<PAGE>   1
 
================================================================================
 
                                 UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549
 
                             ---------------------
 
                                  FORM 10-Q/A
 
(MARK ONE)
 
   [X]      QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
            EXCHANGE ACT OF 1934
 
            FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1997
 
            OR
 
   [ ]      TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
            EXCHANGE ACT OF 1934
 
            FOR THE TRANSITION PERIOD FROM ________ TO ________

 
                         COMMISSION FILE NO.: 000-21669
 
                            DIGITAL LIGHTWAVE, INC.
             (Exact name of registrant as specified in its charter)
 
<TABLE>
<S>                                             <C>
                   DELAWARE                                       95-4313013
       (State or other jurisdiction of               (I.R.S. Employer Identification No.)
        incorporation or organization)
</TABLE>
 
                       601 CLEVELAND STREET, FIFTH FLOOR
                           CLEARWATER, FLORIDA 33755
                                 (813) 442-6677
 (Address, including zip code, of principal executive offices and Registrant's
                     telephone number, including area code)
 
     Indicate by check mark whether Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such report (s)), and (2) has been subject to
such filing requirements for the past 90 days.
 
                           Yes  [X]          No  [ ]
 
     The number of shares outstanding of the Registrant's Common Stock as of
April 9, 1998 was 26,457,160.
 
================================================================================
<PAGE>   2
 
                            DIGITAL LIGHTWAVE, INC.
 
                         QUARTERLY REPORT ON FORM 10-Q
                    FOR THE PERIOD ENDED SEPTEMBER 30, 1997
             THE UNDERSIGNED REGISTRANT HEREBY AMENDS THE FORM 10-Q
  FOR THE PERIOD ENDED SEPTEMBER 30, 1997 IN ITS ENTIRETY AS SET FORTH BELOW:
 
                                     INDEX
 
<TABLE>
<CAPTION>
                                                                        PAGE
                                                                        ----
<S>       <C>                                                           <C>
                       PART I  FINANCIAL INFORMATION
Item 1.   Financial Statements:
          Comparative Balance Sheets -- September 30, 1997 and
            December 31, 1996.........................................    1
          Comparative Statements of Operations -- Three Months Ended
            September 30, 1997 and September 30, 1996.................    2
          Comparative Statements of Operations -- Nine Months Ended
            September 30, 1997 and September 30, 1996.................    3
          Comparative Statements of Cash Flows -- Nine Months Ended
            September 30, 1997 and September 30, 1996.................    4
          Notes to Comparative Financial Statements...................    5
Item 2.   Management's Discussion and Analysis of Financial Condition
            and Results of Operations.................................    7
 
                         PART II  OTHER INFORMATION
Item 1.   Legal Proceedings...........................................   11
Item 6.   Exhibits and Reports on Form 8-K............................   11
                                                                         
SIGNATURES............................................................   12
</TABLE>
 
                                      (ii)
<PAGE>   3
 
                         PART I  FINANCIAL INFORMATION
 
ITEM 1.  FINANCIAL STATEMENTS
 
                            DIGITAL LIGHTWAVE, INC.
 
                                 BALANCE SHEETS
                                 (IN THOUSANDS)
 
<TABLE>
<CAPTION>
                                                              SEPTEMBER 30,   DECEMBER 31,
                                                                  1997            1996
                                                              -------------   ------------
                                                               (UNAUDITED)
<S>                                                           <C>             <C>
                                          ASSETS
Current assets:
  Cash and cash equivalents.................................    $ 33,480        $ 1,165
  Accounts receivable.......................................         989          2,510
  Inventories...............................................       4,455            850
  Prepaid expenses and other current assets.................         551            516
                                                                --------        -------
          Total current assets..............................      39,475          5,041
Property and equipment, net.................................       3,824          1,292
Other assets................................................         130             41
                                                                --------        -------
          Total assets......................................    $ 43,429        $ 6,374
                                                                ========        =======
                           LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
  Accounts payable and accrued liabilities..................    $  3,375        $ 1,942
  Notes payable.............................................          --            750
                                                                --------        -------
          Total current liabilities.........................       3,375          2,692
Long-term liabilities.......................................          95            233
                                                                --------        -------
          Total liabilities.................................       3,470          2,925
                                                                --------        -------
Stockholders' equity:
  Preferred stock...........................................          --             --
  Common stock..............................................           3              2
  Additional paid-in capital................................      53,555         14,242
  Accumulated deficit.......................................     (13,599)        (9,095)
                                                                --------        -------
                                                                  39,989          5,149
  Note receivable from stockholder..........................          --         (1,700)
                                                                --------        -------
          Total stockholders' equity........................      39,959          3,449
                                                                --------        -------
          Total liabilities and stockholders' equity........    $ 43,429        $ 6,374
                                                                ========        =======
</TABLE>
 
   The accompanying notes are an integral part of these financial statements.
 
                                        1
<PAGE>   4
 
                            DIGITAL LIGHTWAVE, INC.
 
                            STATEMENTS OF OPERATIONS
                                  (UNAUDITED)
                     (IN THOUSANDS, EXCEPT PER-SHARE DATA)
 
<TABLE>
<CAPTION>
                                                              THREE MONTHS ENDED
                                                                 SEPTEMBER 30,
                                                              -------------------
                                                                1997       1996
                                                              --------   --------
<S>                                                           <C>        <C>
SALES.......................................................  $ 1,240    $ 1,723
Cost of goods sold..........................................      426        630
                                                              -------    -------
  Gross profit..............................................      814      1,093
Operating expenses:
  Engineering and development...............................    1,230        667
  Sales and marketing.......................................    1,799        579
  General and administrative................................      911        354
                                                              -------    -------
  Total operating expenses..................................    3,940      1,600
                                                              -------    -------
Operating income (loss).....................................   (3,126)      (507)
Other income (expense)......................................      511       (215)
                                                              -------    -------
Income (loss) before income tax.............................   (2,615)      (722)
Provision for income taxes..................................       --         --
                                                              -------    -------
Net income (loss)...........................................  $(2,615)   $  (722)
                                                              =======    =======
Per share of common stock:
Net income (loss) per share.................................  $ (0.10)   $ (0.03)
                                                              =======    =======
Weighted average common and common equivalent shares
  outstanding...............................................   26,374     22,084
                                                              =======    =======
</TABLE>
 
   The accompanying notes are an integral part of these financial statements.
 
                                        2
<PAGE>   5
 
                            DIGITAL LIGHTWAVE, INC.
 
                            STATEMENTS OF OPERATIONS
                                  (UNAUDITED)
                     (IN THOUSANDS, EXCEPT PER-SHARE DATA)
 
<TABLE>
<CAPTION>
                                                              NINE MONTHS ENDED
                                                                SEPTEMBER 30,
                                                              -----------------
                                                               1997      1996
                                                              -------   -------
<S>                                                           <C>       <C>
SALES.......................................................  $ 5,339   $ 3,037
Cost of goods sold..........................................    1,788     1,152
                                                              -------   -------
  Gross profit..............................................    3,551     1,885
Operating expenses:
  Engineering and development...............................    3,056     1,653
  Sales and marketing.......................................    3,857     1,048
  General and administrative................................    2,485       897
                                                              -------   -------
Total operating expenses....................................    9,398     3,598
                                                              -------   -------
Operating income (loss).....................................   (5,847)   (1,713)
Other income (expense)......................................    1,342      (607)
                                                              -------   -------
Income (loss) before income tax.............................   (4,505)   (2,320)
Provision for income taxes..................................       --        --
                                                              -------   -------
Net income (loss)...........................................  $(4,505)  $(2,320)
                                                              =======   =======
Per share of common stock:
Net income (loss) per share.................................  $ (0.17)  $ (0.11)
                                                              =======   =======
Weighted average common and common equivalent shares
  outstanding...............................................   26,374    21,829
                                                              =======   =======
</TABLE>
 
   The accompanying notes are an integral part of these financial statements.
 
                                        3
<PAGE>   6
 
                            DIGITAL LIGHTWAVE, INC.
 
                            STATEMENTS OF CASH FLOWS
                                  (UNAUDITED)
                                 (IN THOUSANDS)
 
<TABLE>
<CAPTION>
                                                              FOR THE NINE MONTHS
                                                              ENDED SEPTEMBER 30,
                                                              -------------------
                                                                1997       1996
                                                              --------   --------
<S>                                                           <C>        <C>
Cash flows from operating activities:
  Net income (loss).........................................  $(4,505)   $(2,320)
     Adjustments to reconcile net income (loss) due to Cash
     used by operating activities:
  Interest expense converted to equity......................       --        113
  Depreciation and amortization.............................      447        128
  Changes in operating assets and liabilities:
     Increase in accounts receivable........................    1,521     (1,425)
     Increase in inventories................................   (3,605)       (81)
     Decrease in deferred offering expenses.................      427         --
     Decrease in prepaid expenses and other current
      assets................................................     (531)      (345)
     Increase in accounts payable and accrued expenses......    1,433        406
                                                              -------    -------
          Net cash used in operating activities.............   (4,813)    (3,524)
                                                              -------    -------
Cash flows from investing activities:
  Purchase of property and equipment........................   (2,998)      (516)
                                                              -------    -------
          Net cash used in investing activities.............   (2,998)      (516)
                                                              -------    -------
Cash flows from financing activities:
  Proceeds from notes payable...............................       --      1,750
  Principal payments on notes payable.......................     (750)     2,400
  Principal payments on notes payable, related party........       --       (202)
  Repayment of stockholder receivable.......................    1,700         --
  Proceeds from sale of common stock, net of expense........   39,314         --
  Cash paid for common stock................................       --      2,624
  Principal payments -- capital lease obligation............     (138)      (148)
                                                              -------    -------
          Net cash provided by financing activities.........   40,126      6,424
                                                              -------    -------
Net increase in cash and cash equivalents...................   32,315      2,384
Cash and cash equivalents at beginning of period............    1,165         72
                                                              -------    -------
Cash and cash equivalents at end of period..................  $33,480    $ 2,456
                                                              =======    =======
Other supplemental disclosures:
Noncash investing and financing activities:
  Capital lease obligation..................................  $    --    $    17
  Fixed asset additions included in accounts payable........      233         --
  Accrued interest converted to equity......................       --         92
</TABLE>
 
   The accompanying notes are an integral part of these financial statements.
 
                                        4
<PAGE>   7
 
                            DIGITAL LIGHTWAVE, INC.
 
                   NOTES TO COMPARATIVE FINANCIAL STATEMENTS
 
1.  BASIS OF PRESENTATION:
 
     The accompanying unaudited financial statements have been prepared in
accordance with generally accepted accounting principles for interim financial
information and with the instructions to Form 10-Q and Article 10 of Regulation
S-X. Accordingly, they do not include all of the information and footnotes
required by generally accepted accounting principles for complete financial
statements. In the opinion of management, these statements include all
adjustments, consisting of normal and recurring adjustments, considered
necessary for a fair presentation of results for such periods. The results of
operations for the three and nine month periods ended September 30, 1997,
respectively, are not necessarily indicative of results which may be achieved
for the full fiscal year or for any future period. The unaudited interim
financial statements should be read in conjunction with the financial statements
and notes thereto contained in Digital Lightwave's Form 10-K for the period
ended December 31, 1996, File No. 000-21669.
 
     On January 22, 1998, the Company issued a press release and related Form
8-K indicating that the Company would restate its financial results for quarters
ending June 30, 1997 and September 30, 1997, respectively. The Company's
accompanying financial statements give effect to such restatement for the period
ending September 30, 1997.
 
2.  INITIAL PUBLIC OFFERING:
 
     On February 6, 1997, the Company consummated its Initial Public Offering of
3,658,860 shares issued by the Company at a price of $12.00 per share. Aggregate
net proceeds to the Company were approximately $39.6 million. On February 28,
1997, the Company paid off all the then outstanding notes ($750,000 principal
amount) with proceeds from the Initial Public Offering.
 
3.  INVENTORIES:
 
     Inventories at September 30, 1997 and December 31, 1996 are summarized as
follows:
 
<TABLE>
<CAPTION>
                                                              SEPTEMBER 30,   DECEMBER 31,
                                                                  1997            1996
                                                              -------------   ------------
                                                                     (IN THOUSANDS)
<S>                                                           <C>             <C>
Raw materials...............................................     $1,179           $336
Work-in-process.............................................          0            339
Finished goods..............................................      3,276            175
                                                                 ------           ----
                                                                 $4,455           $850
                                                                 ======           ====
</TABLE>
 
4.  COMPUTATION OF NET INCOME (LOSS) PER SHARE:
 
     Net income (loss) per common and common equivalent shares has been computed
using the weighted average number of common and common equivalent shares
outstanding using the treasury stock method for all periods presented. Shares
used in the net income (loss) per share calculation are summarized as follows:
 
<TABLE>
<CAPTION>
                                            THREE MONTHS ENDED         NINE MONTHS ENDED
                                               SEPTEMBER 30,             SEPTEMBER 30,
                                          -----------------------   -----------------------
                                             1997         1996         1997         1996
                                          ----------   ----------   ----------   ----------
<S>                                       <C>          <C>          <C>          <C>
Weighted average common stock
  outstanding...........................  26,177,777   21,375,584   25,680,064   21,375,584
Weighted average common stock
  equivalents outstanding...............     910,025      708,330      694,324      453,651
                                          ----------   ----------   ----------   ----------
Shares used in net income (loss) per
  share calculation.....................  27,087,802   22,083,914   26,374,388   21,829,235
                                          ==========   ==========   ==========   ==========
</TABLE>
 
                                        5
<PAGE>   8
                            DIGITAL LIGHTWAVE, INC.
 
            NOTES TO COMPARATIVE FINANCIAL STATEMENTS -- (CONTINUED)
 
5.  NEW ACCOUNTING PRONOUNCEMENTS:
 
     In February 1997, the Financial Accounting Standards Board issued SFAS No.
128, "Earnings per Share," which is effective for periods ending after December
15, 1997. This statement establishes standards for computing and presenting
earnings per share data. Management is currently assessing the impact of SFAS
No. 128 on the Company's presentation of earnings per share data in future
periods.
 
6.  COMMITMENTS AND CONTINGENCIES:
 
     The Company from time to time is involved in legal actions arising in the
ordinary course of business. With respect to these matters, management believes
that it has adequate legal defenses and/or provided adequate accruals for
related costs such that the ultimate outcome will not have a material adverse
effect on the Company's future financial position.
 
7.  LEGAL PROCEEDINGS:
 
     As of April 9 1998, 23 class action complaints for violations of the
Federal Securities Laws were filed in the United States District Court for the
Middle District of Florida, on behalf of purchasers of the Company's Common
Stock during certain periods in 1997 and 1998. The complaints named as
defendants the Company, Bryan J. Zwan, the Company's Chairman of the Board,
Chief Executive Officer and President, Beth A. Morris, the Company's Vice
President, Finance and Chief Executive Officer from January, 1995 to July, 1997,
Steven H. Grant, the Company's Vice President, Finance and Secretary, and other
current and former corporate officers. The complaints allege that the Company
and certain officers and directors of the Company 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. The Company believes that it has meritorious defenses to these
lawsuits and intends to defend them vigorously.
 
     On November 5, 1997, Hugh Brian Haney ("Plaintiff") commenced an action in
the United States District Court for the Southern District of Ohio against Bryan
J. Zwan, the Company's Chief Executive Officer, and the Company ("Defendants").
The complaint alleges violations of Section 10(b) of the Securities Exchange Act
and various common law violations by Defendants in connection with Plaintiff's
sale to the Company's predecessor in November 1995, pursuant to a previously
granted option exercisable by Zwan and/or the Company's predecessor, of 4,900
shares of stock in the Company's predecessor, an amount equivalent to 19,215,686
shares of the Company's common stock. The complaint seeks alternative forms of
relief, including, among others, (1) rescission of the sale of the shares
transferred by Plaintiff or (2) damages of not less than $235 million, together
with interest. The Company believes that it has meritorious defenses to this
lawsuit and intends to defend it vigorously.
 
     There can be no assurance, however, that the Company will prevail in these
lawsuits and any unfavorable ruling or judgment against the Company in these
lawsuits could have a material adverse effect on the Company's business,
financial condition and results of operations.
 
     As of April 9, 1998, the Company was not aware of any additional lawsuits
that were pending that could have a material adverse effect on the Company's
business, financial condition and results of operations.
 
                                        6
<PAGE>   9
 
ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
 
     This report contains certain statements of a forward-looking nature
relating to future events or the future performance of the Company. Prospective
and current investors are cautioned that such statements are only predictions
and that actual events or results may differ materially. In evaluating such
statements as well as the future prospects of the Company generally, such
investors should specifically consider various factors identified in the
Company's Report on Form 10-K for the period ended December 31, 1996, including
the matters set forth therein under the caption "Risk Factors," which could
cause actual results to differ materially from those indicated by such
forward-looking statements. Factors that may affect the Company's results of
operations include but are not limited to customer concentration, product
certifications, dependence on single product and uncertain market acceptance of
planned products, competition, management of growth, mergers, rapid
technological change and dependence on new product introductions, substantial
increase in manufacturing operations and dependence on contract manufacturing
and limited source suppliers, government regulations, dependence on key
personnel, dependence on proprietary technology, and volatility of stock price.
The Company participates in a highly concentrated industry, and has limited
visibility with 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.
 
OVERVIEW
 
     The Company manufactures and sells Network Information Computers(TM), and
Remote Access Agents(TM) and has other products in design and development. The
Company's products are based on the Company's core software, firmware and
hardware technology which was developed over a five year period. In February
1996, the Company commenced sales of the ASA 312. To date, the Company has not
entered into long-term agreements or blanket purchase orders for the sale of its
products, but generally obtains purchase orders for immediate shipment and other
cancelable purchase commitments. The Company's sales during a particular quarter
are, therefore, highly dependent upon orders placed by customers during the
quarter. Consequently, sales may fluctuate significantly from quarter to quarter
due to the timing and amount of orders from customers, among other factors.
While the Company believes it is properly positioned to garner additional
customers and market share for the ASA 312 and its derivative products, there
can be no assurance the company will gain further product acceptance or that
additional revenue will materialize from current or future customers.
 
     Gross profit may be affected in the future by the introduction of new
products which generate differing gross margins and by the sales mix during a
given period. The Company plans to pursue Original Equipment Manufacturer (OEM)
relationships with respect to the sale of Remote Access Agents. The Company has
not negotiated any such arrangements but anticipates that its pricing to OEMs
would be less than with respect to direct sales resulting in lower gross margins
in connection with these arrangements. However, sales and marketing expenses are
generally lower in the case of sales to OEMs.
 
     The Company believes that its operating expenses will continue to increase
as a result of a variety of factors including: (i) increased research and
development expenses associated with the completion of the products in
development and the continued enhancement of existing products; and (ii)
increased selling, general and administrative expenses associated with continued
expansion of sales and marketing capabilities, product advertising and
promotion. The Company recognizes research and development expenses when
incurred.
 
RESULTS OF OPERATIONS
 
     The following is a discussion of significant changes in the results of
operations of the Company which occurred in the quarter and nine months ended
September 30, 1997 compared to the quarter and nine months ended September 30,
1996. The following tables summarize the approximate changes in selected
operating items and include dollar changes, percentage changes and percent of
net sales to facilitate the discussions that
 
                                        7
<PAGE>   10
 
follow. The tables compare the quarter ended September 30, 1997 to the quarter
ended September 30, 1996 and the nine months ended September 30, 1997 to the
nine months ended September 30, 1996, respectively:
 
<TABLE>
<CAPTION>
                                     QUARTER ENDED
                             -----------------------------                                 PERCENT OF
                                                               AMOUNT        PERCENT       NET SALES
                             SEPTEMBER 30,   SEPTEMBER 30,     CHANGE        CHANGE      --------------
                                 1997            1996        FAV/(UNFAV)   FAV/(UNFAV)   1997     1996
                             -------------   -------------   -----------   -----------   -----    -----
                                                      (IN MILLIONS, EXCEPT %)
<S>                          <C>             <C>             <C>           <C>           <C>      <C>
Net sales..................      $ 1.2           $ 1.7          $ (.5)          (29)%      100%     100%
Cost of goods sold.........        (.4)            (.6)            .2           (33)       (34)     (37)
                                 -----           -----          -----                    -----    -----
Gross profit...............         .8             1.1            (.3)          (27)        66       63
Engineering and development
  expenses.................       (1.2)            (.7)           (.5)          (71)      (100)     (41)
Sales and marketing
  expenses.................       (1.8)            (.6)          (1.2)         (200)      (150)     (35)
General and administrative
  expenses.................        (.9)            (.3)           (.6)         (200)       (75)     (24)
Other income (expense).....         .5             (.2)            .7           350         42      (12)
                                 -----           -----          -----                    -----    -----
Net income (loss)..........      $(2.6)          $ (.7)         $(1.9)         (271)      (216)%    (47)%
                                 =====           =====          =====                    =====    =====
</TABLE>
 
<TABLE>
<CAPTION>
                                   NINE MONTHS ENDED
                             -----------------------------                                 PERCENT OF
                                                               AMOUNT        PERCENT       NET SALES
                             SEPTEMBER 30,   SEPTEMBER 30,     CHANGE        CHANGE      --------------
                                 1997            1996        FAV/(UNFAV)   FAV/(UNFAV)   1997     1996
                             -------------   -------------   -----------   -----------   -----    -----
                                                      (IN MILLIONS, EXCEPT %)
<S>                          <C>             <C>             <C>           <C>           <C>      <C>
Net sales..................      $ 5.3           $ 3.0          $ 2.3            77%       100%     100%
Cost of goods sold.........       (1.8)           (1.1)           (.7)          (64)       (33)     (38)
                                 -----           -----          -----                    -----    -----
Gross profit...............        3.5             1.9            1.6            84         67       62
Engineering and development
  expenses.................       (3.0)           (1.7)          (1.3)          (76)       (57)     (57)
Sales and marketing
  expenses.................       (3.8)           (1.0)          (2.8)         (280)       (72)     (33)
General and administrative
  expenses.................       (2.5)            (.9)          (1.6)         (178)       (47)     (30)
Other income (expense).....        1.3             (.6)           1.9           317         25      (20)
                                 -----           -----          -----                    -----    -----
Net income (loss)..........      $(4.5)          $(2.3)         $(2.2)          (96)       (84)%    (78)%
                                 =====           =====          =====                    =====    =====
</TABLE>
 
  Sales
 
     Sales for the quarter decreased $.5 million to $1.2 million from $1.7
million in the year ago quarter. Sales to existing customers during the quarter
represented 79% of sales, or $1.0 million as compared to 23% of sales, or $.4
million in the year ago quarter. During the quarter, the Company shipped 34
units in varying configurations of the ASA 312 to a total of 20 customers
(including 6 new customers) at an average selling price ("ASP") of $36,459, as
compared to 48 units to a total of 16 customers (including 12 new customers) at
an ASP of $35,891 in the year ago quarter.
 
     Sales for the nine months ended September 30, 1997, increased $2.3 million
to $5.3 million from $3.0 million in the same period last year. Sales to
existing customers for the period represented 71% of sales, or $3.8 million as
compared to 22% of sales, or $.7 million for the same period last year. During
the period, the Company shipped 452 units in varying configurations at an ASP of
$35,356 compared with 86 units at an ASP of $35,311 for the same period last
year.
 
     The Company believes repeat sales to an existing customer is an important
measure of growing product acceptance in the highly concentrated
telecommunications industry. Despite the sales decline in the current quarter,
sales to existing customers increased during both periods. While there can be no
assurance that this longer-term trend will continue, management believes that
new product offerings including upgrades of existing products offers the
Company's existing customers an opportunity to continue to extend the life of
their initial investment in the Company's products.
 
                                        8
<PAGE>   11
 
  Cost of Goods Sold
 
     Cost of goods sold for the quarter decreased by $.2 million to $.4 million
from $.6 million in the year ago quarter.
 
     Cost of goods sold for the nine months ended September 30, 1997, increased
by $.7 million to $1.8 million from $1.1 million in the year ago period.
 
     The decrease in cost of goods sold during the quarter is related to the
decrease in sales during the quarter. The primary reason for the increase in
cost of good sold for the year-to-date period relates to the increase in volume
of units produced and the increased infrastructure and manufacturing costs
incurred in supporting these efforts. These costs include management, indirect
labor, facility rental, depreciation of equipment, and other operating expenses.
While the overall cost of goods sold has increased, the average cost of goods
sold per unit has declined as a result of allocating fixed production costs over
a larger volume of units produced and the component cost reductions associated
with the purchase of larger lot sizes. During the latter part of the quarter,
the company moved its manufacturing operation to a new expanded facility.
Management believes this new facility can increase production, however, these
additional fixed production costs may initially yield an increase to cost of
goods sold and average cost of goods sold per unit over the near term until the
factory achieves optimum utilization.
 
  Gross Profit
 
     Gross profit for the quarter decreased by $.3 million to $.8 million from
$1.1 million in the year ago quarter. As a percentage of sales, gross margin for
the quarter increased to 65.6% from 63.4%.
 
     Gross profit for the nine months ended September 30, 1997, increased by
$1.6 million to $3.5 million from $1.9 million in the year ago period. As a
percentage of sales, gross margin for the nine months ended September 30, 1997
increased to 66.5% from 62.1%.
 
     As highlighted above, the decrease in gross profit is directly related to
the decrease in sales during the quarter. Despite the decrease in sales during
the current quarter, gross profit percentage increased for both the current
quarter and year-to-date periods as a result of larger lot size purchasing and
allocating fixed production costs over larger year-to-date unit sales volumes.
 
  Engineering and Development
 
     Engineering and development expenses for the quarter increased by $.5
million to $1.2 million from $.7 million in the year ago quarter.
 
     Engineering and development expenses for the nine months ended September
30, 1997, increased by $1.3 million to $3.0 million from $1.7 million in the
year ago period.
 
     The increase in both periods is primarily related to the addition of
engineering, and quality control personnel and the other expenses associated
with the Company's ongoing research and development efforts on products like the
Remote Access Agents, and enhancements to the Company's Network Information
Computers. The Company intends to hire additional personnel and expand the
infrastructure to support these ongoing research and development efforts, and
does not anticipate the rate of growth in dollar terms will subside during the
next several quarters.
 
  Sales and Marketing
 
     Sales and marketing expenses for the quarter increased by $1.2 million to
$1.8 million from $.6 million in the year ago quarter.
 
     Sales and marketing expenses for the nine months ended September 30, 1997,
increased by $2.8 million to $3.8 million from $1.0 million in the year ago
period.
 
     The increase in both periods is related to the addition of personnel for
the Company's direct sales force and marketing functions, an increase in trade
show appearances, and other customer incentives. The company intends to hire
additional personnel to support the expansion of existing sales channels and the
development of
 
                                        9
<PAGE>   12
 
additional sales channels for its products and does not anticipate the rate of
growth in dollar terms or as a percentage of net sales will diminish.
 
  General and Administrative
 
     General and administrative expenses for the quarter increased by $.6
million to $.9 million from $.3 million in the year ago quarter.
 
     General and administrative expenses for the nine months ended September 30,
1997, increased by $1.6 million to $2.5 million from $.9 million in the year ago
period.
 
     The increase in both periods is due to the expansion of facilities,
personnel, and information systems to support the growth of the Company's
business. The Company believes these expenses generally have a large fixed
component, and does not anticipate that the rate of growth will diminish.
 
  Other Income or Expense
 
     Other income for the quarter increased by $.7 million to an income of $.5
million from an expense of $.2 million.
 
     Other income for the nine months ended September 30, 1997 increased by $1.9
million to an income of $1.3 million from an expense of $.6 million.
 
     The increase in both periods relates to interest income generated from the
investment of proceeds from the Company's Initial Public Offering ("IPO").
 
  Net Income or Loss
 
     Net loss for the quarter increased by $1.9 million to a net loss of $2.6
million or $.10 per share, from a net loss of $.7 million or $.03 per share.
 
     Net loss for the nine months ended September 30, 1997 increased by $2.2
million to a net loss of $4.5 million or $.17 per share, from a net loss of $2.3
million or $.11 per share.
 
     The computation of weighted shares outstanding for the 1997 periods reflect
a higher number of shares outstanding as a result of the completion of the
Company's IPO.
 
LIQUIDITY AND CAPITAL RESOURCES
 
     Cash and cash equivalents at September 30, 1997 were approximately $33.5
million compared to approximately $1.2 million at December 31, 1996. The
increase was due primarily to the receipt of approximately $39.6 million from
the completion of the Company's IPO on February 6, 1997. During the quarter
ended September 30, 1997, the Company received a $1.7 million repayment of a
note receivable from its principal shareholder.
 
     As of September 30, 1997, the Company's working capital was approximately
$36.1 million. For the nine months ended September 30, 1997, capital
expenditures were approximately $3.0 million. Future capital expenditures will
depend on several factors including timing of introductions of new products and
enhancements to existing products as well as continued product development
efforts. The Company believes that its available funds and anticipated cash
flows from its operations will satisfy the Company's projected working capital
and capital expenditure requirements for at least the next 12 months.
 
                                       10
<PAGE>   13
 
                           PART II  OTHER INFORMATION
 
ITEM 1.  LEGAL PROCEEDINGS:
 
     As of April 9, 1998, 23 class action complaints for violations of the
Federal Securities Laws were filed in the United States District Court for the
Middle District of Florida, on behalf of purchasers of the Company's Common
Stock during certain periods in 1997 and 1998. The complaints named as
defendants the Company, Bryan J. Zwan, the Company's Chairman of the Board,
Chief Executive Officer and President, Beth A. Morris, the Company's Vice
President, Finance and Chief Financial Officer from January, 1995 to July, 1997,
Steven H. Grant, the Company's Vice President, Finance and Chief Financial
Officer, and other current and former corporate officers. The complaints allege
that the Company and certain officers and directors of the Company 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. The Company believes that it has meritorious defenses to
these lawsuits and intends to defend them vigorously.
 
     On November 5, 1997, Hugh Brian Haney ("Plaintiff") commenced an action in
the United States District Court for the Southern District of Ohio against Bryan
J. Zwan, the Company's Chief Executive Officer, and the Company ("Defendants").
The complaint alleges violations of Section 10(b) of the Securities Exchange Act
and various common law violations by Defendants in connection with Plaintiff's
sale to the Company's predecessor in November 1995, pursuant to a previously
granted option exercisable by Zwan and/or the Company's predecessor, of 4,900
shares of stock in the Company's predecessor, an amount equivalent to 19,215,686
shares of the Company's common stock. The complaint seeks alternative forms of
relief, including, among others, (1) rescission of the sale of the shares
transferred by Plaintiff or (2) damages of not less than $235 million, together
with interest. The Company believes that it has meritorious defenses to this
lawsuit and intends to defend it vigorously.
 
     There can be no assurance, however, that the Company will prevail in these
lawsuits and any unfavorable ruling or judgment against the Company in these
lawsuits could have a material adverse effect on the Company's business,
financial condition and results of operations.
 
     As of April 9, 1998 the Company was not aware of any additional lawsuits
that were pending that could have a material adverse effect on the Company's
business, financial condition and results of operations.
 
ITEM 6.  EXHIBIT AND REPORTS ON FORM 8-K
 
     (a) Exhibits
 
<TABLE>
<CAPTION>
EXHIBIT                            DESCRIPTION
-------                            -----------
<C>        <S>
10.1       Second Lease Amendment, dated 09/10/97, between Registrant
           and Atrium At Clearwater, Limited
10.2       Lease Agreement, dated 06/30/97 between Registrant and
           Pinellas Business Center, Inc.
10.3       Lease Agreement, dated 09/26/97, between Registrant and
           Monmouth/Atlantic Realty Associates L.P.
27.0       Financial Data Schedule (for SEC use only).
</TABLE>
 
     (b) Reports on Form 8-K
 
     No reports on Form 8-K were filed by Digital Lightwave, Inc. during the
quarter ended September 30, 1997.
 
                                       11
<PAGE>   14
 
                                   SIGNATURES
 
     Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
 
                                          DIGITAL LIGHTWAVE, INC.
 
Date: April 15, 1998                      By:       /s/ BRYAN J. ZWAN
                                            ------------------------------------
                                                       Bryan J. Zwan
                                             Chairman, Chief Executive Officer
                                                        and President
                                               (Principal Executive Officer)
 
Date: April 15, 1998                      By:      /s/ STEVEN H. GRANT
                                            ------------------------------------
                                                      Steven H. Grant
                                            Executive Vice President -- Finance,
                                                Chief Financial Officer and
                                                          Secretary
                                            (Principal Financial and Accounting
                                                           Officer)
 
                                       12