<PAGE>   1

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                                 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 JUNE 30, 2001

                                       OR

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

               FOR THE TRANSITION PERIOD FROM ________ TO ________

                        COMMISSION FILE NUMBER 000-21669

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

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

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

                             15550 LIGHTWAVE DRIVE
                           CLEARWATER, FLORIDA 33760
                                 (727) 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
August 10, 2001 was 31,092,386.

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<PAGE>   2

                            DIGITAL LIGHTWAVE, INC.

                         QUARTERLY REPORT ON FORM 10-Q
                       FOR THE PERIOD ENDED JUNE 30, 2001

                                     INDEX

<Table>
<Caption>
                                                                       PAGE
                                                                       ----
<S>      <C>                                                           <C>
                        PART I. FINANCIAL INFORMATION
Item 1.  Consolidated Condensed Financial Statements:
         Consolidated Condensed Balance Sheets -- June 30, 2001 and
         December 31, 2000...........................................    1
         Consolidated Condensed Statements of Income -- Three Months
         Ended June 30, 2001 and June 30, 2000.......................    2
         Consolidated Condensed Statements of Income -- Six Months
         Ended June 30, 2001 and June 30, 2000.......................    3
         Consolidated Condensed Statements of Cash Flows -- Six
         Months Ended June 30, 2001 and June 30, 2000................    4
         Notes to Consolidated Condensed Financial Statements........    5
Item 2.  Management's Discussion and Analysis of Financial Condition
         and Results of Operations...................................    9

                          PART II. OTHER INFORMATION
Item 1.  Legal Proceedings...........................................   15
Item 6.  Exhibits and Reports on Form 8-K............................   15
SIGNATURES...........................................................   16
</Table>
<PAGE>   3

                                     PART I

                             FINANCIAL INFORMATION

ITEM 1.  CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

                            DIGITAL LIGHTWAVE, INC.

                     CONSOLIDATED CONDENSED BALANCE SHEETS
                                 (IN THOUSANDS)

<Table>
<Caption>
                                                               JUNE 30,      DECEMBER 31,
                                                                 2001            2000
                                                              -----------    ------------
                                                              (UNAUDITED)
<S>                                                           <C>            <C>
                                         ASSETS
Current assets:
  Cash and cash equivalents.................................   $ 45,402        $30,481
  Accounts receivable, less allowance of $502 and $250,
     respectively...........................................     35,827         25,301
  Inventories...............................................     14,738         13,048
  Prepaid expenses and other current assets.................      1,343            757
                                                               --------        -------
          Total current assets..............................     97,310         69,587
Property and equipment, net.................................      9,334          8,910
Other assets................................................        328            336
                                                               --------        -------
          Total assets......................................   $106,972        $78,833
                                                               ========        =======

                          LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
  Accounts payable and accrued liabilities..................  8$,204....       $10,610
                                                               --------        -------
          Total current liabilities.........................      8,204         10,610
Long-term liabilities.......................................        945            854
                                                               --------        -------
          Total liabilities.................................      9,149         11,464
                                                               --------        -------
Stockholders' equity:
  Common stock..............................................          3              3
  Additional paid-in capital................................     84,772         76,620
  Retained earnings (deficit)...............................     13,048         (9,254)
                                                               --------        -------
          Total stockholders' equity........................     97,823         67,369
                                                               --------        -------
          Total liabilities and stockholders' equity........   $106,972        $78,833
                                                               ========        =======
</Table>

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

                                        1
<PAGE>   4

                            DIGITAL LIGHTWAVE, INC.

                  CONSOLIDATED CONDENSED STATEMENTS OF INCOME
                                  (UNAUDITED)
                (IN THOUSANDS, EXCEPT SHARE AND PER-SHARE DATA)

<Table>
<Caption>
                                                                  THREE MONTHS ENDED
                                                                       JUNE 30,
                                                              --------------------------
                                                                 2001           2000
                                                              -----------    -----------
<S>                                                           <C>            <C>
Sales.......................................................  $    34,517    $    22,109
Cost of goods sold..........................................       10,423          7,102
                                                              -----------    -----------
  Gross profit..............................................       24,094         15,007
Operating expenses:
  Engineering and development...............................        3,773          3,460
  Sales and marketing.......................................        4,866          3,551
  General and administrative................................        2,383          1,898
                                                              -----------    -----------
          Total operating expenses..........................       11,022          8,909
                                                              -----------    -----------
Operating income............................................       13,072          6,098
Other income, net...........................................          444             77
                                                              -----------    -----------
Income before provision for income taxes....................       13,516          6,175
Provision for income taxes..................................        4,193             --
                                                              -----------    -----------
          Net income........................................  $     9,323    $     6,175
                                                              ===========    ===========
Per share of common stock:
  Basic net income per share................................  $      0.30    $      0.21
                                                              ===========    ===========
  Diluted net income per share..............................  $      0.28    $      0.20
                                                              ===========    ===========
  Weighted average common shares outstanding................   30,851,260     29,120,397
                                                              ===========    ===========
  Weighted average common and common equivalent shares
     outstanding............................................   32,731,565     31,610,927
                                                              ===========    ===========
</Table>

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

                                        2
<PAGE>   5

                            DIGITAL LIGHTWAVE, INC.

                  CONSOLIDATED CONDENSED STATEMENTS OF INCOME
                                  (UNAUDITED)
                (IN THOUSANDS, EXCEPT SHARE AND PER-SHARE DATA)

<Table>
<Caption>
                                                                   SIX MONTHS ENDED
                                                                       JUNE 30,
                                                              --------------------------
                                                                 2001           2000
                                                              -----------    -----------
<S>                                                           <C>            <C>
Sales.......................................................  $    68,935    $    40,668
Cost of goods sold..........................................       20,922         13,668
                                                              -----------    -----------
  Gross profit..............................................       48,013         27,000
Operating expenses:
  Engineering and development...............................        7,411          6,820
  Sales and marketing.......................................        9,891          6,676
  General and administrative................................        3,943          3,214
                                                              -----------    -----------
          Total operating expenses..........................       21,245         16,710
                                                              -----------    -----------
Operating income............................................       26,768         10,290
Other income, net...........................................          854            158
                                                              -----------    -----------
Income before provision for income taxes....................       27,622         10,448
Provision for income taxes..................................        5,320             --
                                                              -----------    -----------
          Net income........................................  $    22,302    $    10,448
                                                              ===========    ===========
Per share of common stock:
  Basic net income per share................................  $      0.73    $      0.36
                                                              ===========    ===========
  Diluted net income per share..............................  $      0.69           0.33
                                                              ===========    ===========
Weighted average common shares outstanding..................   30,691,928     28,762,898
                                                              ===========    ===========
Weighted average common and common equivalent shares
  outstanding...............................................   32,444,532     31,483,423
                                                              ===========    ===========
</Table>

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

                                        3
<PAGE>   6

                            DIGITAL LIGHTWAVE, INC.

                CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
                                  (UNAUDITED)
                                 (IN THOUSANDS)

<Table>
<Caption>
                                                                   FOR THE
                                                               SIX MONTHS ENDED
                                                                   JUNE 30,
                                                              ------------------
                                                               2001       2000
                                                              -------    -------
<S>                                                           <C>        <C>
Cash flows from operating activities:
  Net income................................................  $22,302    $10,448
  Adjustments to reconcile net income to cash provided by
     operating activities:
     Depreciation and amortization..........................    1,603      1,386
     Loss on disposal of property...........................       12         49
     Provision for uncollectible accounts...................      252         89
     Income tax benefit from stock options..................    5,320         --
  Changes in operating assets and liabilities:
     Increase in accounts receivable........................  (10,811)    (2,178)
     Increase in inventories................................   (2,443)    (1,599)
     Increase in prepaid expenses and other assets..........     (426)      (838)
     Decrease in accounts payable and accrued expenses......   (2,125)      (460)
                                                              -------    -------
          Net cash provided by operating activities.........   13,684      6,897
                                                              -------    -------
Cash flows from investing activities:
  Purchase of property and equipment........................   (1,160)      (505)
  (Increase) decrease in notes receivable...................     (200)       182
                                                              -------    -------
          Net cash used by investing activities.............   (1,360)      (323)
                                                              -------    -------
Cash flows from financing activities:
  Principal payments on notes payable.......................       --     (3,000)
  Proceeds from sale of common stock, net of expense........    2,832      4,857
  Payments received, lease receivables......................       33        131
  Principal payments, capital lease obligations.............     (268)      (230)
                                                              -------    -------
          Net cash provided by financing activities.........    2,597      1,758
                                                              -------    -------
Net increase in cash and cash equivalents...................   14,921      8,332
Cash and cash equivalents at beginning of period............   30,481      7,466
                                                              -------    -------
Cash and cash equivalents at end of period..................  $45,402    $15,798
                                                              =======    =======
Other supplemental disclosures:
  Cash paid for interest....................................  $    34    $   135
Noncash investing and financing activities:
  Capital lease obligations incurred........................       --        447
  Fixed asset additions included in accounts payable........       78          9
  Issuance of common stock pursuant to litigation
     settlement.............................................       --      6,231
</Table>

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

                                        4
<PAGE>   7

                            DIGITAL LIGHTWAVE, INC.

              NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
1.  BASIS OF PRESENTATION

     The accompanying unaudited interim consolidated condensed financial
statements of Digital Lightwave, Inc. and its subsidiary ("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 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 six month period ended June 30, 2001 are not necessarily
indicative of results which may be achieved for the full fiscal year or for any
future period. The unaudited interim consolidated condensed 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,
2000, File No. 000-21669.

     Certain prior year amounts have been reclassified to conform with the 2001
presentation.

2.  INVENTORIES

     Inventories at June 30, 2001 and December 31, 2000 are summarized as
follows:

<Table>
<Caption>
                                                              JUNE 30,    DECEMBER 31,
                                                                2001          2000
                                                              --------    ------------
                                                                   (IN THOUSANDS)
<S>                                                           <C>         <C>
Raw materials...............................................  $ 5,885       $ 8,598
Work-in-process.............................................    5,969         4,229
Finished goods..............................................    2,884           221
                                                              -------       -------
                                                              $14,738       $13,048
                                                              =======       =======
</Table>

3.  COMPUTATION OF NET INCOME PER SHARE

     Basic income per share is based on the weighted average number of common
shares outstanding during the periods presented. The table below shows the
calculation of basic weighted average common shares outstanding and the
incremental number of shares arising from common stock equivalents under the
treasury stock method:

<Table>
<Caption>
                                       THREE MONTHS ENDED           SIX MONTHS ENDED
                                            JUNE 30,                    JUNE 30,
                                    ------------------------    ------------------------
                                       2001          2000          2001          2000
                                    ----------    ----------    ----------    ----------
<S>                                 <C>           <C>           <C>           <C>
Basic:
  Weighted average common shares
     outstanding..................  30,851,260    29,120,397    30,691,928    28,762,898
                                    ----------    ----------    ----------    ----------
          Total basic.............  30,851,260    29,120,397    30,691,928    28,762,898
Diluted:
  Incremental shares for common
     stock equivalents............   1,880,305     2,490,530     1,752,604     2,720,525
                                    ----------    ----------    ----------    ----------
          Total dilutive..........  32,731,565    31,610,927    32,444,532    31,483,423
                                    ==========    ==========    ==========    ==========
</Table>

4.  LEGAL PROCEEDINGS

     On July 23, 1998, the Company entered into a memorandum of understanding
for the settlement of a consolidated securities class action lawsuit. In late
October 1998, a Stipulation of Settlement was filed with the court and on
December 21, 1998, the court preliminarily approved the settlement. The
settlement

                                        5
<PAGE>   8
                            DIGITAL LIGHTWAVE, INC.

      NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS -- (CONTINUED)

consisted of $4.3 million in cash, to be paid to plaintiffs primarily by a claim
on the Company's directors and officers liability insurance policy, and the
issuance of up to 1.8 million shares of Common Stock. The Company recorded a
one-time charge of $8.5 million during 1998 as a result of the settlement. On
April 30, 1999, the court entered a final judgment approving the settlement of
the actions. The final order was subject to appeal. On July 21, 1999, the
Company issued 289,350 shares of Common Stock in partial satisfaction of the
total shares required under this settlement. Those shares were not to be
distributed, sold or hypothecated until after the appeal of the settlement,
discussed below, is fully resolved.

     On May 20, 1999, a lead plaintiff in the class action suit filed a notice
of appeal with the Eleventh Circuit Court of Appeals. On March 16, 2000, all
parts of the appeal that pertain to the Company were dismissed with prejudice.
The District Court's judgment approving settlement of the securities class
actions is now final. Following the dismissal of the appeal, Company issued
substantially all remaining shares of Common Stock in satisfaction of the total
shares required under this settlement.

     On August 5, 1999, as a complete settlement of an investigation of the
Company being conducted by the U.S. Securities and Exchange Commission
(Commission) relating to the circumstances underlying the restatement of the
Company's financial results, the Company agreed voluntarily to consent to the
entry of a permanent injunction enjoining it from violations of Sections 10(b),
13(a) and 13(b)(2) of the Securities Exchange Act of 1934, and Rules 10b-5,
12b-20 and 13a-13 thereunder. On March 29, 2000, the Company's settlement with
the Commission was filed with the U.S. District Court for the Middle District of
Florida. Concurrently, the Commission settled administrative proceedings against
Steven H. Grant, the Company's Executive Vice President, Finance, Chief
Financial Officer and Secretary, and two other former officers of the Company.
Mr. Grant, without admitting or denying the Commission's findings, consented to
the entry of an order that he cease and desist from committing or causing any
violation or future violation of various sections of the Exchange Act. The
Commission's complaint filed in the District Court also alleges that Dr. Bryan
Zwan, a former director, Chairman and Chief Executive Officer of the Company,
violated Sections 17(a)(1), 17(a)(2), and 17(a)(3) of the Securities Act of
1933, Section 10(b) of the Securities Exchange Act of 1934, and Rules 10b-5 and
13b2-2 thereunder, and that he aided and abetted the Company's alleged
violations of Sections 13(a) and 13(b)(2) of the Exchange Act, and Rules 13a-13
and 12b-20 thereunder. Dr. Zwan has denied the Commission's allegations and,
pursuant to the indemnification provisions of the Company's bylaws, the Company
is advancing to Dr. Zwan the legal fees and costs incurred by him in defending
the litigation. There can be no assurance that these legal expenses will not
have a material adverse effect on the Company.

     On November 23, 1999, Seth P. Joseph, a former officer and director of
Digital Lightwave, commenced an arbitration proceeding against the Company
alleging breach of his employment agreement and stock option agreements,
violation of the Florida Whistleblower statute, and breach of an indemnification
agreement and the Company bylaws. As relief, Mr. Joseph seeks $500,000, attorney
fees, interest and stock options for 656,666 shares of the Company's Common
Stock exercisable at a price of $5.25 per share. The Company has filed its
answer denying Mr. Joseph's allegations, and alleging multiple affirmative
defenses and counterclaims. The Company's counterclaims against Mr. Joseph seek
repayment of loans totaling approximately $113,000, plus interest. In March,
2001, Mr. Joseph voluntarily dismissed three of his claims against the Company
without prejudice. The two remaining claims seek recovery for alleged violation
of the state whistleblower statute and breach of Mr. Joseph's stock option
agreements. The arbitration hearing is scheduled to begin on September 10, 2001.
The Company believes that there are meritorious defenses to these claims and
thus no provision for any liability has been made in the financial statements.

     The Company from time to time is involved in lawsuits and actions by third
parties 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. The Company is not aware of any additional
litigation, claims or assessments that were pending that could have a material
adverse effect on the Company's business, financial condition and results of
operations.

                                        6
<PAGE>   9
                            DIGITAL LIGHTWAVE, INC.

      NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS -- (CONTINUED)

5.  FINANCING TRANSACTIONS

     In 1998, the Company entered into an agreement with EAB Leasing Corp.
("EAB") providing for sale of the Company's accounts receivable to EAB. Certain
amounts were financed during the term of the agreement which was terminated by
the Company in May 2000. All advances, interest and fees were repaid in full
prior to termination.

     On March 31, 1999, the Company entered into a financing agreement with
certain investors pursuant to which the Company issued $3.0 million of 9%
Secured Bridge Notes due January 17, 2000. They were collateralized by all of
the Company's assets and were subordinated to the accounts receivable agreement
with EAB. In connection with the financing agreement, the Company issued
warrants to purchase an aggregate of 550,000 shares of the Company's common
stock at an exercise price of $2.75 per share, the market price of the stock on
the date prior to the issuance of the warrants. The warrants had a term of five
years from the date of issuance. In January 2000, such warrants were exercised.
The Secured Bridge Notes and related interest were repaid in full on the due
date.

     On October 10, 2000, the Company entered into a Loan and Security Agreement
(the "Loan Agreement") with Congress Financial Corporation ("Congress") pursuant
to which Congress provided the Company with a $10.0 million line of credit at
prime plus three-quarters of one percent (.75%). The Loan Agreement has an
initial term of two years. All indebtedness outstanding under the Loan Agreement
is collateralized by substantially all of the Company's assets. Approximately
$2.3 million of the $10.0 million available under the credit facility secures a
letter of credit required by a lease for office space. A fee for this letter of
credit accommodation is assessed at one and one quarter percent (1.25%) per
annum. At June 30, 2001, the Company was in compliance with all loan covenants.

6.  RELATED PARTY TRANSACTION

     On February 13, 2001, a member of senior management borrowed $200,000 from
the Company. This note accrues interest at the prime rate plus one percent
(1.0%) with the principal sum and accrued interest thereon payable on demand or,
if earlier, on the date of termination of the borrower's employment with the
Company. This note is collateralized by the borrower's stock holdings in the
Company and future cash bonuses which may become payable.

7.  STOCK OPTION PLAN

     The stockholders of the Company approved the 2001 Stock Option Plan (the
"2001 Option Plan") at a special meeting held February 27, 2001. Under the 2001
Option Plan, 3,000,000 shares, plus (i) the number of shares remaining for
issuance under the 1996 Option Plan as of the date of stockholder approval of
the 2001 Option Plan and (ii) the number of shares subject to options
outstanding under the 1996 Option Plan as of the date of stockholder approval of
the 2001 Plan to the extent that such options expire or terminate for any reason
prior to exercise in full, were reserved for issuance (with the sum of (i) and
(ii) not to exceed 2,735,872 shares). The 2001 Option Plan differs from the 1996
Option Plan primarily by: (i) limiting the number of option shares which may be
granted to a single individual in a fiscal year to 250,000 shares, except with
respect to individuals first hired by the Company who may receive an additional
grant of up to 250,000 shares; (ii) authorizing the transfer of awards to
certain family members and family trusts; (iii) eliminating or modifying certain
restrictions as permitted by amendments to Rule 16b-3 issued by the Securities
and Exchange Commission under Section 16(b) of the Securities and Exchange Act
of 1934; and (iv) modifying the provisions governing the options in the event of
a change in control of the Company. The 2001 Option Plan superseded the 1996
Option Plan with respect to future grants.

                                        7
<PAGE>   10
                            DIGITAL LIGHTWAVE, INC.

      NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS -- (CONTINUED)

8.  RECENTLY ISSUED FINANCIAL ACCOUNTING STANDARDS

     In July 2001, the Financial Accounting Standards Board (FASB) issued
Statement No. 141, Business Combinations, and Statement No. 142, Goodwill and
Other Intangible Assets. Statement 141 requires that all business combinations
initiated after June 30, 2001 be accounted for under the purchase method of
accounting. Use of the pooling-of-interests method is no longer permitted. The
Company does not have any acquisitions in process at June 30, 2001. With the
adoption of Statement 142 effective January 1, 2002, goodwill will no longer be
amortized to earnings, but will instead be reviewed for impairment by applying a
fair-value-based test. The Company had no goodwill recorded at June 30, 2001.

     In June 2001, the FASB voted to issue Statement of Financial Accounting
Standards No. 143, Accounting for Asset Retirement Obligations. Statement 143
requires entities to record the fair value of a liability for an asset
retirement obligation in the period in which it is incurred. When the liability
is initially recorded, the entity capitalizes a cost by increasing the carrying
amount of the related long-lived asset. Over time, the liability is accreted to
its present value each period, and the capitalized cost is depreciated over the
useful life of the related asset. Upon settlement of the liability, an entity
either settles the obligation for its recorded amount or incurs a gain or loss
upon settlement. Statement 143 is effective for fiscal years beginning after
June 15, 2002, with earlier application encouraged. The Company will review what
impact, if any, this statement will have on the Company when the statement is
published.

                                        8
<PAGE>   11

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 Annual Report on Form 10-K for the period ended December 31, 2000,
including the matters set forth therein under the caption "Factors That May
Affect Operating Results," 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 the Company's
anticipated fluctuations in operating results and seasonal sales, uncertainty
over the world-wide economy, uncertainty over world-wide telecom spending,
dependence on limited products, uncertain market acceptance of planned products,
rapid technological change, dependence on new product introductions, dependence
on the continued growth of the Internet, competition, dependence on a limited
number of customers, expansion into additional original equipment manufacturer
relationships, dependence on contract manufacturing and sole or limited source
suppliers, industry-wide shortages of key components, management of growth,
limited operating history, dependence on key personnel, substantial influence of
principal stockholder, dependence on proprietary technology, possible volatility
of stock price, shares eligible for future sale, success in defending
significant litigation, factors inhibiting takeover and government regulations.
In addition, the Company participates in a highly concentrated industry, and has
limited visibility with regard 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. The words "believe," "expect,"
"anticipate," "estimate," "intend" and similar expressions generally identify
forward-looking statements. Readers are cautioned not to place undue reliance on
such forward-looking statements, which are being made as of the date of this
filing. The Company disclaims any obligation to update any of the foregoing
factors or announce publicly revisions to any of the foregoing statements to
reflect events or developments.

OVERVIEW

     Digital Lightwave designs, develops and markets a portfolio of portable and
embedded products and technologies for monitoring, maintaining and installing
fiber optic circuits and managing fiber optic networks. Network operators and
other communications service providers use fiber optics to provide increased
network bandwidth to transmit voice, and other non-voice traffic such as
Internet, data, and multimedia video transmissions. The Company's products
provide telecommunications service providers and equipment manufacturers with
capabilities to cost-effectively deploy and manage fiber optic networks to
address the rapidly increasing demand for bandwidth.

     From inception in 1990 through 1996, the Company focused its primary
activities on developing the necessary technology and infrastructure required to
launch its first product, the Network Information Computer ("NIC"). In 1998, the
Company commenced limited sales of the Network Access Agent ("NAA").

     The Company's net sales are generated from sales of its products, less an
estimate for customer returns. Net sales are recognized when products are
shipped to a customer. The Company expects that the average selling price
("ASP") of its NIC and its NAA will fluctuate based on a variety of factors,
including product configuration, potential volume discounts to customers, the
timing of new product introductions and enhancements and the introduction of
competitive products. Because the cost of goods sold tends to remain relatively
stable for any given product, fluctuations in the ASP may have a material
adverse effect on the Company's results of operations.

     The Company primarily sells its products through a direct sales force to
telecommunications service providers and equipment manufacturers. Distributors
are used for international sales along with a private-label sales agreement
which addresses the Asian Pacific and Latin American markets. The sales cycle
for new customers tends to be long. In addition, the telecommunications industry
historically has had a limited

                                        9
<PAGE>   12

number of competitors. Given long sales cycles and few industry participants,
sales of the Company's products have tended to be concentrated, and the Company
expects that sales will continue to be concentrated in the future.

     In May 1999, the Company signed an original equipment manufacturer contract
to provide integrated performance monitoring and diagnostic capabilities for a
product marketed by Lucent Technologies, Inc. Lucent's placement of orders for
this product (the "Wave Agent") is conditioned upon the Company achieving
certain milestone events defined in the contract. In January 2000, the Company
announced that it had received an order for four WaveAgents from Lucent for the
initiation of customer lab trials. These units were shipped in the first quarter
of 2000.

     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. As a
result, the Company does not expect to carry substantial backlog from quarter to
quarter in the future. 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 and
year-to-year due to the timing and amount of orders from customers, among other
factors. Because most of the Company's expenses, particularly employee
compensation and rent, are relatively fixed and cannot be easily reduced in
response to decreased revenues, quarterly fluctuations in sales have a
significant effect on net income.

     Until fiscal year 1999, the Company incurred substantial net operating
losses as a result of significant investment in research and development, sales
and marketing and administrative expenses. In the quarter ended June 30, 1999,
the Company showed its first profitable quarter. Profitability has been
sustained through the quarter ended June 30, 2001. The Company intends to
continue to build its organization in anticipation of growth and believes that
its operating expenses will continue to increase accordingly due to a variety of
factors including: (1) increased research and development expenses associated
with the completion of the products in development and the continued enhancement
of existing products; and (2) increased selling, general and administrative
expenses associated with continued expansion of sales and marketing
capabilities, product advertising and promotion. There can be no assurance that
the Company will sustain profitability.

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 six months ended
June 30, 2001 compared to the quarter and six months ended June 30, 2000. 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.

<Table>
<Caption>
                                             QUARTER ENDED
                                          --------------------    AMOUNT     PERCENT     PERCENT OF
                                                                  CHANGE     CHANGE      NET SALES
                                          JUNE 30,    JUNE 30,     FAV/       FAV/      ------------
                                            2001        2000      (UNFAV)    (UNFAV)    2001    2000
                                          --------    --------    -------    -------    ----    ----
                                                           (IN MILLIONS, EXCEPT %)
<S>                                       <C>         <C>         <C>        <C>        <C>     <C>
Net sales...............................   $ 34.5      $22.1       $12.4        56%      100%    100%
Cost of goods sold......................    (10.4)      (7.1)       (3.3)      (47)       30      32
                                           ------      -----       -----                ----    ----
Gross profit............................     24.1       15.0         9.1        61        70      68
Engineering and development expenses....     (3.8)      (3.5)       (0.3)       (8)       11      16
Sales and marketing expenses............     (4.8)      (3.5)       (1.3)      (36)       14      15
General and administrative expenses.....     (2.4)      (1.9)       (0.5)      (25)        7       9
                                           ------      -----       -----                ----    ----
          Total operating expenses......    (11.0)      (8.9)       (2.1)      (24)       32      40
                                           ------      -----       -----                ----    ----
Operating income........................     13.1        6.1         7.0       114        38      28
Other income, net.......................      0.4        0.1         0.3       344         1      --
                                           ------      -----       -----                ----    ----
Pre-tax income..........................     13.5        6.2         7.3       118        39      28
Income taxes............................     (4.2)        --        (4.2)       --       (12)     --
                                           ------      -----       -----                ----    ----
Net income..............................   $  9.3      $ 6.2       $ 3.1        50%       27%     28%
                                           ======      =====       =====                ====    ====
</Table>

                                        10
<PAGE>   13

<Table>
<Caption>
                                            SIX MONTHS ENDED
                                          --------------------    AMOUNT     PERCENT     PERCENT OF
                                                                  CHANGE     CHANGE      NET SALES
                                          JUNE 30,    JUNE 30,     FAV/       FAV/      ------------
                                            2001        2000      (UNFAV)    (UNFAV)    2001    2000
                                          --------    --------    -------    -------    ----    ----
                                                           (IN MILLIONS, EXCEPT %)
<S>                                       <C>         <C>         <C>        <C>        <C>     <C>
Net sales...............................   $ 68.9      $40.7       $28.2        69%      100%    100%
Cost of goods sold......................    (20.9)     (13.7)       (7.2)      (53)       30      34
                                           ------      -----       -----                ----    ----
Gross profit............................     48.0       27.0        21.0        78        70      66
Engineering and development expenses....     (7.4)      (6.8)       (0.6)       (9)       11      17
Sales and marketing expenses............     (9.9)      (6.7)       (3.2)      (48)       14      16
General and administrative expenses.....     (3.9)      (3.2)       (0.7)      (23)        6       8
                                           ------      -----       -----                ----    ----
          Total operating expenses......    (21.2)     (16.7)       (4.5)      (27)       31      41
                                           ------      -----       -----                ----    ----
Operating income........................     26.8       10.3        16.5       160        39      25
Other income, net.......................      0.8        0.1         0.7       654         1      --
                                           ------      -----       -----                ----    ----
Pre-tax income..........................     27.6       10.4        17.2       166        40      25
Income taxes............................     (5.3)        --        (5.3)       --        (8)     --
                                           ------      -----       -----                ----    ----
Net income..............................   $ 22.3      $10.4       $11.9       115%       32%     25%
                                           ======      =====       =====                ====    ====
</Table>

  Net Sales

     Net sales include total revenues from customer purchases of Network
Information Computers (NIC's) and Network Access Agents (NAA's), net of accrual
for product returns. Net sales for the quarter ended June 30, 2001 increased
$12.4 million, or 56%, to $34.5 million from $22.1 million in the year ago
quarter. Sales to existing customers during the quarter represented 82% of
sales, or $28.2 million as compared to 80% of sales, or $17.7 million in the
year ago quarter. During the quarter, the Company shipped 366 total units
(including 33 NAA's) at an ASP of $92,393, as compared to 337 total units
(including 7 NAA's) at an ASP of $60,958 in the year ago quarter.

     Net sales for the six months ended June 30, 2001 increased $28.2 million to
$68.9 million from $40.7 million in the year ago period. Sales to existing
customers for the period represented 89% of sales, or $61.4 million as compared
to 85% of sales, or $34.8 million for the same period last year. During the
period, the Company shipped 761 total units (including 48 NAA's) at an ASP of
$88,601, as compared to 686 units (including 25 NAA's) at an ASP of $55,297 in
the year ago period.

     The primary increase in ASP (which is shown gross of the estimate for
product returns and early payment discounts) is related to a shift in customer
demand to higher speed configurations, particularly the OC-192 product which
began shipment in the second quarter of 2000. Additionally, OC-192 functionality
was also introduced in the NAA product line during the current quarter. Also
during the quarter, the Company recognized $1.0 million of revenue from upgrades
compared to $1.8 million in the prior year. For the six months ended June 30,
2001, revenue from upgrades totaled $2.5 million as compared to $3.3 million in
the prior year period. In each of these periods, the majority of the upgrades
were related to the conversion of NIC's to OC-48 speeds.

     Sales outside of North America, which initiated in the third quarter of
2000, contributed significantly to revenue in 2001 representing approximately
$10.4 million or 30.1% for the quarter ended June 30, 2001 and $14.9 or 21.5%
for the six months then ended. There were no sales outside of North America in
the comparable periods of 2000. Sales related to a private-label Agreement which
addresses the Asian Pacific and Latin American markets were a contributing
factor in the quarter ended June 30, 2001.

     Sales to existing customers continue to represent a large portion of the
Company's net sales. The Company believes repeat sales to an existing customer
are an important measure of growing product acceptance in the highly
concentrated telecommunications industry. While this longer-term trend may not
continue, management believes that new product offerings, including upgrades of
existing products, offer the Company's existing customers an opportunity to
continue to extend the life of their initial investment in the Company's
products.
                                        11
<PAGE>   14

  Cost of Goods Sold

     Cost of goods sold for the quarter ended June 30, 2001 increased by $3.3
million to $10.4 million as compared to $7.1 million in the year ago quarter.
Cost of goods sold for the six months ended June 30, 2001 increased by $7.2
million to $20.9 million from $13.7 million in the year ago period. Growth in
cost of goods sold was directly related to the increase in the volume of units
sold and increased costs associated with the higher speed configurations which
carry higher ASP's.

  Gross Profit

     Gross profit for the quarter ended June 30, 2001 increased by $9.1 million
to $24.1 million from $15.0 million in the year ago quarter. As a percentage of
sales, gross profit for the quarter increased to 69.8% from 67.9% in the year
ago quarter.

     Gross profit for the six months ended June 30, 2001 increased by $21.0
million to $48.0 million from $27.0 million in the year ago period. As a
percentage of sales, gross margin increased to 69.6% from 66.4%.

     The increase in gross profit for both the quarter and year to date period
was related to increases in ASP's and more efficient production methods.

  Engineering and Development

     Engineering and development expenses principally include compensation
attributable to engineering and development personnel, depreciation of
production assets, outside consulting fees and other development expenses.
Engineering and development expenses for the quarter ended June 30, 2001
increased by $0.3 million to $3.8 million, or 10.9% of net sales, from $3.5
million, or 15.7% of net sales, in the year ago quarter.

     Engineering and development expenses for the six months ended June 30, 2001
increased by $0.6 million to $7.4 million, or 10.8% of net sales from $6.8
million, or 16.8% of net sales, in the year ago period.

     The dollar increase for both the quarter and year-to-date period is
primarily due to development efforts centered around the Company's new products
within the NIC and NAA product lines. In addition, there was an increase in
certain other employee benefits expenses during the quarter ended June 30, 2001.
These increases were partially offset as increased production levels in 2001
allowed for proportionately more of the overhead expenses to be capitalized as a
part of inventory costs.

  Sales and Marketing

     Sales and marketing expenses principally include salaries and commissions
paid on sales of products, travel expenses, tradeshow costs, and costs of
promotional materials and customer incentives. Sales and marketing expenses for
the quarter ended June 30, 2001 increased by $1.3 million to $4.8 million, or
14.1% of net sales, from $3.5 million, or 16.1% of net sales, in the year ago
quarter.

     Sales and marketing expenses for the six months ending June 30, 2001
increased $3.2 million to $9.9 million, or 14.3% of net sales, compared to $6.7
million, or 16.4% of net sales, in the year ago period.

     The dollar increase for both the quarter and year-to-date period is
directly related to an increase in warranty related accruals, additional
allowance for potentially uncollectible receivables, an increase in marketing
related expenses, and increase is travel costs. In addition, there was also an
increase in compensation related expenses during the six months ended June 30,
2001.

  General and Administrative

     General and administrative expenses principally include professional fees,
facility rentals, compensation, and information systems related to general
management functions. General and administrative expenses for the quarter ended
June 30, 2001 increased by $0.5 million to $2.4 million, or 6.9% of net sales,
from $1.9 million, or 8.6% of net sales, in the year ago quarter.

                                        12
<PAGE>   15

     General and administrative expenses for the six months ended June 30, 2001
increased by $0.7 million to $3.9 million, or 5.7% of net sales, from $3.2
million, or 7.9% of net sales, in the year ago period.

     The dollar increase for both the quarter and year-to-date period primarily
reflects increased professional fees relating to ongoing matters, employee
recruiting costs, and increased insurance and facilities costs. In addition,
there was an increase in certain other employee benefits expenses during the
quarter ended June 30, 2001.

  Other Income, net

     Other income for the quarter ended June 30, 2001 increased by $0.3 million
to $0.4 million from $0.1 million last year. Other income for the six months
ended June 30, 2001 increased by $0.7 million to $0.8 million from $0.1 million
in the same period last year. This primarily represents interest earned on
invested cash balances partially offset by fees related to a credit facility and
interest expense on capital lease obligations.

  Provision for Income Taxes

     The provisions for income taxes for the comparable periods reflect income
taxes due at federal statutory rates and state income taxes, net of federal
benefit. The effective income tax rate for the quarter ended June 30, 2001 was
31.0% and 19.3% for the year-to-date period. This compares to an effective rate
of 0% in the prior year comparable periods. The effective rates differ from the
federal and state statutory rates (net of federal benefit) due to the
recognition of deferred tax assets previously not recognized due to management's
uncertainty as to their realization. During the second quarter of 2001, a
research and experimentation credit was recognized resulting in a benefit of
$1.0 million which offset the otherwise recognized tax expense of $5.2 million
resulting in a net tax expense of $4.2 million or 31.0%. For the six months
ended June 30, 2001, the effect of this credit coupled with recognition during
first quarter of the remaining deferred tax asset of $4.3 million resulted in a
benefit offsetting the otherwise recognized tax expense of $10.6 million
producing a net tax expense of $5.3 million or 19.3%.

     The Company has a pending ruling with the Internal Revenue Service
regarding an additional deduction related to securities litigation costs. A
favorable ruling would result in a significant increase to the Company's net
operating loss carryforward.

  Net Income or Loss

     Net income for the quarter increased by $3.1 million to $9.3 million or
$.28 per share (diluted) from $6.2 million or $.20 per share (diluted) in the
year ago quarter.

     Net income for the six months ended June 30, 2001 increased by $11.9
million to $22.3 million or $.69 per share (diluted), from net income of $10.4
million or $.33 per share in the year ago period.

LIQUIDITY AND CAPITAL RESOURCES

     From its inception through June 30, 2001, the Company has financed its
operations primarily through private sales of its Common Stock, cash from
operations and the initial public offering of 4,600,000 shares of its Common
Stock. Cash and cash equivalents at June 30, 2001 were approximately $45.4
million, an increase of $14.9 million from December 31, 2000. As of June 30,
2001, the Company's working capital was approximately $89.1 million as compared
to $59.0 million at December 31, 2000. The increase was primarily associated
with the increase in cash reserves due to record sales levels and continued
profitability. The sales levels also resulted in a record level of trade
receivables and the inventory balance grew to support new products which began
meaningful shipments in the second quarter of 2001. See the Company's
Consolidated Condensed Statements of Cash Flows for additional detail. For the
quarter ended June 30, 2001, capital expenditures were approximately $1.2
million. Future capital expenditures will depend on several factors including
timing of introductions of new products and enhancements to existing products,
continued product development efforts, and facilities expansion to support
growth.

                                        13
<PAGE>   16

     The Company has seen a significant increase in sales outside of North
America. As is customary in this market, the Company grants payment terms on
these sales which exceed the standard thirty day terms for sales within North
America. It is not anticipated that this trend will significantly impact the
liquidity of the Company.

     On March 31, 1999, the Company entered into a financing agreement with
certain investors pursuant to which the Company issued $3.0 million of 9%
Secured Bridge Notes due January 17, 2000. They were collateralized by all of
the Company's assets and were subordinated to the accounts receivable agreement
with EAB. In connection with the financing agreement, the Company issued
warrants to purchase an aggregate of 550,000 shares of the Company's common
stock at an exercise price of $2.75 per share, the market price of the stock on
the date prior to the issuance of the warrants. The warrants had a term of five
years from the date of issuance. In January 2000, such warrants were exercised.
The Secured Bridge Notes and related interest were repaid in full on the due
date.

     On October 10, 2000, the Company entered into a Loan and Security Agreement
(the "Loan Agreement") with Congress Financial Corporation ("Congress") pursuant
to which Congress provided the Company with a $10.0 million line of credit at
prime plus three-quarters of one percent (.75%). The Loan Agreement has an
initial term of two years. All indebtedness outstanding under the Loan Agreement
is collateralized by substantially all of the Company's assets. Approximately
$2.3 million of the $10.0 million available under the credit facility secures a
letter of credit required by a lease for office space. A fee for this letter of
credit accommodation is assessed at one and one quarter percent (1.25%) per
annum.

     The Company continues to consider various financing alternatives, including
other equity or debt issuances (the "Financing Sources"). The Company
anticipates that its existing cash and cash equivalents and anticipated cash
flow from operations together with funds provided from the Financing Sources
will be sufficient to fund the Company's working capital and capital expenditure
requirements for at least the next 12 months. The anticipated cash flow from
operations assumes the Company achieves a level of sales that is higher than
those of earlier quarters. In the event that these sales levels are not
attained, the Company may be required to supplement its working capital with
additional funding in order to meet shorter or longer term liquidity needs.
There can be no assurance, however, that the Company will achieve the assumed or
increased sales levels or that adequate additional financing will be available
when needed or, if available, on terms acceptable to the Company.

                                        14
<PAGE>   17

                                    PART II

                               OTHER INFORMATION

ITEM 1.  LEGAL PROCEEDINGS

     On November 23, 1999, Seth P. Joseph, a former officer and director of
Digital Lightwave, commenced an arbitration proceeding against the Company
alleging breach of his employment agreement and stock option agreements,
violation of the Florida Whistleblower statute, and breach of an indemnification
agreement and the Company bylaws. As relief, Mr. Joseph seeks $500,000, attorney
fees, interest and stock options for 656,666 shares of our Common Stock
exercisable at a price of $5.25 per share. The Company has filed its answer
denying Mr. Joseph's allegations, and alleging multiple affirmative defenses and
counterclaims. The Company's counterclaims against Mr. Joseph seek repayment of
loans totaling approximately $113,000, plus interest. In March, 2001, Mr. Joseph
voluntarily dismissed three of his claims against the Company without prejudice.
The two remaining claims seek recovery for alleged violation of the state
whistleblower statute and breach of Mr. Joseph's stock option agreements. The
arbitration hearing is scheduled to begin on September 10, 2001. We intend to
vigorously oppose Mr. Joseph's claims. However, there can be no assurance that
the Company will succeed in defending this action. Additionally, we cannot
assure you that the action will not have a material adverse effect on Digital
Lightwave.

     On August 5, 1999, as a complete settlement of an investigation of the
Company being conducted by the U.S. Securities and Exchange Commission
(Commission) relating to the circumstances underlying the restatement of the
Company's financial results, the Company agreed voluntarily to consent to the
entry of a permanent injunction enjoining it from violations of Sections 10(b),
13(a) and 13(b)(2) of the Securities Exchange Act of 1934, and Rules 10b-5,
12b-20 and 13a-13 thereunder. The Commission's complaint filed in the District
Court also alleges that Dr. Bryan Zwan, a former director, Chairman and Chief
Executive Officer of the Company, violated Sections 17(a)(1), 17(a)(2), and
17(a)(3) of the Securities Act of 1933, Section 10(b) of the Securities Exchange
Act of 1934, and Rules 10b-5 and 13b2-2 thereunder, and that he aided and
abetted the Company's alleged violations of Sections 13(a) and 13(b)(2) of the
Exchange Act, and Rules 13a-13 and 12b-20 thereunder. Dr. Zwan has denied the
Commission's allegations and, pursuant to the indemnification provisions of the
Company's bylaws, the Company is advancing to Dr. Zwan the legal fees and costs
incurred by him in defending the litigation. There can be no assurance that
these expenses will not have a material adverse effect on the Company.

ITEM 6.  EXHIBIT AND REPORTS ON FORM 8-K

     (a) Exhibits

     (b) Reports on Form 8-K. No reports on Form 8-K were filed during the
period covered by this Report.

                                        15
<PAGE>   18

                                   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.

                                          By:      /s/ GERRY CHASTELET
                                            ------------------------------------
                                            Gerry Chastelet
                                            Chairman of the Board,
                                            Chief Executive Officer and
                                              President
                                            (Principal Executive Officer)

                                            Date: August 14, 2001

                                          By:      /s/ STEVEN H. GRANT
                                            ------------------------------------
                                            Steven H. Grant
                                            Executive Vice President -- Finance
                                            & Chief Financial Officer and
                                              Secretary
                                            (Principal Financial and Accounting
                                              Officer)

                                            Date: August 14, 2001

                                        16