<PAGE>   1

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

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

                                   FORM 10-Q

<TABLE>
<S>                  <C>
    (MARK ONE)
        [X]          QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
                     THE SECURITIES EXCHANGE ACT OF 1934

                     FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2000

                                                  OR

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

                     FOR THE TRANSITION PERIOD FROM ____________ TO ____________
</TABLE>

                        COMMISSION FILE NUMBER 000-21669

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

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

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

                             15550 LIGHTWAVE DRIVE
                           CLEARWATER, FLORIDA 33760
                                 (727) 442-6677
        (Address, including zip code, of principal executive offices and
              Registrant's telephone number, including area code)

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

     Indicate by check mark whether Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such report(s)), and (2) has been subject to
such filing requirements for the past 90 days.

                             YES  [X]       NO  [ ]

     The number of shares outstanding of the Registrant's Common Stock as of
August 11, 2000 was 30,092,213.
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
<PAGE>   2

                            DIGITAL LIGHTWAVE, INC.

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

                                     INDEX

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

Item 1.  Consolidated Condensed Financial Statements:
         Consolidated Condensed Balance Sheets -- June 30, 2000 and
         December 31, 1999...........................................    1
         Consolidated Condensed Statements of Operations -- Three
         Months Ended June 30, 2000 and June 30, 1999................    2
         Consolidated Condensed Statements of Operations -- Six
         Months Ended June 30, 2000 and June 30, 1999................    3
         Consolidated Condensed Statements of Cash Flows -- Six
         Months Ended June 30, 2000 and June 30, 1999................    4
         Notes to Consolidated Condensed Financial Statements........    5
Item 2.  Management's Discussion and Analysis of Financial Condition
         and Results of Operations...................................    9

                        PART II.  OTHER INFORMATION
Item 1.  Legal Proceedings...........................................   16
Item 6.  Exhibits and Reports on Form 8-K............................   17
SIGNATURES...........................................................   18
</TABLE>
<PAGE>   3

                                     PART I

                             FINANCIAL INFORMATION

ITEM 1.  CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

                            DIGITAL LIGHTWAVE, INC.

                     CONSOLIDATED CONDENSED BALANCE SHEETS
                                 (IN THOUSANDS)

<TABLE>
<CAPTION>
                                                               JUNE 30,     DECEMBER 31,
                                                                 2000           1999
                                                              -----------   ------------
                                                              (UNAUDITED)
<S>                                                           <C>           <C>
                                         ASSETS
Current assets:
  Cash and cash equivalents, including restricted cash of
     $2,340 and $2,341, respectively........................   $ 15,798       $  7,466
  Accounts receivable, less allowance of $188 and $215,
     respectively...........................................     17,356         15,397
  Inventories...............................................      7,848          6,407
  Prepaid expenses and other current assets.................      1,333            990
                                                               --------       --------
          Total current assets..............................     42,335         30,260
Property and equipment, net.................................      9,114          9,424
Other assets................................................        358            314
                                                               --------       --------
          Total assets......................................   $ 51,807       $ 39,998
                                                               ========       ========
                          LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
  Accounts payable and accrued liabilities..................   $  7,911       $  8,048
  Notes payable, net of discount............................         --          3,000
  Interest payable..........................................         --             68
  Accrued settlement charges................................         --          6,231
                                                               --------       --------
          Total current liabilities.........................      7,911         17,347
Long-term liabilities.......................................        471            498
                                                               --------       --------
          Total liabilities.................................      8,382         17,845
                                                               --------       --------
Stockholders' equity:
  Common stock..............................................          3              3
  Additional paid-in capital................................     73,631         62,807
  Accumulated deficit.......................................    (30,209)       (40,657)
                                                               --------       --------
          Total stockholders' equity........................     43,425         22,153
                                                               --------       --------
          Total liabilities and stockholders' equity........   $ 51,807       $ 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
                                                                       JUNE 30,
                                                              --------------------------
                                                                 2000           1999
                                                              -----------    -----------
<S>                                                           <C>            <C>
Sales.......................................................  $    22,109    $    10,728
Cost of goods sold..........................................        7,102          3,692
                                                              -----------    -----------
  Gross profit..............................................       15,007          7,036
Operating expenses:
  Engineering and development...............................        3,460          2,674
  Sales and marketing.......................................        3,551          3,118
  General and administrative................................        1,898          1,208
                                                              -----------    -----------
          Total operating expenses..........................        8,909          7,000
                                                              -----------    -----------
Operating income............................................        6,098             36
Other income, net...........................................           77             29
                                                              -----------    -----------
Income before income tax....................................        6,175             65
Provision for income taxes..................................           --             --
                                                              -----------    -----------
          Net income........................................  $     6,175    $        65
                                                              ===========    ===========
Per share of common stock:
  Basic net income per share................................  $      0.21    $      0.00
                                                              ===========    ===========
  Diluted net income per share..............................  $      0.20    $      0.00
                                                              ===========    ===========
  Weighted average common shares outstanding................   29,120,397     26,563,964
                                                              ===========    ===========
  Weighted average common and common equivalent shares
     outstanding............................................   31,610,927     27,423,386
                                                              ===========    ===========
</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>
                                                                   SIX MONTHS ENDED
                                                                       JUNE 30,
                                                              --------------------------
                                                                 2000           1999
                                                              -----------    -----------
<S>                                                           <C>            <C>
Sales.......................................................  $    40,668    $    18,841
Cost of goods sold..........................................       13,668          6,878
                                                              -----------    -----------
  Gross profit..............................................       27,000         11,963
Operating expenses:
  Engineering and development...............................        6,820          5,421
  Sales and marketing.......................................        6,676          5,859
  General and administrative................................        3,214          2,324
                                                              -----------    -----------
          Total operating expenses..........................       16,710         13,604
                                                              -----------    -----------
Operating income (loss).....................................       10,290         (1,641)
Other income, net...........................................          158             74
                                                              -----------    -----------
Income (loss) before income tax.............................       10,448         (1,567)
Provision for income taxes..................................           --             --
                                                              -----------    -----------
          Net income (loss).................................  $    10,448    $    (1,567)
                                                              ===========    ===========
Per share of common stock:
  Basic net income (loss) per share.........................  $      0.36    $     (0.06)
                                                              ===========    ===========
  Diluted net income (loss) per share.......................  $      0.33            n/a
                                                              ===========    ===========
Weighted average common shares outstanding..................   28,762,898     26,551,929
                                                              ===========    ===========
Weighted average common and common equivalent shares
  outstanding...............................................   31,483,423     27,146,189
                                                              ===========    ===========
</TABLE>

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

                                        3
<PAGE>   6

                            DIGITAL LIGHTWAVE, INC.

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

<TABLE>
<CAPTION>
                                                                   FOR THE
                                                              SIX MONTHS ENDED
                                                                  JUNE 30,
                                                              -----------------
                                                               2000      1999
                                                              -------   -------
<S>                                                           <C>       <C>
Cash flows from operating activities:
  Net income (loss).........................................  $10,448   $(1,567)
  Adjustments to reconcile net income (loss) to cash
     provided (used) by operating activities:
     Depreciation and amortization..........................    1,386     1,210
     Loss on disposal of property...........................       49         7
     Provision for uncollectible accounts...................       89        --
  Changes in operating assets and liabilities:
     Increase in accounts receivable........................   (2,178)   (2,606)
     (Increase) decrease in inventories.....................   (1,599)      702
     Increase in prepaid expenses and other current
      assets................................................     (656)     (616)
     (Decrease) increase in accounts payable and accrued
      expenses..............................................     (460)    1,106
     Decrease in accrued settlement charges.................       --      (901)
                                                              -------   -------
          Net cash provided (used) by operating
           activities.......................................    7,079    (2,665)
                                                              -------   -------
Cash flows from investing activities:
  Purchase of property and equipment........................     (505)     (680)
                                                              -------   -------
          Net cash used in investing activities.............     (505)     (680)
                                                              -------   -------
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 expense........    4,857       208
  Payments received, lease receivables......................      131       257
  Principal payments, capital lease obligations.............     (230)     (167)
                                                              -------   -------
          Net cash provided by financing activities.........    1,758     3,298
                                                              -------   -------
Net increase (decrease) in cash and cash equivalents........    8,332       (47)
Cash and cash equivalents at beginning of period............    7,466     3,848
                                                              -------   -------
Cash and cash equivalents at end of period..................  $15,798   $ 3,801
                                                              =======   =======
Other supplemental disclosures:
  Cash paid for interest....................................      135        29
Non-cash investing and financing activities:
  Capital lease obligations incurred........................      447       194
  Fixed asset additions included in accounts payable........        9        59
  Accounts receivable related to capital leases.............       --       245
  Issuance of common stock pursuant to litigation
     settlement.............................................    6,231        --
</TABLE>

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

                                        4
<PAGE>   7

                            DIGITAL LIGHTWAVE, INC.

              NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

1. BASIS OF PRESENTATION

     The accompanying unaudited 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 six month periods ended June 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, File No. 000-21669.

2. INVENTORIES

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

<TABLE>
<CAPTION>
                                                              JUNE 30,   DECEMBER 31,
                                                                2000         1999
                                                              --------   ------------
                                                                  (IN THOUSANDS)
<S>                                                           <C>        <C>
Raw materials...............................................   $3,498       $3,404
Work-in-process.............................................    3,068        2,454
Finished goods..............................................    1,282          549
                                                               ------       ------
                                                               $7,848       $6,407
                                                               ======       ======
</TABLE>

3. COMPUTATION OF NET INCOME (LOSS) PER SHARE

     Basic income (loss) per share is based on the weighted average number of
common shares outstanding during the periods presented. For the six months ended
June 30, 1999, diluted loss per share, which includes the effect of incremental
shares from common stock equivalents using the treasury stock method, is not
included in the calculation of net loss per share as the inclusion of such
equivalents would be anti-dilutive. The table below shows the calculation of
basic weighted average common shares outstanding and the incremental number of
shares arising from common stock equivalents under the treasury stock method:

<TABLE>
<CAPTION>
                                           THREE MONTHS ENDED         SIX MONTHS ENDED
                                                JUNE 30,                  JUNE 30,
                                        ------------------------   -----------------------
                                           2000          1999         2000         1999
                                        ----------    ----------   ----------   ----------
<S>                                     <C>           <C>          <C>          <C>
Basic:
  Weighted average common shares
     outstanding......................  29,120,397    26,563,964   28,762,898   26,551,929
                                        ----------    ----------   ----------   ----------
          Total basic.................  29,120,397    26,563,964   28,762,898   26,551,929
Diluted:
  Incremental shares for common stock
     equivalents......................   2,490,530       859,422    2,720,525      594,260
                                        ----------    ----------   ----------   ----------
          Total dilutive..............  31,610,927    27,423,386   31,483,423   27,146,189
                                        ==========    ==========   ==========   ==========
</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

                                        5
<PAGE>   8
                            DIGITAL LIGHTWAVE, INC.

      NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS -- (CONTINUED)

Company's Common Stock. The complaints named as defendants the Company, Bryan J.
Zwan, a current director of the Company and the Company's former Chairman and
Chief Executive Officer, 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.

     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
that pertain to the Company were dismissed with prejudice. The District Court
judgment approving settlement of the securities class actions is now 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. The Company believes that it has fulfilled
its obligations under the settlement agreement and that the claims made by
Plaintiff against the Company in this action are without merit. Accordingly, 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. On June 30, 2000, the

                                        6
<PAGE>   9
                            DIGITAL LIGHTWAVE, INC.

      NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS -- (CONTINUED)

Company filed a motion seeking summary judgment in its favor. The motion is
pending. The trial in this matter is scheduled to commence on September 11,
2000. The Company intends to defend this action vigorously. However, there can
be no assurance that the Company will succeed in defending or settling this
action. Additionally, there can be no assurance 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 late this year or early next year.
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 our 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 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.

                                        7
<PAGE>   10
                            DIGITAL LIGHTWAVE, INC.

      NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS -- (CONTINUED)

6. OTHER MATTERS

     On October 14, 1999, the Company and Dr. Bryan J. Zwan, the Company's
majority stockholder and a 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.

                                        8
<PAGE>   11

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

     This report contains certain statements of a forward-looking nature
relating to future events or the future performance of the Company. Prospective
and current investors are cautioned that such statements are only predictions
and that actual events or results may differ materially. In evaluating such
statements as well as the future prospects of the Company generally, such
investors should specifically consider various factors identified in the
Company's Annual Report on Form 10-K for the period ended December 31, 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 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,
potential year 2000 problems 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 product introductions and enhancements
and the introduction of competitive products. Because the cost of goods sold
tends to remain relatively stable for any given product, fluctuations in the ASP
may have a material adverse effect on the Company's results of operations.

     The Company 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

                                        9
<PAGE>   12

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.

     Since inception the Company has incurred substantial net operating losses
as a result of significant investment in research and development, sales and
marketing and administrative expenses until the quarter ended June 30, 1999 when
the Company showed its first profitable quarter. Profitability has been
sustained through the quarter ended June 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.

RESULTS OF OPERATIONS

     The following is a discussion of significant changes in the results of
operations of the Company which occurred in the quarter and six months ended
June 30, 2000 compared to the quarter and six months ended June 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
                                                JUNE 30,   JUNE 30,    FAV/      FAV/      ------------
                                                  2000       1999     (UNFAV)   (UNFAV)    2000    1999
                                                --------   --------   -------   -------    ----    ----
                                                                (IN MILLIONS, EXCEPT %)
<S>                                             <C>        <C>        <C>       <C>        <C>     <C>
Net sales.....................................   $22.1      $10.7      $11.4       107%    100%    100%
Cost of goods sold............................    (7.1)      (3.6)      (3.5)      (97)     32      34
                                                 -----      -----      -----               ---     ---
Gross profit..................................    15.0        7.1        7.9       111      68      66
Engineering and development expenses..........    (3.5)      (2.7)      (0.8)      (28)     16      25
Sales and marketing expenses..................    (3.5)      (3.1)      (0.4)      (11)     15      29
General and administrative expenses...........    (1.9)      (1.2)      (0.7)      (58)      9      11
                                                 -----      -----      -----               ---     ---
          Total operating expenses............    (8.9)      (7.0)      (1.9)      (27)     40      65
                                                 -----      -----      -----               ---     ---
Operating income..............................     6.1        0.1        6.0     5,997      28       1
Other income, net.............................     0.1         --        0.1       167      --      --
                                                 -----      -----      -----               ---     ---
Pre-tax income................................     6.2        0.1        6.1     6,075      28       1
Income taxes..................................      --         --         --        --      --      --
                                                 -----      -----      -----               ---     ---
Net income....................................   $ 6.2      $ 0.1      $ 6.1     6,075%     28%      1%
                                                 =====      =====      =====               ===     ===
</TABLE>

                                       10
<PAGE>   13

<TABLE>
<CAPTION>
                                                 SIX MONTHS ENDED
                                                -------------------   AMOUNT    PERCENT     PERCENT OF
                                                                      CHANGE    CHANGE      NET SALES
                                                JUNE 30,   JUNE 30,    FAV/      FAV/      ------------
                                                  2000       1999     (UNFAV)   (UNFAV)    2000    1999
                                                --------   --------   -------   -------    ----    ----
                                                                (IN MILLIONS, EXCEPT %)
<S>                                             <C>        <C>        <C>       <C>        <C>     <C>
Net sales.....................................   $ 40.7     $ 18.8     $21.9      116%     100%    100%
Cost of goods sold............................    (13.7)      (6.9)     (6.8)     (98)      34      36
                                                 ------     ------     -----               ---     ---
Gross profit..................................     27.0       11.9      15.1      127       66      64
Engineering and development expenses..........     (6.8)      (5.4)     (1.4)     (26)      17      29
Sales and marketing expenses..................     (6.7)      (5.9)     (0.8)     (13)      16      31
General and administrative expenses...........     (3.2)      (2.3)     (0.9)     (40)       8      12
                                                 ------     ------     -----               ---     ---
          Total operating expenses............    (16.7)     (13.6)     (3.1)     (23)      41      72
                                                 ------     ------     -----               ---     ---
Operating income (loss).......................     10.3       (1.7)     12.0      705       25      (8)
Other income, net.............................      0.1        0.1        --      103       --      --
                                                 ------     ------     -----               ---     ---
Pre-tax income (loss).........................     10.4       (1.6)     12.0      752       25      (8)
Income taxes..................................       --         --        --       --       --      --
                                                 ------     ------     -----               ---     ---
Net income (loss).............................   $ 10.4     $ (1.6)    $12.0      752%      25%     (8)%
                                                 ======     ======     =====               ===     ===
</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 $11.4 million, or 107%, to $22.1 million from $10.7 million in the
year ago quarter. Sales to existing customers during the quarter represented 80%
of sales, or $17.7 million as compared to 93% of sales, or $9.9 million in the
year ago quarter. During the quarter, the Company shipped 337 total units
(including 7 NAA's) at an ASP of $60,958 as compared to 278 units (including 5
NAA's) at an ASP of $36,924 in the year ago quarter.

     Net sales for the six months ended June 30 2000, increased $21.9 million to
$40.7 million from $18.8 million in the year ago period. Sales to existing
customers for the period represented 85% of sales, or $34.8 million as compared
to 88% of sales, or $16.6 million for the same period last year. During the
period, the Company shipped 686 total units (including 25 NAA's) at an ASP of
$55,297 as compared to 506 units (including 5 NAA's) at an ASP of $36,185 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
$1.8 million of revenue from upgrades compared to $0.5 million in the prior
year. For the six months ended June 30, 2000, revenue from upgrades totaled $3.3
million as compared to $0.9 million in the prior year period. In each of these
periods, the majority of the upgrades were related to the conversion of NIC's to
OC-48 speeds.

     Sales 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 $7.1 million from $3.6 million
in the year ago quarter.

                                       11
<PAGE>   14

     Cost of goods sold for the six months ended June 30, 2000 increased by $6.8
million to $13.7 million from $6.9 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 June 30, 2000 increased by $7.9 million
to $15.0 million from $7.1 million in the year ago quarter. As a percentage of
sales, gross margin for the quarter increased to 67.9% from 65.6%.

     Gross profit for the six months ended June 30, 2000 increased by $15.1
million to $27.0 million from $11.9 million in the year ago period. As a
percentage of sales, gross margin increased to 66.4% from 63.5%.

     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, better
inventory management, 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 assets, outside consulting fees and other development expenses.
Engineering and development expenses for the quarter ended June 30, 2000
increased by $0.8 million to $3.5 million, or 15.7% of net sales, from $2.7
million, or 24.9% of net sales, in the year ago quarter.

     Engineering and development expenses for the six months ended June 30, 2000
increased by $1.4 million to $6.8 million, or 16.8% of net sales from $5.4
million, or 28.8% of net sales, in the year ago period.

     The dollar increase for both the quarter and year-to-date period is
primarily due to development efforts centered around the Company's new products
within the NIC and NAA product lines. In addition, the Company incurred certain
other employee benefits expenses during the six months ended June 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.

  Sales and Marketing

     Sales and marketing expenses principally include salaries and commissions
paid on sales of products, travel expenses, tradeshow costs, and costs of
promotional materials and customer incentives. Sales and marketing expenses for
the quarter ended June 30, 2000 increased by $0.4 million to $3.5 million, or
16.1% of net sales, from $3.1 million, or 29.1% of net sales, in the year ago
quarter.

     Sales and marketing expenses for the six months ending June 30, 2000
increased $0.8 million to $6.7 million, or 16.4% of net sales, compared to $5.9
million, or 31.1% 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, an increase in marketing related expenses, and other employee benefit
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
June 30, 2000 increased by $0.7 million to $1.9 million, or 8.6% of net sales,
from $1.2 million, or 11.3% of net sales, in the year ago quarter.

     General and administrative expenses for the six months ended June 30, 2000
increased by $0.9 million to $3.2 million, or 7.9% of net sales, from $2.3
million, or 12.3% of net sales, in the year ago period.

                                       12
<PAGE>   15

     The increase for both 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, and increased rental expense. These items were
partially offset by certain salary and related savings.

  Other Income or Expense

     Other income for the quarter ended June 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 six months ended June 30, 2000 was basically unchanged
from the same period last year at $0.1 million.

     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 June 30, 2000 increased by $6.1 million to
$6.2 million or $.20 per share (diluted), from net income of $0.1 million or
$.00 per share in the year ago quarter.

     Net income for the six months ended June 30, 2000 increased by $12.0
million to $10.4 million or $.33 per share (diluted), from a net loss of $1.6
million or $.06 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 June 30, 2000 were approximately $15.8
million, an increase of $8.3 million from December 31, 1999. As of June 30,
2000, the Company's working capital was approximately $34.4 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. 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 six months ended June 30, 2000,
capital expenditures were approximately $0.5 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.

                                       13
<PAGE>   16

     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 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 March 14, 2000, the Company entered into a non-binding Letter of
Commitment with Congress Financial Corporation pursuant to which Congress
Financial Corporation would provide the Company with a $10.0 million line of
credit (the "Congress Line of Credit"). Under the Congress Line of Credit, the
Company would 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 Congress Line of Credit will have an initial term of two
years. All indebtedness outstanding under the Congress Line of Credit will be
collateralized by substantially all of the Company's assets. The transaction is
subject to certain conditions of closing including the completion of due
diligence, execution of a definitive agreement, and other customary items.

     The Company continues to consider various financing alternatives, including
the Congress Line of Credit 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.

YEAR 2000 DISCLOSURE

     The Company is aware of the issues associated with existing
computer-controlled systems properly recognizing and processing information
relating to dates in and after the Year 2000. Systems that cannot adequately
process dates beyond the year 1999 could generate erroneous data or cause a
system to fail. The problem may affect internal information technology ("IT")
systems used by the Company for product development, accounting, distribution
and planning. The problem may also affect non-IT embedded systems such as
building security systems, machine controllers, and other equipment. During
1999, the Company completed its assessment of its Year 2000 readiness for its
operations relating to (1) the Company's software products, (2) the Company's
internal IT and non-IT systems and (3) third party customers, vendors and others
with whom the Company does business. Appropriate corrective actions were taken.
The cost of the Year 2000 preparedness effort was funded through operating cash
flows and was expensed by the Company. The Company did not incur significant
expense in becoming Year 2000 compliant as both the majority of our product
software and the infrastructure of our internal systems were developed after the
Year 2000 risks were realized.

                                       14
<PAGE>   17

     Now that the Company has entered the Year 2000, we have continued testing
our product, internal IT and non-IT systems and, to date, we have not
experienced any material Year 2000 disruptions or failures, nor have we been
notified of any disruptions or failures by any of our third party customers,
vendors and others with whom the Company does business.

     Trends in customer spending patterns as a result of resources expended in
Year 2000 compliance efforts and Year 2000 litigation throughout the computer
industry were also identified by the Company as risks associated with Year 2000.
To date, we have seen no significant changes in customer purchasing patterns nor
are we aware of any Year 2000 litigation which might be brought against the
Company.

     However, there is an ongoing risk that Year 2000 related problems could
still occur and we will continue to monitor Year 2000 issues as they relate to
our internal systems, our products, third parties with whom we interact, and
industry trends. We cannot assure that our Year 2000 compliance program, or
similar programs by third parties with whom we do business, will be successful.
We may incur significant costs in resolving any Year 2000 issues that may arise
in the future. If not resolved, these issues could have a significant adverse
impact on our business, operating results, and financial condition.

                                       15
<PAGE>   18

                                    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,
a current director of the Company and our former Chairman and Chief Executive
Officer, 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 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 that pertain to the Company were dismissed with prejudice.
The District Court judgment approving settlement of the securities class actions
is now 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 director and
former Chairman and Chief Executive Officer of the Company, violated Sections
17(a)(1), 17(a)(2), and 17(a)(3) of the Securities Act of 1933, Section 10(b) of
the Securities Exchange Act of 1934, and Rules 10b-5 and 13b2-2 thereunder, and
that he aided and abetted the Company's alleged violations of Sections 13(a) and
13(b)(2) of the Exchange Act, and Rules 13a-13 and 12b-20 thereunder. 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

                                       16
<PAGE>   19

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. We believe that we have fulfilled our
obligations under the settlement agreement and that the claims made by Plaintiff
against us in this action are without merit. Accordingly, in response to this
action, we filed a motion to dismiss for failure to state a claim against
Digital Lightwave. On March 30, 2000, the Court granted in part and denied in
part our motion to dismiss. On May 1, 2000, Plaintiff filed an amended complaint
alleging two breach of contract claims against us. On June 30, 2000, we filed a
motion seeking summary judgment in our favor. The motion is pending. The trial
in this matter is scheduled to commence on September 11, 2000. We intend to
defend this action vigorously. However, there can be no assurance that we will
succeed in defending or settling this action. Additionally, we cannot assure you
that the action will not have a material adverse effect on Digital Lightwave.

     On November 23, 1999, Seth P. Joseph, a former officer of Digital
Lightwave, commenced an arbitration proceeding against us alleging breach of his
employment 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 late this year or early next year. 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 6.  EXHIBIT AND REPORTS ON FORM 8-K

     (a) Exhibits

EXHIBIT   DESCRIPTION

27.0 -- Financial Data Schedule (for SEC use only).

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

                                       17
<PAGE>   20

                                   SIGNATURES

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

                                          Digital Lightwave, Inc.

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

                                            Date: August 14, 2000

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

                                            Date: August 14, 2000

                                       18