<PAGE>   1

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

                                   FORM 10-Q

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

               For the quarterly period ended September 30, 1997

                                       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 No.:  000-21669


                            DIGITAL LIGHTWAVE, INC.
             (Exact name of registrant as specified in its charter)


                   DELAWARE                              95-4313013
        (State or other jurisdiction of               (I.R.S. Employer
        incorporation or organization)               Identification No.) 
                                         

                       601 CLEVELAND STREET, FIFTH FLOOR
                           CLEARWATER, FLORIDA  33755
                                (813)  442-6677
  (Address, including zip code, of principal executive offices and Registrant's
                   telephone number, including area code)

         Indicate by check mark whether 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 report (s)), and (2) has been subject to
such filing requirements for the past 90 days.

                            Yes [X]          No [_]

   The number of shares outstanding of the Registrant's Common Stock as of
November 12, 1997 was 26,372,065.
<PAGE>   2


                            DIGITAL LIGHTWAVE, INC.
                         QUARTERLY REPORT ON FORM 10-Q
                    FOR THE PERIOD ENDED SEPTEMBER 30, 1997


                                     INDEX


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

Item 1.    Financial Statements:

           Comparative Balance Sheets - September 30, 1997 and                                             1
               December 31, 1996

           Comparative Statements of Operations - Three Months                                             2
               Ended September 30, 1997 and September 30, 1996

           Comparative Statements of Operations - Nine Months                                              3
               Ended September 30, 1997 and September 30, 1996

           Comparative Statements of Cash Flows - Nine Months                                              4
               Ended September 30, 1997 and September 30, 1996

           Notes to Comparative Financial Statements                                                       5

Item 2.    Management's Discussion and Analysis of Financial Condition and                                 7
           Results of Operations

PART II  OTHER INFORMATION


Item 1.    Legal Proceedings                                                                              12

Item 6.    Exhibits and Reports on Form 8-K                                                               12

SIGNATURES                                                                                                13
</TABLE>
<PAGE>   3


PART  I    FINANCAL INFORMATION

ITEM 1.  FINANCIAL STATEMENTS

                            DIGITAL LIGHTWAVE, INC.
                                BALANCE SHEETS
                                (In thousands)

<TABLE>
<CAPTION>
                                                                              September 30,          December 31,
                                                                                  1997                  1996
                                                                              -------------        -------------
                                                                               (Unaudited)
            <S>                                                               <C>                  <C>
            ASSETS

            Current assets:
               Cash and cash equivalents                                      $      33,480        $       1,165
               Accounts receivable, net                                              10,798                2,510
               Inventories                                                            1,299                  850
               Prepaid expenses and other current assets                                551                  516
                                                                              -------------        -------------
                  Total current assets                                               46,128                5,041

            Property and equipment, net                                               3,824                1,292
            Other assets                                                                130                   41
                                                                              -------------        -------------
                  TOTAL ASSETS                                                $      50,082         $      6,374
                                                                              =============        =============

            LIABILITIES AND STOCKHOLDERS' EQUITY

            Current liabilities:
               Accounts payable and accrued liabilities                       $       3,375         $      1,942
               Notes payable                                                             --                  750
                                                                              -------------        -------------
                    Total current liabilities                                         3,375                2,692

            Long-term liabilities                                                        95                  233
                                                                              -------------        -------------
                Total liabilities                                                     3,470                2,925
                                                                              -------------        -------------
            Stockholders' equity:
               Preferred stock                                                           --                   --
               Common stock                                                               3                    2
               Additional paid-in capital                                            53,555               14,242
               Accumulated deficit                                                   (6,946)              (9,095)
                                                                              -------------        -------------
                                                                                     46,612                5,149
               Note receivable from stockholder                                          --               (1,700)
                                                                              -------------        -------------
                  Total stockholders' equity                                         46,612                3,449
                                                                              -------------        -------------
                                                                                           
             TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY                       $      50,082        $       6,374
                                                                              =============        =============
</TABLE>
  The accompanying notes are an integral part of these financial statements.

                                      1
<PAGE>   4


                            DIGITAL LIGHTWAVE, INC.
                            STATEMENTS OF OPERATIONS
                                  (Unaudited)
                (In thousands, except share and per-share data)

<TABLE>
<CAPTION>
                                                                               Three Months Ended September 30,
                                                                             -----------------------------------
                                                                                 1997                   1996
                                                                             -----------            ------------
            <S>                                                              <C>                    <C>
            Sales                                                            $     8,340            $      1,723
            Cost of goods sold                                                     2,787                     630
                                                                             -----------            ------------
               Gross profit                                                        5,553                   1,093

            Operating expenses:
               Engineering and development                                         1,230                     667
               Sales and marketing                                                 1,799                     579
               General and administrative                                            911                     354
                                                                             -----------            ------------
               Total operating expenses                                            3,940                   1,600
                                                                             -----------            ------------
            Operating income (loss)                                                1,613                    (507)

            Other income (expense)                                                   511                    (215)
                                                                             -----------            ------------
            Income (loss) before income tax                                        2,124                    (722)
            Provision for income taxes                                                --                      --
                                                                             -----------            ------------
            Net income (loss)                                                $     2,124            $       (722)
                                                                             ===========            ============
            Per Share of Common Stock:
            Net income (loss) per share                                      $      0.08            $      (0.03)
                                                                             ===========            ============

            Weighted average common and common
              equivalent shares outstanding                                   27,087,802              22,083,914
                                                                             ===========            ============
</TABLE>

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


                                       2
<PAGE>   5


                            DIGITAL LIGHTWAVE, INC.
                            STATEMENTS OF OPERATIONS
                                  (Unaudited)
                (In thousands, except share and per-share data)

<TABLE>
<CAPTION>
                                                                             Nine Months Ended September 30,
                                                                        -------------------------------------------
                                                                             1997                         1996
                                                                        ----------------              -------------
            <S>                                                         <C>                           <C>
            Sales                                                       $         15,148              $       3,037
            Cost of goods sold                                                     4,944                      1,152
                                                                        ----------------              -------------
               Gross profit                                                       10,204                      1,885

            Operating expenses:
               Engineering and development                                         3,056                      1,653
               Sales and marketing                                                 3,856                      1,048
               General and administrative                                          2,485                        897
                                                                        ----------------              -------------
            Total operating expenses                                               9,397                      3,598
                                                                        ----------------              -------------
            Operating income (loss)                                                  807                     (1,713)

            Other income (expense)                                                 1,342                       (607)
                                                                        ----------------              -------------
            Income (loss) before income tax                                        2,149                     (2,320)
            Provision for income taxes                                                --                         --
                                                                        ----------------              -------------
            Net income (loss)                                           $          2,149              $      (2,320)
                                                                        ================              =============
            Per Share of Common Stock:
            Net income (loss) per share                                 $           0.08              $       (0.11)
                                                                        ================              =============

            Weighted average common and common
              equivalent shares outstanding                                   26,374,388                 21,829,235
                                                                        ================              =============
</TABLE>

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


                                      3


<PAGE>   6
                            DIGITAL LIGHTWAVE, INC.
                            STATEMENTS OF CASH FLOWS
                                  (Unaudited)
                                 (In thousands)

<TABLE>
<CAPTION>
                                                                                        For the Nine Months Ended September 30,
                                                                                        ---------------------------------------
                                                                                             1997                     1996
                                                                                        --------------           --------------
<S>                                                                                     <C>                      <C>
Cash flows from operating activities:                                             
   Net income (loss)                                                                    $        2,149           $       (2,320)
   Adjustments to reconcile net income (loss) due to                              
              Cash used by operating activities:                                  
       Interest expense converted to equity                                                         --                      113
       Depreciation and amortization                                                               446                      128
       Changes in operating assets and liabilities:                               
          Increase in accounts receivable, net                                                  (8,288)                  (1,425)
          Increase in inventories                                                                 (449)                     (81)
          Decrease in deferred offering expenses                                                   427                       --
          Increase in prepaid expenses and other current assets                                   (531)                    (345)
          Increase in accounts payable and accrued expenses                                      1,433                      406
                                                                                        --------------           --------------
                 Net cash used in operating activities                                          (4,813)                  (3,524)
                                                                                        --------------           --------------
Cash flows from investing activities:                                                   
   Purchase of property and equipment                                                           (2,998)                    (516)
                                                                                        --------------           --------------
                 Net cash used in investing activities                                          (2,998)                    (516)
                                                                                        --------------           --------------
Cash flows from financing activities:                                             
   Proceeds from notes payable                                                                      --                    1,750
   Principal payments on notes payable                                                            (750)                   2,400
   Principal payments on notes payable, related party                                               --                     (202)
   Repayment of stockholder receivable                                                           1,700                       --
   Proceeds from sale of common stock, net of expense                                           39,314                       --
   Cash paid for common stock                                                                       --                    2,624
   Principal payments-capital lease obligation                                                    (138)                    (148)
                                                                                        --------------           --------------
                 Net cash provided by financing activities                                      40,126                    6,424
                                                                                        --------------           --------------
Net increase in cash and cash equivalents                                                       32,315                    2,384
Cash and cash equivalents at beginning of period                                                 1,165                       72
                                                                                        --------------           --------------
Cash and cash equivalents at end of period                                              $       33,480           $        2,456
                                                                                        ==============           ==============
                                                                                  
Other supplemental disclosures:                                                   
Noncash investing and financing activities:                                       
   Capital lease obligation                                                             $           --           $           17
   Fixed asset additions included in accounts payable                                              233                       --
   Accrued interest converted to equity                                                             --                       92
</TABLE>

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


                                      4
<PAGE>   7


                            DIGITAL LIGHTWAVE, INC.
                   NOTES TO COMPARATIVE FINANCIAL STATEMENTS

The accompanying unaudited financial statements have been prepared in
accordance with generally accepted accounting principles for interim financial
information and with the instructions to Form 10-Q and Article 10 of Regulation
S-X.  Accordingly, they do not include all of the information and footnotes
required by generally accepted accounting principles for complete financial
statements.  In the opinion of management, these statements include all
adjustments, consisting of normal and recurring adjustments, considered
necessary for a fair presentation of results for such periods.  The results of
operations for the three and nine month periods ended September 30, 1997,
respectively, are not necessarily indicative of results which may be achieved
for the full fiscal year or for any future period.  The unaudited interim
financial statements should be read in conjunction with the financial
statements and notes thereto contained in Digital Lightwave's Form 10-K for the
period ended December 31, 1996, File No. 000-21669.

1.  INITIAL PUBLIC OFFERING:
On February 6, 1997, the Company consummated its Initial Public Offering of
3,658,860 shares issued by the Company at a price of $12.00 per share.
Aggregate net proceeds to the Company were approximately $39.5 million.  On
February 28, 1997, the Company paid off all the then outstanding notes
($750,000 principal amount) with proceeds from the Initial Public Offering.

2.  INVENTORIES:
Inventories at September 30, 1997 and December 31, 1996 are summarized as
follows:


<TABLE>
<CAPTION>
                                                    September 30,      December 31,
                                                        1997               1996
                                                    -------------      ------------
                                                             (In thousands)
                         <S>                        <C>                <C>
                         Raw materials              $       1,179      $        336
                         Work-in-process                        0               339
                         Finished goods                       120               175
                                                    -------------      ------------
                                                    $       1,299      $        850
                                                    =============      ============
</TABLE>


3.  COMPUTATION OF NET INCOME (LOSS) PER SHARE:
Net income (loss) per common and common equivalent shares has been computed
using the weighted average number of common and common equivalent shares
outstanding using the treasury stock method for all periods presented. Shares
used in the net income (loss) per share calculation are summarized as follows:

<TABLE>
<CAPTION>
                                                           Three Months Ended September 30,     Nine Months Ended September 30,
                                                           --------------------------------     -------------------------------
                                                              1997               1996               1997              1996
                                                           ----------         -------------     -------------    --------------  
<S>                                                        <C>                <C>                <C>             <C>
Weighted average common stock outstanding                  26,177,777            21,375,584        25,680,064        21,375,584
Weighted average common stock equivalents                                                                          
   Outstanding                                                910,025               708,330           694,324           453,651
                                                           ----------         -------------     -------------    --------------  
Shares used in net income (loss) per share                                                                         
  Calculation                                              27,087,802            22,083,914        26,374,388        21,829,235
                                                           ==========         =============     =============    ==============
</TABLE>

4.  NEW ACCOUNTING PRONOUNCEMENTS:
In February 1997, the Financial Accounting Standards Board issued SFAS No. 128,
"Earnings per Share," which is effective for periods ending after December 15,
1997.  This statement establishes standards for computing and presenting
earnings per share data.  Management is currently assessing the impact of SFAS
No. 128 on the Company's presentation of earnings per share data in future
periods.


                                      5
<PAGE>   8
5.  COMMITMENTS AND CONTINGENCIES:
The Company from time to time is involved in legal actions arising in the
ordinary course of business.  With respect to these matters, management
believes that it has adequate legal defenses and/or provided adequate accruals
for related costs such that the ultimate outcome will not have a material
adverse effect on the Company's future financial position.

6.  LEGAL PROCEEDINGS:
On November 5, 1997, Hugh Brian Haney ("Plaintiff") commenced an action in the
United States District Court for the Southern District of Ohio against Bryan
J. Zwan, the Company's Chief Executive Officer, and the Company ("Defendants").

The complaint alleges violations of Section 10 (b) of the Securities Exchange
Act and various common law violations by Defendants in connection with
Plaintiff's sale to the Company's predecessor in November 1995, pursuant to a
previously granted option exercisable by Zwan and/or the Company's predecessor,
of 4,900 shares of stock in the Company's predecessor, an amount equivalent to
19,215,686 shares of the Company's common stock.

The complaint seeks alternative forms of relief, including, among others, (1)
rescission of the sale of the shares transferred by Plaintiff or (2) damages of
not less than $235 million, together with interest.  The Company believes that
the lawsuit is without merit and intends to defend vigorously.


                                      6
<PAGE>   9

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

This report contains certain statements of a forward-looking nature relating to
future events or the future performance of the Company. Prospective and current
investors are cautioned that such statements are only predictions and that
actual events or results may differ materially. In evaluating such statements
as well as the future prospects of the Company generally, such investors should
specifically consider various factors identified in the Company's Report on
Form 10-K for the period ended December 31, 1996, including the matters set
forth therein under the caption "Risk Factors," which could cause actual
results to differ materially from those indicated by such forward-looking
statements.  Factors that may affect the Company's results of operations
include but are not limited to customer concentration, product certifications,
dependence on single product and uncertain market acceptance of planned
products, competition, management of growth, mergers, rapid technological
change and dependence on new product introductions, substantial increase in
manufacturing operations and dependence on contract manufacturing and limited
source suppliers, government regulations, dependence on key personnel,
dependence on proprietary technology, and volatility of stock price.  The
Company participates in a highly concentrated industry, and has limited
visibility with regards to customer orders and the timing of such orders.  The
Company may also encounter difficulty obtaining sufficient supplies to staff
and meet production schedules.  As a result, quarter-to-quarter and
year-to-year financial performance is highly dependent upon the timely receipt
of orders from its customers during fiscal periods.

OVERVIEW
The Company manufactures and sells Network Information Computers, and Remote
Access Agents and has other products in design and development. The Company's
products are based on the Company's core software, firmware and hardware
technology which was developed over a five year period. In February 1996, the
Company commenced sales of the ASA 312. To date, the Company has not entered
into long-term agreements or blanket purchase orders for the sale of its
products, but generally obtains purchase orders for immediate shipment and
other cancelable purchase commitments. The Company's sales during a particular
quarter are, therefore, highly dependent upon orders placed by customers during
the quarter.  Consequently, sales may fluctuate significantly from quarter to
quarter due to the timing and amount of orders from customers, among other
factors.

The Company believes that once it completes a successful initial sale to a
customer additional orders have a reasonable degree of occurrence as the
customer becomes comfortable with the Company's technologically advanced
product offerings.  The Company believes that since it participates in the
highly concentrated telecommunications industry ongoing sales to existing
customers is indicative of growing product acceptance.  Since the Company's
initial deliveries in February 1996, it has delivered over 600 units to over 50
customers primarily serving the domestic telecommunications marketplace.  While
the Company believes it is properly positioned to garner additional customers
and market share for the ASA 312 and its derivative products, there can be no
assurance the company will gain further product acceptance or that additional
revenue will materialize from current or future customers.

Gross profit may be affected in the future by the introduction of new products
which generate differing gross margins and by the sales mix during a given
period. The Company plans to pursue Original Equipment Manufacturer (OEM)
relationships with respect to the sale of Remote Access Agents. The Company has
not negotiated any such arrangements but anticipates that its pricing to OEMs
would be less 


                                      7

<PAGE>   10

than with respect to direct sales resulting in lower gross margins in 
connection with these arrangements. However, sales and marketing expenses are
generally lower in the case of sales to OEMs.

The Company believes that its operating expenses will continue to increase as a
result of a variety of factors including: (i) increased research and
development expenses associated with the completion of the products in
development and the continued enhancement of existing products; and (ii)
increased selling, general and administrative expenses associated with
continued expansion of sales and marketing capabilities, product advertising
and promotion. The Company recognizes research and development expenses when
incurred.



RESULTS OF OPERATIONS
The following is a discussion of significant changes in the results of
operations of the Company which occurred in the quarter and nine months ended
September 30, 1997 compared to the quarter and nine months ended September 30,
1996.  The following tables summarize the approximate changes in selected
operating items and include dollar changes, percentage changes and percent of
net sales to facilitate the discussions that follow.  The tables compare the
quarter ended September 30, 1997 to the quarter ended September 30, 1996 and
the nine months ended September 30, 1997 to the nine months ended September 30,
1996, respectively:

<TABLE>
<CAPTION>
                                                                                             
                                             Quarter Ended                                              Percent of
(In millions, except %)                ------------------------     Amount          Percent              Net Sales
                                        Sept. 30,    Sept. 30,      Change          Change       --------------------------
                                          1997         1996       Fav./(Unfav)    Fav./(Unfav)       1997          1996
                                       ----------- ------------- --------------  --------------  -------------  -----------
<S>                                    <C>          <C>           <C>              <C>             <C>          <C>
Net sales                              $    8.3     $     1.7     $       6.6          384  %         100 %         100  %      
Cost of goods sold                         (2.8)          (.6)           (2.2)        (342)           (33)          (37)        
                                       ----------- ------------- --------------                  -------------  -----------     
Gross profit                                5.5           1.1             4.4          408             67            63         
Engineering and development expenses       (1.2)          (.7)            (.5)         (84)           (15)          (39)        
Sales and marketing expenses               (1.8)          (.6)           (1.2)        (211)           (22)          (34)        
General and administrative expenses         (.9)          (.3)            (.6)        (157)           (11)          (20)        
Other income (expense)                       .5           (.2)             .7          338              6           (12)
                                       ----------- ------------- --------------                  -------------  -----------  
Net income (loss)                      $    2.1     $     (.7)    $       2.8          394             25 %         (42) %
                                       =========== ============= ==============                  =============  ===========
</TABLE>




<TABLE>
<CAPTION>
                                                                                          
                                           Nine Months Ended                                            Percent of
(In millions, except %)                --------------------------    Amount         Percent              Net Sales
                                         Sept. 30,   Sept. 30,       Change         Change       --------------------------
                                           1997        1996       Fav./(Unfav)    Fav./(Unfav)       1997          1996
                                       ----------- -------------- -------------  --------------  -------------- -----------
<S>                                     <C>           <C>            <C>               <C>          <C>           <C>
Net sales                               $    15.1     $    3.0       $    12.1           399   %       100 %        100  %          
Cost of goods sold                           (4.9)        (1.1)           (3.8)         (329)          (33)         (38)
                                       ----------- ------------- --------------                  -------------  -----------  
Gross profit                                 10.2          1.9             8.3           441            67           62
Engineering and development expenses         (3.0)        (1.7)           (1.3)          (85)          (20)         (54)
Sales and marketing expenses                 (3.9)        (1.0)           (2.9)         (268)          (26)         (34)
General and administrative expenses          (2.5)         (.9)           (1.6)         (177)          (16)         (30)
Other income (expense)                        1.3          (.6)            1.9           321             9          (20)
                                       ----------- ------------- --------------                  -------------  -----------        
Net income (loss)                       $     2.1     $   (2.3)      $     4.4           193            14 %        (76) %
                                       =========== ============= ==============                  =============  ===========
</TABLE>

                                       8
 
<PAGE>   11

SALES
Sales for the quarter increased $6.6 million to $8.3 million from $1.7 million
in the year ago quarter. Sales to existing customers during the quarter
represented 70% of sales, or $5.8 million as compared to 23% of net sales, or
$.4 million in the year ago quarter.  During the quarter, the Company shipped
262 units in varying configurations of the ASA 312 to a total of 29 customers
(including 12 new customers) at an average selling price ("ASP") of $31,832, as
compared to 48 units to a total of 16 customers (including 12 new customers) at
an ASP of $35,891 in the year ago quarter.

Sales for the nine months ended September 30, 1997, increased $12.1 million to
$15.1 million from $3.0 million in the same period last year.  Sales to
existing customers for the period represented 61% of sales, or $9.3 million as
compared to 48% of net sales, or $2.9 million for the same period last year.
During the period, the Company shipped 452 units in varying configurations at
an ASP of $33,513 compared with 86 units at an ASP of $35,311 for the same
period last year.

As previously noted, the company believes repeat sales to an existing customer
is a measure of growing product acceptance in the highly concentrated
telecommunication industry. ASPs declined in the quarter primarily due to the
introduction of a new product configuration for lower bit rate (OC-3) optical
networks which could be upgraded through the sale of a software enhancement at
a later date.  There can be no assurance the Company will deliver additional
products or upgrades of existing products to its current or potential
customers.  To a lesser extent, ASPs were reduced through the provision of
customary discounts to an international distributor.

COST OF GOODS SOLD
Cost of goods sold for the quarter increased by $2.2 million to $2.8 million
from $.6 million in the year ago quarter.

Cost of goods sold for the nine months ended September 30, 1997, increased by
$3.8 million to $4.9 million from $1.1 million in the year ago period.

The primary reasons for the increase in cost of goods sold is the increase in
volume of units produced and the increased infrastructure and manufacturing
costs incurred in support of these efforts.  These costs include management,
indirect labor, facility rental, depreciation of equipment, and other operating
expenses. While the overall cost of good sold has increased, the average cost
of goods sold per unit has declined as a result of allocating fixed production
costs over a larger volume of units produced and the component cost reductions
associated with the purchase of larger lot sizes.  During the latter part of
the quarter, the company moved its manufacturing operation to a new expanded
facility.  Management believes this new facility can increase production,
however, these additional fixed production costs may initially yield an
increase to cost of goods sold and average cost of goods sold per unit over the
near term until the facility achieves optimum utilization.

GROSS PROFIT
Gross profit for the quarter increased by $4.4 million to $5.5 million from
$1.1 million in the year ago quarter.  As a percentage of sales, gross margin
for the quarter increased to 66.6% from 63.4%.

Gross profit for the nine months ended September 30, 1997, increased by $8.3
million to $10.2 million from $1.9 million in the year ago period.  As a
percentage of sales, gross margin for the nine months ended September 30, 1997
increased to 67.4% from 62.1%.


                                      9
<PAGE>   12

The increase in gross profit and gross margin percentage, are related to the
increase in net sales, the allocation of fixed production costs over larger
unit sales volumes, and the purchase of larger lot sizes as previously
discussed.

ENGINEERING AND DEVELOPMENT
Engineering and development expenses for the quarter increased by $.5 million
to $1.2 million from $.7 million in the year ago quarter.

Engineering and development expenses for the nine months ended September 30,
1997, increased by $1.3 million to $3.0 million from $1.7 million in the year
ago period.

The increase in both periods is primarily related to the addition of
engineering, and quality control personnel and the other expenses associated
with the Company's ongoing research and development efforts on products like
the Remote Access Agents, and enhancements to the Company's Network Information
Computers. The Company intends to hire additional personnel and expand the
infrastructure to support these ongoing research and development efforts, and
does not anticipate the rate of growth in dollar terms will subside during the
next several quarters.

SALES AND MARKETING
Sales and marketing expenses for the quarter increased by $1.2 million to $1.8
million from $.6 million in the year ago quarter.

Sales and marketing expenses for the nine months ended September 30, 1997,
increased by $2.9 million to $3.9 million from $1.0 million in the year ago
period.

The increase in both periods is related to the addition of personnel for the
Company's direct sales force and marketing functions, an increase in
commissions related to the increase in sales activity, an increase in trade
show appearances, and other customer incentives.  The Company intends to hire
additional personnel to support the expansion of the existing sales channels
and the development of additional sales channels for its products, and does not
anticipate the rate of growth in dollar terms or as a percentage of sales will
diminish.

GENERAL AND ADMINISTRATIVE
General and administrative expenses for the quarter increased by $.6 million to
$.9 million from $.3 million in the year ago quarter.

General and administrative expenses for the nine months ended September 30,
1997, increased by $1.6 million to $2.5 million from $.9 million in the year
ago period.

The increase in both periods is due to the expansion of facilities, personnel,
and information systems to support the growth of the Company's business.  The
Company believes these expenses generally have a large fixed component, and
anticipates the rate of growth in percentage terms will subside over the next
twelve months.

                                      10
<PAGE>   13

OTHER INCOME OR EXPENSE
Other income for the quarter increased by $.7 million from an expense of $.2
million to income of $.5 million.

Other income for the nine months ended September 30, 1997 increased by $1.9
million from an expense of $.6 million to income of $1.3 million.

The increase in both periods primarily relates to interest income generated
from the investment of proceeds from the company's Initial Public Offering
("IPO").

NET INCOME OR LOSS
Net income for the quarter increased $2.8 million from a net loss of $.7
million or $.03 per share, to net income of $2.1 million or $.08 per share.

Net income for the nine months ended increased $4.4 million from a net loss of
$2.3 million or $.11 per share, to net income of $2.1 million or $.08 per
share.

The computation of weighted shares outstanding for the 1997 periods reflect a
higher number of shares outstanding as a result of the completion of the
Company's IPO, and the effect of common stock equivalents under the treasury
stock method for all periods presented.


LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents at September 30, 1997 were approximately $33.5
million compared to approximately $1.2 million at December 31, 1996.  The
increase was due primarily to the receipt of approximately $39.5 million from
the completion of the Company's IPO on February 6, 1997. During the quarter
ended September 30, 1997, the Company received a $1.7 million repayment of a
note receivable from its principal shareholder.

As of September 30, 1997, the Company's working capital was approximately $42.8
million.  For the nine months ended September 30, 1997, capital expenditures
were approximately $3.0 million.  Future capital expenditures will depend on
several factors including timing of introductions of new products and
enhancements to existing products as well as continued product development
efforts. The Company believes that its available funds and anticipated cash
flows from its operations will satisfy the Company's projected working capital
and capital expenditure requirements for at least the next 12 months.


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<PAGE>   14


PART II   OTHER INFORMATION

ITEM 1.   LEGAL PROCEEDINGS

On November 5, 1997, Hugh Brian Haney ("Plaintiff") commenced an action in the
United States District Court for the Southern District of Ohio against Bryan J.
Zwan, the Company's Chief Executive Officer, and the Company ("Defendants").

The complaint alleges violations of Section 10 (b) of the Securities Exchange
Act and various common law violations by Defendants in connection with
Plaintiff's sale to the Company's predecessor in November 1995, pursuant to a
previously granted option exercisable by Zwan and/or the Company's predecessor,
of 4,900 shares of stock in the Company's predecessor, an amount equivalent to
19,215,686 shares of the Company's common stock.

The complaint seeks alternative forms of relief, including, among others, (1)
rescission of the sale of the shares transferred by Plaintiff or (2) damages of
not less than $235 million, together with interest.  The Company believes that
the lawsuit is without merit and intends to defend vigorously.

ITEM 6.  EXHIBIT AND REPORTS ON FORM 8-K

         (a)     Exhibits

<TABLE>
<CAPTION>
         Exhibit                  Description
         -------                  -----------
        <S>            <C>
        10.1           Second Lease Amendment, dated 09/10/97, between Registrant and Atrium At Clearwater, Limited
        10.2           Lease Agreement, dated 06/30/97 between Registrant and Pinellas Business Center, Inc.
        10.3           Lease Agreement, dated 09/26/97, between Registrant and Monmouth/Atlantic Realty Associates L.P.
        27.0           Financial Data Schedule (for SEC use only).
</TABLE>


         (b) Reports on Form 8-K

         No reports on Form 8-K were filed by Digital Lightwave, Inc. during
         the quarter ended September 30, 1997.


                                      12
<PAGE>   15


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

                            Digital Lightwave, Inc.
                            
Date: November 13, 1997     By:  /s/ Bryan J. Zwan
                            ---------------------------------------------------
                            Bryan J. Zwan
                            Chief Executive Officer and
                            President
                            (Principal Executive Officer)
                            
Date: November 13, 1997     By:  /s/ Steven H. Grant 
                            ----------------------------------------------------
                            Steven H. Grant
                            Vice President - Finance & Chief Financial Officer
                            (Principal Financial and Accounting Officer)

                                      13