ---------
Cash flows provided by (used in) financing activities:
     Net proceeds from stock transactions                                                   4,442               2,637
     Repayment of bank line of credit and other short term obligations                        (18)             (7,208)
     Borrowings under other debt obligations                                                  513                 329
     Repayments under other debt obligations                                                 (307)               (311)
                                                                                        ---------           ---------
           Net cash provided by (used in) financing activities                              4,630              (4,553)
                                                                                        ---------           ---------
Effect of foreign exchange rate changes on cash                                                 9                 494
                                                                                        ---------           ---------
Net Increase in cash and cash equivalents                                                 (17,741)              1,307
Cash and cash equivalents at beginning of period                                           62,885               2,356
                                                                                        ---------           ---------
Cash and cash equivalents at end of period                                              $  45,144           $   3,663
                                                                                        =========           =========
Supplemental disclosure of cash flow information:
Non-cash transactions
     Issuance (repayment) of notes for common stock                                     $    (485)          $   1,078
                                                                                        =========           =========
     Note issued to seller to acquire business                                          $   4,668           $      --
                                                                                        =========           =========
     Recoverable taxes related to stock option exercises                                $   6,498           $      --
                                                                                        =========           =========
</TABLE>


                                       3
<PAGE>   6

                             PARADYNE NETWORKS, INC.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1.       BUSINESS AND BASIS OF PRESENTATION:

         Paradyne Networks, Inc. (the "Company") designs, manufactures, and
markets data communications and networking products for network service
providers and business customers. The Company's products enable business
customers to efficiently access wide area network services and allow network
service providers to provide customers with high-speed services for data, voice,
video and multimedia applications.

         The accompanying unaudited consolidated financial statements include
the results of the Company and its wholly-owned subsidiaries: Paradyne
Corporation; Paradyne Canada Ltd.; Paradyne International Ltd.; Paradyne
Worldwide Corp. (formerly Paradyne Far East Corporation); Ark Electronic
Products Inc.; Paradyne GmbH; Paradyne Finance Corporation; and Paradyne
International Sales Ltd. Intercompany accounts and transactions have been
eliminated in consolidation.

         The accompanying unaudited consolidated financial statements of the
Company have been prepared in accordance with generally accepted accounting
principles for interim financial information and with the instructions to Form
10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not contain all of
the information and footnotes required by generally accepted accounting
principles for complete financial statements. However, in the opinion of
management, such statements reflect all adjustments, consisting of only normal
recurring adjustments, necessary for a fair presentation of interim period
results. These financial statements should be read in conjunction with the
December 31, 1999 audited financial statements and notes thereto included in the
Company's Annual Report on Form 10-K as filed with the Securities and Exchange
Commission on March 27, 2000.

         The results of operations for the interim periods are not necessarily
indicative of results to be expected for the entire year or for other future
interim periods.

2.       INVENTORY:

         Inventories at June 30, 2000 and December 31, 1999 are summarized as
follows (in thousands):

<TABLE>
<CAPTION>
                                                                 JUNE 30,          DECEMBER 31,
                                                                   2000                1999
                                                                ---------          ------------
              <S>                                               <C>                <C>
              Raw Materials                                     $  45,275           $  10,603
              Work In Process                                       3,091               1,198
              Finished Goods                                        4,171               1,451
                                                                ---------           ---------
                                                                $  52,537           $  13,252
                                                                =========           =========
</TABLE>

                                       4
<PAGE>   7

3.       EARNINGS PER SHARE:

         The following table summarizes (in thousands, except per share data)
the weighted average shares outstanding for basic and diluted earnings per share
for the periods presented.

<TABLE>
<CAPTION>
                                                                      THREE MONTHS ENDED             SIX MONTHS ENDED
                                                                           JUNE 30,                      JUNE 30,
                                                                  ------------------------       -------------------------
                                                                     2000           1999           2000            1999
                                                                  ---------      ---------       ---------       ---------
        <S>                                                       <C>            <C>             <C>             <C>
        Net Income (loss)                                         $   1,286      $    (610)      $   3,741       $   1,758

        Weighted average number of common shares outstanding
            Basic                                                    31,584         26,356          31,428          26,124
            Dilutive effect of stock options                          1,757             --           2,013           1,353
                                                                  ---------      ---------       ---------       ---------
            Diluted                                                  33,341         26,356          33,441          27,477
                                                                  ---------      ---------       ---------       ---------

        Earnings per common share:
            Basic                                                 $    0.04      $   (0.02)      $    0.12       $    0.07
            Dilutive effect of stock options                      $      --      $      --       $   (0.01)      $   (0.01)
                                                                  ---------      ---------       ---------       ---------
            Diluted                                               $    0.04      $   (0.02)      $    0.11       $    0.06
                                                                  =========      =========       =========       =========
</TABLE>

4.       ACQUISITION

         On April 14, 2000, the Company acquired substantially all of the assets
of Control Resources Corporation (CRC) of Fair Lawn, NJ, a wholly owned
subsidiary of P-Com, Inc. The accompanying Unaudited Consolidated Financial
Statements include the results of operations for the acquired CRC business for
the period April 15, 2000 through June 30, 2000. CRC is a developer and
manufacturer of broadband network access and service level management systems.
Under the terms of the agreement, the purchase price was $7.8 million consisting
of $3.1 million in cash and a note for $4.7 million, payable in cash or common
stock. The seller may also be due other contingent consideration. The Company
also granted options on 207,000 shares of its stock to CRC employees at a
discount for future employment services to the Company. The acquisition has been
accounted for under the purchase method of accounting, which resulted in the
recognition of approximately $6.5 million in intangible assets, to be amortized
over five years on a straight-line basis.

         The following unaudited pro-forma summary presents the consolidated
results of operations of the Company as if the acquisition had occurred at the
beginning of the periods presented herein. This presentation is for
informational purposes only and does not purport to be indicative of what would
have occurred had the acquisitions been made as of these dates or of results
which may occur in the future.

<TABLE>
<CAPTION>
                                                             SIX MONTHS ENDED
                                                                 JUNE 30,
                                                         2000                1999
                                                     ------------        ------------
<S>                                                  <C>                 <C>
Revenue                                              $143,434,000        $110,785,000
Net Income                                              3,213,000             511,000
Diluted Earnings Per Share                           $       0.10        $       0.02
</TABLE>


                                       5
<PAGE>   8

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

         The following discussion and other sections of this Form 10-Q may
contain forward-looking statements that involve risks and uncertainties. All
statements regarding future events, our future financial performance and
operating results, our business strategy and our financing plans are
forward-looking statements. In many cases, you can identify forward-looking
statements by terminology, such as "may," "will," "should," "expects,"
"intends," "plans," "anticipates," "believes," "estimates," "predicts,"
"potential," or "continue," or the negative of such terms and other comparable
terminology. These statements are only predictions. Known and unknown risks,
uncertainties and other factors could cause our actual results to differ
materially from those projected in the forward-looking statements.

OVERVIEW

         We are a leading developer, manufacturer and distributor of broadband
and narrowband network access products for network service providers ("NSPs")
and business customers. We offer solutions that enable business class, service
level managed, high-speed connectivity over the existing telephone network
infrastructure and provide for cost-effective access speeds of up to 45 MBPS. We
market and sell our products worldwide to NSPs and business customers through a
multi-tier distribution system that includes direct sales, strategic partner
sales, NSP sales and traditional distributor or value added reseller ("VAR")
sales. We estimate that direct and indirect sales to, and services performed for
Lucent accounted for approximately 23% of our total revenues for the first six
months of 2000 versus 27% for the first six months of 1999. Sales to Rhythms, an
NSP, accounted for approximately 18% of our total revenue during the first six
months of 2000 versus 29% for the same period in 1999. Sales to Dreamline, Inc.,
also an NSP and a new customer for 2000, accounted for approximately 13% of our
total revenue during the first six months of 2000. A loss or a significant
reduction or delay in sales to any of our major customers could materially and
adversely affect our business, financial condition and results of operation.

         We generally recognize revenue from equipment sales upon shipment.
Estimated sales returns based on historical experience by product are recorded
at the time the product revenue is recognized. Charges for warranty work are
included in cost of equipment sales. Revenue from services, which consists
mainly of repair of out-of-warranty products, is recognized when the services
are performed and all substantial contractual obligations have been satisfied.
License and royalty revenues are recognized when we have completed delivery of
technical specifications and performed substantially all required services under
the related agreement.

         The information contained in this Form 10-Q is not a complete
description of our business or the risks associated with an investment in us.
Readers are referred to documents filed by Paradyne with the Securities and
Exchange Commission, specifically our 1999 Form 10-K, which identify important
risk factors that could cause actual results to differ from those contained in
the forward-looking statements, including: rapid technological change could
render our products obsolete; we are substantially dependent on network service
providers, who may reduce or discontinue their purchase of products or services
at any time; our dependence on only a few major customers for a substantial
portion of our revenues exposes us to financial risks; we compete in highly
competitive markets and competition could harm our ability to sell products and
services; if we are unable to attract and retain key personnel and a skilled
workforce, we may not be able to sustain or grow our business; our dependence on
development relationships could threaten our ability to sell products; our
reliance on international sales may make us susceptible to global economic
factors, foreign tax law issues and currency fluctuations; we rely heavily on
distributors and resellers; and we depend on sole and single source suppliers
which exposes us to potential supply interruption.


QUARTER AND SIX MONTHS ENDED JUNE 30, 2000 COMPARED TO QUARTER AND SIX MONTHS
ENDED JUNE 30, 1999

REVENUES. Total revenues increased $22.8 million, or 43%, to $75.6 million for
the quarter ended June 30, 2000 from $52.8 million for the same period in 1999.
As a percentage of total revenues, equipment sales were 99% of total revenues
for the quarters ended June 30, 2000 and 1999. Total revenues for the six months
ended June 30, 2000 increased $33.2 million, or 31%, to $140.0 million from
$106.8 million for the first six months of 1999. These increases were mostly
attributable to significant increases in the sale of our broadband access
products to new and existing customers. Equipment sales were 98% of total
revenues for the six months ended June 30, 2000 compared to 97% for the same
period in 1999. This percentage increase was mostly due to lower royalty income
during the first six months of 2000 than the first six months of 1999. The first
six months of 1999 included a one-time royalty fee from Globespan related to
termination of an existing agreement and a one-time license fee from a third
party for intellectual property relating to narrowband technology.


                                       6
<PAGE>   9

GROSS MARGIN. Gross margin increased $8.2 million, or 36%, to $30.9 million for
the three months ended June 30, 2000 from $22.7 million for the three months
ended June 30, 1999 and increased $11.2 million, or 24%, to $58.0 million for
the six months ended June 30, 2000 from $46.8 million for the six months ended
June 30, 1999. Most of the increase resulted from increased sales of our
broadband access products. Gross margin as a percentage of total revenues
decreased to 40.9% for the three months ended June 30, 2000 from 43.0% in the
same period of 1999 primarily as a result of our competitively priced broadband
products comprising a much higher percentage of our equipment sales in the
second quarter of 2000 compared to the same period in 1999. For the six months
ended June 30, 2000, gross margin as a percentage of total revenues decreased to
41.4% from 43.8% in the same period of 1999 because the six months ended June
30, 1999 included a one-time royalty fee from Globespan related to the
termination of an existing agreement and a one-time license fee from a third
party for intellectual property relating to narrowband technology which did not
reoccur during the first six months of 2000. Additionally, our competitively
priced broadband products comprised a much higher percentage of our equipment
sales in first six months of 2000 compared to the same period in 1999. Partially
offsetting the above transactions, which resulted in an improvement to gross
margin as a percentage of revenue for the first six months of 2000 versus 1999,
was an increase in service revenue from the repair of product for one of our
major customers and a decrease in our manufacturing costs due to our cost
reduction efforts.

RESEARCH AND DEVELOPMENT EXPENSES. Research and development expenses increased
$1.4 million, or 16%, to $10.5 million for the three months ended June 30, 2000
from $9.1 million in 1999. For the six months ended June 30, 2000, research and
development expenses increased $2.2 million, or 12%, to $20.0 million compared
to $17.8 million for the same period in 1999. These increases resulted primarily
from costs associated with the increase in research and development personnel
and engineering prototype supplies. The effects of these increases were
partially offset by a decrease in professional fees related to engineering
contractors. Much of the increase in research and development personnel expense
was attributable to the April 14, 2000 acquisition of substantially all the
assets of Control Resources Corporation (CRC) from P-Com, Inc. For the three
months ended June 30, 2000, research and development expense as a percentage of
total revenues, decreased to 13.9% from 17.2% in the same period of 1999 and for
the six months ended June 30, 2000, the percentage decreased to 14.3% from 16.7%
for the same period of 1999. These decreases are primarily attributable to the
43% and 31% increases in revenue during the three and six month periods,
respectively.

SELLING, GENERAL AND ADMINISTRATIVE ("SG&A") EXPENSES. SG&A expenses increased
$5.0 million, or 36%, to $18.8 million for the three months ended June 30, 2000
from $13.8 million for the three months ended June 30, 1999 and increased $6.3
million, or 23%, to $34.0 million for the six months ended June 30, 2000 from
$27.7 million for the six months ended June 30, 1999. Most of the increases were
due to increased advertising expenses (primarily joint advertising with a major
customer associated with the sales of new products) in addition to increases in
personnel and facilities related expenses and increases in travel related
expenses, offset in part by decreases in expenses related to consignment of
equipment to customers. SG&A expense as a percentage of revenue declined from
26.1% for the three months ended June 30, 1999 to 24.9% for the three months
ended June 30, 2000 and from 25.9% for the six months ended June 30, 1999 to
24.3% for the six months ended June 30, 2000. These decreases were primarily
attributable to the 43% and 31% increases in revenue during the three and six
month periods, respectively.

AMORTIZATION OF INTANGIBLE ASSETS AND DEFERRED STOCK COMPENSATION. The
amortization of intangible assets and deferred stock compensation increased to
$376,000 for the three months ended June 30, 2000 from $135,000 for the same
period in 1999 and increased to $452,000 for the six months ended June 30, 2000
from $135,000 for the first six months of 1999. Most of the increase resulted
from the amortization of intangible assets acquired as a result of the purchase
of CRC from P-Com in the second quarter of 2000. The amortization of deferred
stock compensation is related to the granting of stock options to key employees
at prices deemed to be below fair market value for financial reporting purposes.

INTEREST AND OTHER (INCOME) EXPENSE, NET. Interest and other (income) expense,
net, improved by $1.2 million to $.6 million of income for the three months
ended June 30, 2000, from $.6 million of expense for the same period in 1999 and
improved by $.1 million to $1.9 million of income for the six months ended June
30, 2000, from $1.8 million of income for the same period in 1999. Interest and
other (income) expense, net, is related to interest on notes payable and
borrowings under lines of credit, interest on short term investments, foreign
exchange gains and losses, and technology sales. These increases in income and
decreases in expense were primarily attributable to an increase in interest
income resulting from the investment of proceeds from the initial public
offering (IPO) and a decrease in interest expense due to the retirement of debt
using IPO proceeds, offset in part by a reduction in the amount of income
received from the sale of patents.

PROVISION (BENEFIT) FOR INCOME TAXES. Provision for income taxes increased by
$.9 million to $.6 million of provision for the three months ended June 30,
2000, from $.3 million of benefit for the same period in 1999 and increased by
$.5 million to $1.7 million of provision for the six months ended June 30, 2000,
from $1.2 million of provision for the same period in 1999. The effective tax
rate used during the first six months of 1999 was 41%. The rate was reduced to
31% during the second half of 1999, primarily as a result of two events. First,
we completed a secondary offering during the third quarter of 1999 that reduced
Texas Pacific


                                       7
<PAGE>   10

Group's ownership below 50%, allowing us to take advantage of a tax credit for
increased research spending. Second, legislation was passed during the fourth
quarter of 1999 that extended that same tax credit from June of 1999 through
June 2004. For the year 2000, we have kept the effective tax rate at 31%.

LIQUIDITY AND CAPITAL RESOURCES

         Net cash used in operations for the six months ended June 30, 2000
totaled $14.3 million. Net income totaled $8.4 million after adjusting for
non-cash impacting items such as depreciation, amortization and allowance for
bad debts. Also contributing to cash provided from operations were increases in
accounts payable totaling $20.6 million and other current liabilities totaling
$6.3 million as a result of the timing of material receipts and invoices from
vendors and increases in advertising related expenses. Decreases to cash from
operating activities offsetting the above contributions included increases in
receivables totaling $10.7 million and inventories totaling $37.1 million. The
increase in accounts receivable is attributable to an 18% increase in revenues
in the first half of 2000 over the second half of 1999 as well as timing of the
revenue during the first half of 2000. The increase in inventories reflects
management's decision to carry higher stocking levels. This decision was made as
a result of several factors including: industry wide parts shortages,
introduction of several new products in the first six months of 2000, increased
demand for our products and the customer requirement for shorter order
fulfillment cycle times.

         Net cash used in investing activities for the six months ended June 30,
2000 totaled $8.1 million. On April 14, 2000 we purchased substantially all the
assets of CRC, a developer and manufacturer of broadband network access and
service level management systems, for $7.8 million of which $3.1 million was
paid in cash. A note, payable in cash or common stock (at our election),
totaling $4.7 million was issued for the remainder of the purchase price. This
note matures in September 2000. Capital expenditures in support of operations
for the six months ended June 30, 2000 totaled $5.0 million. We anticipate that
capital requirements for the remainder of the year will be in the $3.0 million
to $3.5 million per quarter range.

         In June 2000, Paradyne and four financial institutions entered into a
credit agreement under which we and each of the financial institutions agreed
to provide funds to one of our major customers. We entered into this credit
agreement in order to develop further our relationship with this valuable
customer. Our portion of the credit agreement commitment is $25 million,
carries market interest rates that are indexed off the prime/LIBOR rates, and
is fully secured by virtually all the customer's assets. Additionally, the
customer paid us a commitment fee in the amount of $750,000 that we will
recognize over the term of the agreement. The customer must initially use any
borrowings made under the credit agreement primarily to buy telecommunications
equipment, although it is not obligated to buy this equipment from Paradyne.
Currently, we do not anticipate that this customer will make any borrowings
from us until the fourth quarter of 2000 at which time we estimate that the
customer might borrow between $5 million and $10 million dollars from us.
Although we cannot assure you that this customer will not borrow more money
under the credit agreement, we believe that the amount indicated will not
materially impact our cash flows. Further, it is our intent to pursue
assignment of our commitment under the credit agreement to other financial
institutions by the end of this calendar year.

         Net cash provided by financing activities totaled $4.6 million and
resulted primarily from the exercise of stock options during the quarter.

         We had $45.1 million of cash and cash equivalents at June 30, 2000
representing a decrease of $17.8 million from $62.9 million at December 31,1999.
Working capital increased $5.8 million from $86.4 million at December 31, 1999
to $92.2 million at June 30, 2000.

         Effective January 1, 2000, we extended our revolving line of credit
facility with Bank of America until January 31, 2001, voluntarily reduced the
facility to $30.0 million and reduced the unused line fee to 0.25% per annum.
There were no borrowings under this facility during the first half of 2000.

         In connection with our efforts to obtain major new accounts we are
often required to make commitments to purchase inventory prior to having
approved purchase orders with customers due to the long lead times required for
certain parts. These commitments can impact cash flow until the purchase order
is approved, orders shipped, and cash collected. We cannot assure that we will
be successful in obtaining sufficient purchase orders, shipments and collections
in all cases, which could result in an increase in inventory levels and
negatively impact cash flow in a particular quarter or quarters.

         We believe that our cash and cash equivalents, together with cash flows
from operations and borrowings under the Bank of America line of credit
facility, will be sufficient to meet our working capital needs for at least the
next 12 months.


YEAR 2000 ISSUES

         In 1996 we identified the Year 2000 problem as a potential risk to our
operations. As a result, we developed a comprehensive multi-year plan to make
our internal computer software and hardware systems Year 2000 compliant. Our
Year 2000 compliance plan was comprised of 3 phases: an assessment phase; an
implementation phase; and a testing phase. This plan, initiated in the first
quarter of fiscal 1997, has been completed by us and, to date, we have incurred
expenses related to Year 2000 readiness of approximately $3.7 million.

         We were successful in transitioning our computer systems and equipment
to the Year 2000. Although we believe that we have implemented a comprehensive
plan for addressing the Year 2000 problem, we cannot be certain that these Year
2000 compliance efforts will be completely successful for the remainder of the
year 2000 and beyond. Nonetheless, we have not experienced, and we do not
anticipate, any significant problems related to the transition to the Year 2000.
Furthermore, we do not anticipate any significant expenditure in the future
related to Year 2000 compliance.


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<PAGE>   11

INFLATION

         Because of the relatively low levels of inflation experienced in 1999
and 2000 to date, inflation did not have a significant effect on our results in
such periods.


ITEM 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

         We do not engage in investing in or trading market risk sensitive
instruments. We also do not purchase, for investing, hedging, or for purposes
"other than trading", instruments that are likely to expose us to market risk,
whether interest rate, foreign currency exchange, commodity price or equity
price risk, except as noted in the following paragraph. We have not entered into
any forward or futures contracts, purchased any options or entered into any
interest rate swaps. Additionally, we do not currently engage in foreign
currency hedging transactions to manage exposure for transactions denominated in
currencies other than U.S. dollars.

         If we were to borrow from our revolving line of credit facility with
Bank of America, we would be exposed to changes in interest rates. We are also
exposed to changes in interest rates from investments in some held-to-maturity
securities. Under our current policies, we do not use interest rate derivative
instruments to manage exposure to interest rate changes.


                                     PART II
                                OTHER INFORMATION

ITEM 2.  CHANGES IN SECURITIES AND USE OF PROCEEDS


         Our Registration Statement on Form S-1 (Registration No. 333-76385) was
declared effective on July 15, 1999 and our initial public offering occurred on
July 16, 1999. We received net proceeds of approximately $62,240,000 after
deducting estimated underwriting discounts, commissions, and offering expenses.
As of June 30, 2000, we had used approximately $31,000,000 of the net proceeds
to repay all the outstanding indebtedness from revolving line of credit facility
with Bank of America, to pay for certain capital expenditures, for working
capital, and to fund the acquisition of CRC. We intend to use the remainder of
the net proceeds for general corporate purposes, including working capital and
additional capital expenditures. We are currently assessing the specific uses
and allocations for these remaining funds.

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

         At the annual meeting of stockholders held on June 1, 2000, the
following matters were brought before, voted upon and approved by the
stockholders with the number of votes as indicated below:

1.       A proposal to elect two directors to serve as Class I directors until
         the 2003 annual meeting of stockholders:

<TABLE>
<CAPTION>
                                                For           Withheld Authority
                                            ----------        ------------------
         <S>                                <C>               <C>
         David Bonderman                    27,503,455             223,254
         Thomas E. Epley                    26,972,287             752,422
</TABLE>

         The term of three Class II directors, Betsy A. Atkins, Keith B. Geeslin
         and Peter F. Van Camp, and three Class III directors, Andrew S. May,
         David M. Stanton and William R. Stensrud, did not expire at the annual
         meeting and each of them (with the exception of Ms. Atkins who has
         since resigned as a Class II director, as further described in Item 5
         of this Quarterly Report of Form 10-Q) continue to serve as directors
         of Paradyne.

2.       A proposal to approve an amendment to our Amended and Restated 1996
         Equity Incentive Plan to increase the number of shares of common stock
         available for awards from 6,000,000 to 11,000,000 shares: there were
         18,699,036 votes cast for approval of the amendment, 2,690,827 votes
         cast against approval of the amendment and 118,459 abstentions. There
         were no broker non-votes.


                                       9
<PAGE>   12

ITEM 5.  OTHER INFORMATION

         In May 2000, Betsy S. Atkins resigned as a Class II director of
Paradyne. Ms. Atkins resigned for personal reasons and not due to any
disagreement with Paradyne. Our board of directors will fill the Class II
director vacancy created by Ms. Atkin's resignation as soon as reasonably
practicable and once a suitable candidate is identified.


ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K

(A)      EXHIBITS

<TABLE>
<CAPTION>
         ITEM              DESCRIPTION
         ----              -----------
         <S>               <C>
         10.1              Amendment to Amended and Restated 1996 Equity Incentive Plan
         27.1              Financial Data Schedule
</TABLE>

(B)      REPORTS ON FORM 8-K

         We filed a Current Report on Form 8-K dated May 1, 2000 pursuant to
Items 2 and 7 (Acquisition and Disposition of Assets), announcing that on April
14, 2000, we had completed the purchase of substantially all of the assets of
Control Resources Corporation, a Delaware corporation and a wholly-owned
subsidiary of P-Com, Inc. We also filed an amended Current Report on Form 8-K/A
dated June 28, 2000 pursuant to Item 7 (Acquisition and Disposition of Assets),
to include audited financial statements of Control Resources Corporation (A
Carve-Out Entity of P-Com, Inc.) and the Unaudited Pro Forma Financial
Statements of Paradyne Networks, Inc.


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.


                                        Paradyne Networks, Inc.


         Date: August 14, 2000          /s/ Andrew S. May
                                        --------------------------------------
                                            ANDREW S. MAY
                                            Chief Executive
                                            Officer, and Director


                                        /s/ Patrick M. Murphy
                                        --------------------------------------
                                            Patrick M. Murphy
                                            Senior Vice President,
                                            Chief Financial Officer,
                                            Corporate Secretary and Treasurer
                                            (Principal Financial and Accounting
                                            Officer)


                                       10