<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 SEPTEMBER 30, 2000

                                       OR

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

               FOR THE TRANSITION PERIOD FROM ________ TO ________

                        COMMISSION FILE NUMBER 000-21669


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

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

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




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


                             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  [ ]     NO  [ ]
                           -------------------------

     The number of shares outstanding of the Registrant's Common Stock as of
November 10, 2000 was 30,458,102.

--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
<PAGE>   2

                            DIGITAL LIGHTWAVE, INC.

                         QUARTERLY REPORT ON FORM 10-Q
                    FOR THE PERIOD ENDED SEPTEMBER 30, 2000

                                     INDEX

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

Item 1.  Consolidated Condensed Financial Statements:
         Consolidated Condensed Balance Sheets -- September 30, 2000
         and December 31, 1999.......................................
         Consolidated Condensed Statements of Operations -- Three
         Months Ended September 30, 2000 and September 30, 1999......
         Consolidated Condensed Statements of Operations -- Nine
         Months Ended September 30, 2000 and September 30, 1999......
         Consolidated Condensed Statements of Cash Flows -- Nine
         Months Ended September 30, 2000 and September 30, 1999......
         Notes to Consolidated Condensed Financial Statements........
Item 2.  Management's Discussion and Analysis of Financial Condition
         and Results of Operations...................................

                           PART II OTHER INFORMATION

Item 1.  Legal Proceedings...........................................
Item 4.  Submission of Matters to a Vote of Security Holders.........
Item 6.  Exhibits and Reports on Form 8-K............................
SIGNATURES...........................................................
</TABLE>
<PAGE>   3

                                     PART I

                             FINANCIAL INFORMATION

ITEM 1.  CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

                            DIGITAL LIGHTWAVE, INC.

                     CONSOLIDATED CONDENSED BALANCE SHEETS
                                 (IN THOUSANDS)

<TABLE>
<CAPTION>
                                                        SEPTEMBER 30,   DECEMBER 31,
                                                            2000            1999
                                                        -------------   ------------
                                                         (UNAUDITED)
<S>                                                     <C>             <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents, including restricted cash
  of $2,340 and $2,341, respectively..................    $ 23,585        $  7,466
Accounts receivable, less allowance of $190 and $215,
  respectively........................................      21,780          15,397
Inventories...........................................      12,194           6,407
Prepaid expenses and other current assets.............         977             990
                                                          --------        --------
     Total current assets.............................      58,536          30,260
Property and equipment, net...........................       9,057           9,424
Other assets..........................................         350             314
                                                          --------        --------
     Total assets.....................................    $ 67,943        $ 39,998
                                                          ========        ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued liabilities..............    $ 13,517        $  8,048
Notes payable, net of discount........................          --           3,000
Interest payable......................................          --              68
Accrued settlement charges............................          --           6,231
                                                          --------        --------
     Total current liabilities........................      13,517          17,347
Long-term liabilities.................................         393             498
                                                          --------        --------
     Total liabilities................................      13,910          17,845
                                                          --------        --------
STOCKHOLDERS' EQUITY:
Common stock..........................................           3               3
Additional paid-in capital............................      76,249          62,807
Accumulated deficit...................................     (22,219)        (40,657)
                                                          --------        --------
     Total stockholders' equity.......................      54,033          22,153
                                                          --------        --------
     Total liabilities and stockholders' equity.......    $ 67,943        $ 39,998
                                                          ========        ========
</TABLE>

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

                                        1
<PAGE>   4

                            DIGITAL LIGHTWAVE, INC.

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

<TABLE>
<CAPTION>
                                                           THREE MONTHS ENDED
                                                              SEPTEMBER 30,
                                                        -------------------------
                                                           2000          1999
                                                        -----------   -----------
<S>                                                     <C>           <C>
Sales.................................................  $    26,085   $    14,162
Cost of goods sold....................................        8,439         4,851
                                                        -----------   -----------
Gross profit..........................................       17,646         9,311
OPERATING EXPENSES:
Engineering and development...........................        3,999         2,325
Sales and marketing...................................        3,998         3,147
General and administrative............................        1,771         1,187
                                                        -----------   -----------
     Total operating expenses.........................        9,768         6,659
                                                        -----------   -----------
Operating income......................................        7,878         2,652
Other income (expense)................................          111           (11)
                                                        -----------   -----------
Income before income tax..............................        7,989         2,641
Provision for income taxes............................           --            --
                                                        -----------   -----------
     Net income.......................................  $     7,989   $     2,641
                                                        ===========   ===========
PER SHARE OF COMMON STOCK:
Basic net income per share............................  $      0.26   $      0.10
                                                        ===========   ===========
Diluted net income per share..........................  $      0.25   $      0.09
                                                        ===========   ===========
Weighted average common shares outstanding............   30,194,307    26,863,115
                                                        ===========   ===========
Weighted average common and common equivalent shares
  outstanding.........................................   32,491,073    28,590,833
                                                        ===========   ===========
</TABLE>

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

                                        2
<PAGE>   5

                            DIGITAL LIGHTWAVE, INC.

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

<TABLE>
<CAPTION>
                                                            NINE MONTHS ENDED
                                                              SEPTEMBER 30,
                                                        -------------------------
                                                           2000          1999
                                                        -----------   -----------
<S>                                                     <C>           <C>
Sales.................................................  $    66,754   $    33,002
Cost of goods sold....................................       22,108        11,729
                                                        -----------   -----------
Gross profit..........................................       44,646        21,273
OPERATING EXPENSES:
Engineering and development...........................       10,819         7,746
Sales and marketing...................................       10,673         9,006
General and administrative............................        4,986         3,511
                                                        -----------   -----------
     Total operating expenses.........................       26,478        20,263
                                                        -----------   -----------
Operating income......................................       18,168         1,010
Other income..........................................          270            63
                                                        -----------   -----------
Income before income tax..............................       18,438         1,073
Provision for income taxes............................           --            --
                                                        -----------   -----------
     Net income.......................................  $    18,438   $     1,073
                                                        ===========   ===========
PER SHARE OF COMMON STOCK:
Basic net income per share............................  $      0.63   $      0.04
                                                        ===========   ===========
Diluted net income per share..........................  $      0.58   $      0.04
                                                        ===========   ===========
Weighted average common shares outstanding............   29,243,517    26,656,797
                                                        ===========   ===========
Weighted average common and common equivalent shares
  outstanding.........................................   31,826,579    27,517,832
                                                        ===========   ===========
</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
                                                             NINE MONTHS ENDED
                                                               SEPTEMBER 30,
                                                             ------------------
                                                              2000       1999
                                                             -------    -------
<S>                                                          <C>        <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income...............................................    $18,438    $ 1,073
Adjustments to reconcile net income to cash provided
  (used) by operating activities:
  Depreciation and amortization..........................      2,116      1,825
  Loss on disposal of property...........................         68         13
  Provision for uncollectible accounts...................         90         --
Changes in operating assets and liabilities:
  Increase in accounts receivable........................     (6,662)    (4,776)
  (Increase) decrease in inventories.....................     (6,179)       149
  Increase in prepaid expenses and other current
     assets..............................................       (307)      (837)
  Increase in accounts payable and accrued expenses......      5,155      1,970
  Decrease in accrued settlement charges.................         --       (990)
                                                             -------    -------
     Net cash provided (used) by operating activities....     12,719     (1,572)
                                                             -------    -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment.......................       (911)    (1,224)
                                                             -------    -------
     Net cash used in investing activities...............       (911)    (1,224)
                                                             -------    -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from notes payable..............................         --      3,000
Principal payments on notes payable......................     (3,000)        --
Proceeds from sale of common stock, net of expenses......      7,475        574
Payments received -- lease receivables...................        188        395
Principal payments -- capital lease obligations..........       (352)      (242)
                                                             -------    -------
     Net cash provided by financing activities...........      4,311      3,727
                                                             -------    -------
Net increase in cash and cash equivalents................     16,119        931
Cash and cash equivalents at beginning of period.........      7,466      3,848
                                                             -------    -------
Cash and cash equivalents at end of period...............    $23,585    $ 4,779
                                                             =======    =======
OTHER SUPPLEMENTAL DISCLOSURES:
Cash paid for interest...................................    $   159    $    39
NON-CASH INVESTING AND FINANCING ACTIVITIES:
Capital lease obligations incurred.......................    $   447    $   194
Fixed asset additions included in accounts payable.......         46        155
Accounts receivable related to capital leases............         --        270
Issuance of common stock pursuant to litigation
  settlement.............................................      6,231      1,194
</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 consolidated condensed financial statements of
Digital Lightwave, Inc. ("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
three and nine month periods ended September 30, 2000, 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, 1999, Commission File
No. 000-21669.

2. INVENTORIES

     Inventories at September 30, 2000 and December 31, 1999 are summarized as
follows:

<TABLE>
<CAPTION>
                                                SEPTEMBER 30,   DECEMBER 31,
                                                    2000            1999
                                                -------------   ------------
                                                       (IN THOUSANDS)
<S>                                             <C>             <C>
Raw materials.................................     $ 7,721         $3,404
Work-in-process...............................       3,234          2,454
Finished goods................................       1,239            549
                                                   -------         ------
                                                   $12,194         $6,407
                                                   =======         ======
</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. Diluted income per share
includes the effect of incremental shares from common stock equivalents using
the treasury stock method. The table below shows the calculation of basic
weighted average common shares outstanding

                                        5
<PAGE>   8
                            DIGITAL LIGHTWAVE, INC.

                        NOTES TO CONSOLIDATED CONDENSED
                      FINANCIAL STATEMENTS -- (CONTINUED)

and the incremental number of shares arising from common stock equivalents under
the treasury stock method:

<TABLE>
<CAPTION>
                                      THREE MONTHS ENDED         NINE MONTHS ENDED
                                         SEPTEMBER 30,             SEPTEMBER 30,
                                    -----------------------   -----------------------
                                       2000         1999         2000         1999
                                    ----------   ----------   ----------   ----------
<S>                                 <C>          <C>          <C>          <C>
BASIC:
Weighted average common shares
  outstanding.....................  30,194,307   26,863,115   29,243,517   26,656,797
                                    ----------   ----------   ----------   ----------
     Total basic..................  30,194,307   26,863,115   29,243,517   26,656,797
DILUTED:
Incremental shares for common
  stock equivalents...............   2,296,766    1,727,718    2,583,062      861,035
                                    ----------   ----------   ----------   ----------
     Total dilutive...............  32,491,073   28,590,833   31,826,579   27,517,832
                                    ==========   ==========   ==========   ==========
</TABLE>

4. LEGAL PROCEEDINGS

     As of April 9, 1998, 23 class action complaints (which were subsequently
consolidated into a single action) alleging violations of the federal securities
laws during certain periods in 1997 and 1998 had been filed in the United States
District Court for the Middle District of Florida, on behalf of purchasers of
the Company's Common Stock. The complaints named as defendants the Company,
Bryan J. Zwan, former director, Chairman and Chief Executive Officer of the
Company, Steven H. Grant, the Company's Executive Vice President, Finance, Chief
Financial Officer and Secretary, and other former corporate officers. The
complaints allege that the Company and certain officers during the relevant time
period violated Sections 10(b) and 20(a) of the Securities Exchange Act by,
among other things, issuing to the investing public false and misleading
financial statements and press releases concerning the Company's revenues,
income and earnings, which artificially inflated the price of the Company's
Common Stock.

     On July 23, 1998, the Company entered into a memorandum of understanding
for the settlement of these class action complaints. In late October 1998, a
Stipulation of Settlement was filed with the court and on December 21, 1998, the
court preliminarily approved the settlement. On April 30, 1999, the District
Court entered a final judgment approving the settlement. The settlement
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
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, was fully resolved.

                                        6
<PAGE>   9
                            DIGITAL LIGHTWAVE, INC.

                        NOTES TO CONSOLIDATED CONDENSED
                      FINANCIAL STATEMENTS -- (CONTINUED)

     On May 20, 1999, Charles Chalmers, a lead plaintiff and class
representative 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
pertaining to the Company were dismissed with prejudice. The remaining portion
of the appeal was dismissed with prejudice on September 29, 2000. The District
Court judgment approving settlement of the securities class actions now is
final. Following this judgment, the Company has issued substantially all
remaining shares of Common Stock in satisfaction of the total shares required
under this settlement.

     On November 5, 1997, Hugh Brian Haney ("Plaintiff"), an early stage
investor, commenced an action in the United States District Court for the
Southern District of Ohio against Dr. Bryan J. Zwan, the Company's former
Chairman of the Board and Chief Executive Officer, and the Company
("Defendants"). An amended complaint filed December 15, 1997 alleged violations
of Section 10(b) of the Securities Exchange Act, violations of state corporation
statutes, 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 Dr. 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 amended
complaint sought, among other things, (1) rescission of the sale of the shares
transferred by Plaintiff and (2) damages of $235 million, together with
interest. On October 20, 1998, the Company and Dr. Zwan entered into an
agreement with Plaintiff to settle the action. The settlement agreement
provided, among other things, for dismissal of the action with prejudice, for a
$500,000 payment by the Company to Plaintiff for his attorneys' fees and granted
Plaintiff an option, for 10 years, to purchase for $1 per share 2 million shares
of Dr. Zwan's stock in the Company. Pursuant to that agreement, the action was
dismissed with prejudice on November 13, 1998. The Company recorded a $3.0
million charge to earnings consisting of the cash payment and the valuation of
the Company's options upon settlement.

     On April 21, 1999, Plaintiff filed an action in the United States District
Court for the Southern District of Ohio against the Defendants alleging that the
terms of the settlement agreement entered into between the parties had been
breached and requesting that the settlement agreement be specifically enforced
and that damages in excess of $75,000 be awarded or, alternatively, that the
settlement agreement be set aside. In response to this action, the Company filed
a motion to dismiss for failure to state a claim against the Company. On March
30, 2000, the Court granted in part and denied in part the Company's motion to
dismiss. On May 1, 2000, Plaintiff filed an amended complaint alleging two
breach of contract claims against the Company. The Company believes it has
fulfilled its obligations under the settlement agreement and that the claims
against it are without merit. Accordingly, on June 30, 2000, the Company filed a
motion seeking summary judgment in its favor. On August 24, 2000, the Court
granted the Company's motion for summary judgment in its entirety. The Company
intends to seek entry of a judgment in its favor based upon the summary judgment
order. The case remains pending against Dr. Zwan and the trial is scheduled to
commence in January, 2001. There can be no assurance that judgment ultimately
will be entered in the Company's favor or that, even if judgment is entered,
plaintiffs will not successfully appeal the judgment. Additionally,

                                        7
<PAGE>   10
                            DIGITAL LIGHTWAVE, INC.

                        NOTES TO CONSOLIDATED CONDENSED
                      FINANCIAL STATEMENTS -- (CONTINUED)

there can be no assurance that the Company ultimately will prevail in the action
or that the action will not have a material adverse effect on the Company.

     On November 23, 1999, Seth P. Joseph, a former officer of Digital
Lightwave, commenced an arbitration proceeding against the Company alleging
breach of his employment agreement, violation of the Florida Whistleblower
statute and breach of an indemnification agreement and the Company's bylaws. As
relief, Mr. Joseph seeks $500,000, attorney fees, interest and stock options
exercisable for 656,666 shares of the Company's Common Stock. 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.
The arbitration hearing is expected to occur in 2001. The Company intends to
vigorously oppose Mr. Joseph's claim. However, there can be no assurance that
the Company will succeed in defending this action or that the Company will
prevail on its counterclaims.

     The Company from time to time is involved in lawsuits 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 lawsuits that are
pending that could have a material adverse effect on the Company's business,
financial condition and results of operations.

5. FINANCING TRANSACTIONS

     The Company entered into an accounts receivable agreement dated December
28, 1998 with EAB Leasing Corp. ("EAB") providing for the sale of the Company's
accounts receivable to EAB. The aggregate maximum amount the Company could
borrow at one time under this agreement was $2.9 million through June 28, 1999,
with a maximum of $2.0 million available on a monthly basis. In connection with
this agreement, the Company granted EAB a security interest in its accounts,
accounts receivable, contract rights, equipment, chattel paper, general
intangibles, instruments, inventory and all proceeds of the foregoing. The
annual interest rate equivalent charged to the Company under this agreement was
the prime rate plus 1.5%. The agreement also provided that the Company pay a
minimum monthly service fee in the amount of $10,000.

     On June 28, 1999 and December 28, 1999, the accounts receivable agreement
with EAB automatically renewed for six month periods, the latter ending June 28,
2000 under the same terms and conditions as the previous agreement except the
$2.0 million maximum available on a monthly basis was waived. The agreement was
still subject to the aggregate maximum amount the Company could borrow at one
time of $2.9 million. On May 1, 2000, the Company notified EAB of its intent not
to renew the accounts receivable agreement and the agreement terminated
accordingly.

     On March 31, 1999, the Company entered into a financing agreement with
certain investors pursuant to which the Company agreed to issue $3.0 million of
9% Secured Bridge Notes due January 17, 2000. These notes were issued on April
6, 1999. They were collateralized by all of the Company's assets and were
subordinated to the accounts

                                        8
<PAGE>   11
                            DIGITAL LIGHTWAVE, INC.

                        NOTES TO CONSOLIDATED CONDENSED
                      FINANCIAL STATEMENTS -- (CONTINUED)

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. The Company agreed to register
the warrants and the common stock issuable upon exercise thereof under the
Securities Act of 1933. In January 2000, such warrants were registered and
subsequently exercised. The Secured Bridge Notes and related interest were
repaid in full on the due date.

6. OTHER MATTERS

     On October 14, 1999, the Company and Dr. Bryan J. Zwan, the Company's
majority stockholder and a then director, entered into an agreement which
provides that (i) the size of the Board of Directors ("Board") will be increased
from four to five members, (ii) two new outside directors will be appointed to
the Board upon the approval of Dr. Zwan and a majority of the current Board and
one current outside director will step down, (iii) the newly formed Board will
stay in place at least until the Company's annual meeting in 2001 and (iv) the
Company will enter into agreements containing provisions with respect to change
of control, severance and non-compete with current senior management.

                                        9
<PAGE>   12

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, 1999,
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
limited operating history and cumulative losses, control by a majority
shareholder, dependence on a limited number of products, uncertain market
acceptance of planned products, industry-wide component shortages, dependence on
contract manufacturing and sole or limited source suppliers, dependence on new
product introductions, ability to compete effectively with other companies,
rapid technological changes, delays in product development and delivery
schedules, success of the original equipment manufacturer ("OEM") agreement with
Lucent Technologies, dependence on key personnel, ability to hire and retain key
personnel, ability to manage our growth, ability to enter into strategic
relationships, quarterly fluctuations in operating results, dependence on
proprietary technology, dependence on a limited number of major customers,
product certifications, factors inhibiting takeover, shares eligible for future
sale, possible volatility of stock price, success in defending significant
litigation, liquidity risks and future capital needs, and government
regulations. 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 Company disclaims any obligation to
update any such factors or announce publicly revisions to such statements to
reflect events or developments.

OVERVIEW

     The Company designs, develops, markets and supports diagnostic products and
technology that monitor, maintain and manage fiber optic-based networks. The
Company's products and technology 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(R). In 1998, the
Company commenced limited sales of the Network Access Agent(TM).

     The Company's net sales are generated from sales of its products, less an
estimate for customer returns. Sales are recognized when products are shipped to
a customer. The Company expects that the average selling price ("ASP") of its
Network Information Computers and its Network Access Agents will fluctuate based
on a variety of factors, including product configuration, potential volume
discounts to customers, the timing of new

                                       10
<PAGE>   13

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.

     Primarily, the Company sells its products through a direct sales force to
telecommunications service providers and equipment manufacturers. The sales
cycle for new customers tends to be long. In addition, the telecommunications
industry historically has had a limited 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 "WaveAgent(TM)") is conditional 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.

     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 our expenses, particularly employee compensation and
rent, are relatively fixed and cannot be 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 September 30, 2000. 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.

                                       11
<PAGE>   14

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, 2000 compared to the quarter and nine months ended September 30,
1999. 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
                            SEPTEMBER 30,   SEPTEMBER 30,    FAV/       FAV/     -----------
                                2000            1999        (UNFAV)   (UNFAV)    2000   1999
                            -------------   -------------   -------   --------   ----   ----
                                                (IN MILLIONS, EXCEPT %)
<S>                         <C>             <C>             <C>       <C>        <C>    <C>
Net sales.................      $26.1           $14.2        $11.9        84%    100%   100%
Cost of goods sold........       (8.4)           (4.9)        (3.5)      (72)     32     34
                                -----           -----        -----     -----     ---    ---
Gross profit..............       17.7             9.3          8.4        91      68     66
Engineering and
  development expenses....       (4.0)           (2.3)        (1.7)      (74)     15     17
Sales and marketing
  expenses................       (4.0)           (3.2)        (0.8)      (25)     15     22
General and administrative
  expenses................       (1.8)           (1.2)        (0.6)      (48)      7      8
                                -----           -----        -----     -----     ---    ---
     Total operating
       expenses...........       (9.8)           (6.7)        (3.1)      (46)     37     47
                                -----           -----        -----     -----     ---    ---
Operating income..........        7.9             2.6          5.3       203      31     19
Other income, net.........        0.1              --          0.1     1,119      --     --
                                -----           -----        -----     -----     ---    ---
Pre-tax income............        8.0             2.6          5.4       207      31     19
Income taxes..............         --              --           --        --      --     --
                                -----           -----        -----     -----     ---    ---
     Net income...........      $ 8.0           $ 2.6        $ 5.4       207%     31%    19%
                                =====           =====        =====     =====     ===    ===
</TABLE>

                                       12
<PAGE>   15

<TABLE>
<CAPTION>
                                  NINE MONTHS ENDED
                            -----------------------------   AMOUNT    PERCENT    PERCENT OF
                                                            CHANGE     CHANGE     NET SALES
                            SEPTEMBER 30,   SEPTEMBER 30,    FAV/       FAV/     -----------
                                2000            1999        (UNFAV)   (UNFAV)    2000   1999
                            -------------   -------------   -------   --------   ----   ----
                                                (IN MILLIONS, EXCEPT %)
<S>                         <C>             <C>             <C>       <C>        <C>    <C>
Net sales.................     $ 66.8          $ 33.0       $ 33.8       102%    100%   100%
Cost of goods sold........      (22.1)          (11.7)       (10.4)      (89)     33     36
                               ------          ------       ------     -----     ---    ---
Gross profit..............       44.7            21.3         23.4       110      67     64
Engineering and
  development expenses....      (10.8)           (7.8)        (3.0)      (39)     16     23
Sales and marketing
  expenses................      (10.7)           (9.0)        (1.7)      (19)     16     27
General and administrative
  expenses................       (5.0)           (3.5)        (1.5)      (42)      7     11
                               ------          ------       ------               ---    ---
     Total operating
       expenses...........      (26.5)          (20.3)        (6.2)      (30)     39     61
                               ------          ------       ------               ---    ---
Operating income..........       18.2             1.0         17.2     1,717      28      3
Other income, net.........        0.2             0.1          0.1       327      --     --
                               ------          ------       ------               ---    ---
Pre-tax income............       18.4             1.1         17.3     1,576      28      3
Income taxes..............         --              --           --        --      --     --
                               ------          ------       ------     -----     ---    ---
     Net income...........     $ 18.4          $  1.1       $ 17.3    1,576%      28%     3%
                               ======          ======       ======     =====     ===    ===
</TABLE>

NET SALES

     Net sales include total revenues from customer purchases of Network
Information Computers (NIC's) and, to a limited extent, Network Access Agents
(NAA's), net of an estimate for product returns. Net sales for the quarter
increased $11.9 million, or 84%, to $26.1 million from $14.2 million in the year
ago quarter. Sales to existing customers during the quarter represented 89% of
sales, or $23.5 million as compared to 93% of sales, or $13.3 million in the
year ago quarter. During the quarter, the Company shipped 334 total units
(including 21 NAA's) at an ASP of $76,049 as compared to 303 units (including 4
NAA's) at an ASP of $45,459 in the year ago quarter.

     Net sales for the nine months ended September 30, 2000 increased $33.8
million to $66.8 million from $33.0 million in the year ago period. Sales to
existing customers for the period represented 79% of sales, or $53.2 million as
compared to 89% of sales, or $29.5 million for the same period last year. During
the period, the Company shipped 1,020 total units (including 46 NAA's) at an ASP
of $62,092 as compared to 809 units (including 9 NAA's) at an ASP of $39,659 in
the year ago period.

     The primary increase in ASP (which is shown gross of the estimate for
product returns) is related to a shift in customer demand to higher speed
configurations, particularly the new OC-192 product which began shipment in the
second quarter of 2000. Additionally, during the quarter, the Company recognized
$1.1 million of revenue from upgrades compared to $0.6 million in the prior
year. For the nine months ended September 30, 2000, revenue from upgrades
totaled $4.4 million as compared to $1.5 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.

                                       13
<PAGE>   16

     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.

COST OF GOODS SOLD

     Costs of goods sold principally includes inventory, labor and overhead,
management costs, facility rental and depreciation of equipment. Cost of goods
sold for the quarter increased by $3.5 million to $8.4 million from $4.9 million
in the year ago quarter.

     Cost of goods sold for the nine months ended September 30, 2000 increased
by $10.4 million to $22.1 million from $11.7 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 a higher cost per unit associated with new product
introductions.

GROSS PROFIT

     Gross profit for the quarter ended September 30, 2000 increased by $8.4
million to $17.7 million from $9.3 million in the year ago quarter. As a
percentage of sales, gross margin for the quarter increased to 67.6% from 65.7%.

     Gross profit for the nine months ended September 30, 2000 increased by
$23.4 million to $44.7 million from $21.3 million in the year ago period. As a
percentage of sales, gross margin increased to 66.9% from 64.5%.

     The increase in gross profit for both the quarter and year to date period
was related to increases in ASP's, more efficient production methods, and the
initial shipments of the new OC-192 product, which began in the second quarter
of 2000.

ENGINEERING AND DEVELOPMENT

     Engineering and development expenses principally include compensation
attributable to engineering and development personnel, depreciation of
production and development assets, outside consulting fees and other development
expenses. Engineering and development expenses for the quarter ended September
30, 2000 increased by $1.7 million to $4.0 million, or 15.3% of net sales, from
$2.3 million, or 16.4% of net sales, in the year ago quarter.

     Engineering and development expenses for the nine months ended September
30, 2000 increased by $3.0 million to $10.8 million, or 16.2% of net sales from
$7.8 million, or 23.5% 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, the Company incurred certain
other employee benefits expenses during the quarter and nine months ended
September 30, 2000. These increases were partially offset as increased
production levels in 2000 allowed for a more proportionate share of overhead
expenses to be capitalized as a part of inventory costs.

                                       14
<PAGE>   17

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 September 30, 2000 increased by $0.8 million to $4.0 million,
or 15.3% of net sales, from $3.2 million, or 22.2% of net sales, in the year ago
quarter.

     Sales and marketing expenses for the nine months ending September 30, 2000
increased $1.7 million to $10.7 million, or 16.0% of net sales, compared to $9.0
million, or 27.3% of net sales, in the year ago period.

     The dollar increase for both the quarter and year-to-date period is
directly related to higher commissions resulting from the increased sales
activity, increased costs associated with international travel, and other
employee benefit expenses. The year-to-date period also reflected an increase in
marketing related expenses.

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
September 30, 2000 increased by $0.6 million to $1.8 million, or 6.8% of net
sales, from $1.2 million, or 8.4% of net sales, in the year ago quarter.

     General and administrative expenses for the nine months ended September 30,
2000 increased by $1.5 million to $5.0 million, or 7.5% of net sales, from $3.5
million, or 10.6% of net sales, in the year ago period.

     The increase for the quarter and year-to date period primarily reflects
increased professional fees relating to the Company's various legal matters
including the final dismissal of the Company from the class action settlement in
March 2000, increased rental expense, and other employee benefit expenses. In
the year-to date period, these items were partially offset by certain salary and
related savings accompanied by a reduction in the use of certain consulting
services.

OTHER INCOME OR EXPENSE

     Other income for the quarter ended September 30, 2000, increased by $0.1
million to $0.1 million from $0.0 million in the same quarter last year.

     Other income for the nine months ended September 30, 2000 increased by $0.1
million to $0.2 million from $0.1 million in the same period last year.

     This category primarily represents interest earned on invested cash
balances partially offset by interest expense related to borrowings.

NET INCOME OR LOSS

     Net income for the quarter ended September 30, 2000 increased by $5.4
million to $8.0 million or $.25 per share (diluted), from net income of $2.6
million or $.09 per share (diluted) in the year ago quarter.

                                       15
<PAGE>   18

     Net income for the nine months ended September 30, 2000 increased by $17.3
million to $18.4 million or $.58 per share (diluted), from net income of $1.1
million or $.04 per share in the year ago period.

LIQUIDITY AND CAPITAL RESOURCES

     From its inception through December 31, 1999, 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. The Company completed its IPO in February 1997, resulting in net proceeds
to the Company of $39.6 million. During 1997, the Company used the net proceeds
to fund the repayment of notes payable for approximately $0.8 million, to
purchase computer equipment, software, test equipment and other assets for
approximately $6.0 million and to fund product research and development for
approximately $5.3 million. In addition, approximately $3.5 million was used to
fund the Company's expansion in the form of additional manufacturing and
administrative space and a significant increase in engineering, production and
financial management personnel to support the Company's growth.

     Cash and cash equivalents at September 30, 2000 were approximately $23.6
million, an increase of $16.1 million from December 31, 1999. As of September
30, 2000, the Company's working capital was approximately $45.0 million as
compared to $12.9 million at December 31, 1999. The increase was primarily
associated with the increase in cash reserves due to record sales levels,
profitability, and proceeds from stock option and warrant exercises, which were
partially offset by the repayment of the Secured Bridge Notes. The sales levels
also resulted in a record level of trade receivables. In addition, the shares
have been issued in settlement of the shareholder class action litigation
eliminating that liability. See the Company's Consolidated Condensed Statements
of Cash Flows for additional detail. For the nine months ended September 30,
2000, capital expenditures were approximately $0.9 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 entered into an accounts receivable agreement dated December
28, 1998 with EAB Leasing Corp. ("EAB") providing for the sale of the Company's
accounts receivable to EAB. The aggregate maximum amount the Company could
borrow at one time under this agreement was $2.9 million through June 28, 1999,
with a maximum of $2.0 million available on a monthly basis. In connection with
this agreement, the Company granted EAB a security interest in its accounts,
accounts receivable, contract rights, equipment, chattel paper, general
intangibles, instruments, inventory and all proceeds of the foregoing. The
annual interest rate equivalent charged to the Company under this agreement was
the prime rate plus 1.5%. The agreement also provided that the Company pay a
minimum monthly service fee in the amount of $10,000.

     On June 28, 1999 and December 28, 1999, the accounts receivable agreement
with EAB automatically renewed for six month periods, the latter ending June 28,
2000 under the same terms and conditions as the previous agreement except the
$2.0 million maximum available on a monthly basis was waived. The agreement was
still subject to the aggregate maximum amount the Company could borrow at one
time of $2.9 million. On May 1, 2000, the Company notified EAB of its intent not
to renew the accounts receivable agreement and the agreement terminated
accordingly.

                                       16
<PAGE>   19

     On March 31, 1999, the Company entered into a financing agreement with
certain investors pursuant to which the Company agreed to issue $3.0 million of
9% Secured Bridge Notes due January 17, 2000. These notes were issued on April
6, 1999. 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. The
Company agreed to register the warrants and the common stock issuable upon
exercise thereof under the Securities Act of 1933. In January 2000, such
warrants were registered and subsequently exercised. The Secured Bridge Notes
and related interest were repaid in full on the due date.

     On October 10, 2000, the Company executed a Loan and Security Agreement
(the "Loan Agreement") with Congress Financial Corporation ("Congress") pursuant
to which Congress agreed to provide the Company with a $10.0 million line of
credit. Certain conditions precedent to the closing of the Loan Agreement remain
outstanding. Under the Loan Agreement, the Company will be entitled to borrow up
to $10.0 million subject to certain borrowing limitations based on amounts of
the Company's accounts receivable and other assets. The Loan Agreement will have
an initial term of two years. All indebtedness outstanding under the Loan
Agreement will be collateralized by substantially all of the Company's assets.
Under the terms of the Loan Agreement, the Company will be required to maintain
certain financial ratios and comply with other restrictive covenants. There can
be no assurance that the Company will successfully complete the conditions
precedent to the closing of the Loan Agreement.

     The Company continues to consider various financing alternatives, including
the Loan Agreement and 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.

                                       17
<PAGE>   20

                                    PART II

                               OTHER INFORMATION

ITEM 1.  LEGAL PROCEEDINGS

     As of April 9, 1998, 23 class action complaints (which were subsequently
consolidated into a single action) alleging violations of the federal securities
laws during certain periods in 1997 and 1998 had been filed in the United States
District Court for the Middle District of Florida, on behalf of purchasers of
our Common Stock. The complaints named as defendants the Company, Bryan J. Zwan,
our former director, Chairman and Chief Executive Officer, Steven H. Grant, our
Executive Vice President, Finance, Chief Financial Officer and Secretary, and
other former corporate officers. The complaints allege that the Company and
certain officers during the relevant time period violated Sections 10(b) and
20(a) of the Securities Exchange Act by, among other things, issuing to the
investing public false and misleading financial statements and press releases
concerning the Company's revenues, income and earnings, which artificially
inflated the price of our Common Stock.

     On July 23, 1998, the Company entered into a memorandum of understanding
for the settlement of these class action complaints. In late October 1998, a
Stipulation of Settlement was filed with the court and on December 21, 1998, the
court preliminarily approved the settlement. On April 30, 1999, the District
Court entered a final judgment approving the settlement. The settlement consists
of $4.25 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 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, was 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 pertaining to the Company were dismissed with prejudice. The
remaining portion of the appeal was dismissed with prejudice on September 29,
2000. The District Court judgment approving settlement of the securities class
actions now is final. Following this judgment, the Company has 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 us being
conducted by the U.S. Securities and Exchange Commission relating to the
circumstances underlying the restatement of our financial results, we agreed
voluntarily to consent to the entry of a permanent injunction enjoining us 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 and the settlement with the Company were filed with the United States
District Court for the Middle District of Florida on March 29, 2000. In
connection with the same investigation, on March 29, 2000, the Commission's
complaint filed in the District Court also alleges that Dr. 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

                                       18
<PAGE>   21

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. In addition, the
Commission concurrently 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 Sections 13(a), 13(b)(2)(A) and 12(b)(2)(B) of the Exchange
Act, and Rules 12b-20 and 13a-13 thereunder.

     On November 5, 1997, Hugh Brian Haney ("Plaintiff"), an early stage
investor, commenced an action in the United States District Court for the
Southern District of Ohio against Dr. Bryan J. Zwan, our former Chairman of the
Board and Chief Executive Officer, and Digital Lightwave ("Defendants"). An
amended complaint filed December 15, 1997 alleged violations of Section 10(b) of
the Securities Exchange Act, violations of state corporation statutes, and
various common law violations by Defendants in connection with Plaintiff's sale
to our predecessor in November 1995, pursuant to a previously granted option
exercisable by Dr. Zwan and/or our predecessor, of 4,900 shares of stock in our
predecessor, an amount equivalent to 19,215,686 shares of our common stock. The
amended complaint sought, among other things, (1) rescission of the sale of the
shares transferred by Plaintiff and (2) damages of $235 million, together with
interest. On October 20, 1998, Digital Lightwave and Dr. Zwan entered into an
agreement with Plaintiff to settle the action. The settlement agreement
provided, among other things, for dismissal of the action with prejudice, for a
$500,000 payment by us to Plaintiff for his attorneys' fees and granted
Plaintiff an option, for 10 years, to purchase for $1 per share 2 million shares
of Dr. Zwan's Digital Lightwave stock. Pursuant to that agreement, the action
was dismissed with prejudice on November 13, 1998. The Company recorded a $3.0
million charge to earnings consisting of the cash payment and the valuation our
options upon settlement.

     On April 21, 1999, Plaintiff filed an action in the United States District
Court for the Southern District of Ohio against the Defendants alleging that the
terms of the settlement agreement entered into between the parties had been
breached and requesting that the settlement agreement be specifically enforced
and that damages in excess of $75,000 be awarded or, alternatively, that the
settlement agreement be set aside. In response to this action, the Company filed
a motion to dismiss for failure to state a claim against the Company. On March
30, 2000, the Court granted in part and denied in part the Company's motion to
dismiss. On May 1, 2000, Plaintiff filed an amended complaint alleging two
breach of contract claims against the Company. The Company believes it has
fulfilled its obligations under the settlement agreement and that the claims
against it are without merit. Accordingly, on June 30, 2000, the Company filed a
motion seeking summary judgment in its favor. On August 24, 2000, the Court
granted the Company's motion for summary judgment in its entirety. The Company
intends to seek entry of a judgment in its favor based upon the summary judgment
order. The case remains pending against Dr. Zwan and the trial scheduled to
commence in January, 2001. There can be no assurance that judgment ultimately
will be entered in the Company's favor or that, even if judgment is entered,
plaintiffs will not successfully appeal the judgment. Additionally, there can be
no assurance that the Company ultimately will prevail in the action or that the
action will not have a material adverse effect on the Company.

     On November 23, 1999, Seth P. Joseph, a former officer of Digital
Lightwave, commenced an arbitration proceeding against us alleging breach of his
employment

                                       19
<PAGE>   22

agreement, violation of the Florida Whistleblower statute and breach of an
indemnification agreement and our Company bylaws. As relief, Mr. Joseph seeks
$500,000, attorney fees, interest and stock options exercisable for 656,666
shares of our Common Stock. We have filed our answer denying Mr. Joseph's
allegations, and alleging multiple affirmative defenses and counterclaims. Our
counterclaims against Mr. Joseph seek repayment of loans totaling approximately
$113,000, plus interest. The arbitration hearing is expected to occur in 2001.
We intend to vigorously oppose Mr. Joseph's claim. However, there can be no
assurance that we will succeed in defending this action or that we will prevail
on our counterclaims.

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

     At the annual meeting of stockholders of Digital Lightwave, Inc. on
September 29, 2000, the stockholders voted on three proposals. The first was a
proposal to elect Dr. William F. Hamilton, Gerry Chastelet, Robert F. Hussey and
Peter A. Guglielmi as directors of the Company. The following table sets forth
the votes in such election:

<TABLE>
<CAPTION>
                                                                          VOTES
DIRECTOR                                                    VOTES FOR    WITHHELD
--------                                                    ----------   --------
<S>                                                         <C>          <C>
Dr. William F. Hamilton...................................  20,216,687    38,388
Gerry Chastelet...........................................  20,216,684    39,391
Robert F. Hussey..........................................  20,216,615    39,460
Peter A. Guglielmi........................................  20,216,687    38,388
</TABLE>

In addition, Gerald A. Fallon was elected as a write-in nominee with votes for
totalling 14,101,750.

     The second was a proposal to ratify and approve the Company's Amended and
Restated 1996 Stock Option Plan:

<TABLE>
<CAPTION>
NUMBER OF SHARES:
-----------------
<S>                                                           <C>
Voted For...................................................   2,187,022
Voted Against...............................................  18,053,111
Abstentions.................................................      15,942
</TABLE>

     The third was a proposal to ratify the selection of PricewaterhouseCoopers
LLP as the Company's independent auditor for the fiscal year ending December 31,
2000:

<TABLE>
<CAPTION>
NUMBER OF SHARES:
-----------------
<S>                                                           <C>
Voted For...................................................  20,244,597
Voted Against...............................................       6,939
Abstentions.................................................       4,539
</TABLE>

                                       20
<PAGE>   23

ITEM 6.  EXHIBIT AND REPORTS ON FORM 8-K

     (a) Exhibit

<TABLE>
<CAPTION>
EXHIBIT        DESCRIPTION
-------        -----------
<S>       <C>  <C>
27        --   Financial Data Schedule (for SEC use only).
</TABLE>

     (b) Reports on Form 8-K.  On October 3, 2000, the Registrant filed with the
SEC a Current Report on Form 8-K reporting the results of the annual meeting of
the stockholders held on September 29, 2000 in Clearwater, Florida. These
results included nomination and election of five directors to the Company's
board, one of whom was nominated at the meeting by the Company's majority
stockholder, and the defeat of the proposed Amended and Restated 1996 Stock
Option Plan.

                                       21
<PAGE>   24

                                   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, Chief Executive Officer
                                              and President (Principal Executive
                                                           Officer)

Date: November 14, 2000

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

Date: November 14, 2000

                                       22