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

                                   FORM 10-Q
(MARK ONE)

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

               FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2002, OR

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

        FOR THE TRANSITION PERIOD FROM _____________ TO _____________ .

                                   000-21669
                           (Commission File Number)

                          ___________________________

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

                          ___________________________

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

         15550 LIGHTWAVE DRIVE                            33760
          CLEARWATER, FLORIDA                          (Zip Code)
(Address of principal executive offices)

                                (727) 442-6677
             (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 12, 2002 was 31,371,681.



                                       #

<PAGE>



                             DIGITAL LIGHTWAVE, INC.

                          QUARTERLY REPORT ON FORM 10-Q
                       FOR THE PERIOD ENDED JUNE 30, 2002

                                      INDEX


                                                                         PAGE

                        PART I.  FINANCIAL INFORMATION

Item 1.   Consolidated Condensed Financial Statements:

          Consolidated Condensed Balance Sheets-June 30, 2002
          (Unaudited) and December 31, 2001..........................     1

          Consolidated Condensed Statements of Operations (Unaudited)
          Three Months Ended June 30, 2002 and June 30, 2001.........     2

          Consolidated Condensed Statements of Operations (Unaudited)
          Six Months Ended June 30, 2002 and June 30, 2001...........     3

          Consolidated Condensed Statements of Cash Flows  (Unaudited)
          Six Months Ended June 30, 2002 and June 30, 2001...........     4

          Notes to Consolidated Condensed Financial Statements
          (Unaudited)................................................     5

Item 2.   Management's Discussion and Analysis of Financial Condition
          and Results of Operations..................................    11

Item 3.   Quantitative and Qualitative Disclosures About Market Risk.    20

                          PART II.  OTHER INFORMATION

Item 1.   Legal Proceedings..........................................    21

Item 4.   Submission of Matters to a Vote of Security Holders........    22

Item 5.   Other Information .........................................    22

Item 6.   Exhibits and Reports on Form 8-K...........................    23

SIGNATURES...........................................................    24

EXHIBIT INDEX........................................................    25


                                       #

<PAGE>
      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,
<S> <C>          <C>                                                       <C> <C>                     <C> <C>
                                                                                     2002                     2001
                                                                                --------------           --------------
                                                                                  (UNAUDITED)
                                                           ASSETS
Current assets:
    Cash and cash equivalents                                                    $      16,114            $      51,044
    Restricted cash and cash equivalents                                                12,839                       --
    Short-term investments                                                              14,690                       --
    Accounts receivable, less allowance of $1,483 and $5,900, respectively               7,143                    7,638
    Inventories, net                                                                    15,457                   16,565
    Prepaid expenses and other current assets                                            3,151                      895
                                                                                 -------------            -------------
                 Total current assets                                                   69,394                   76,142
Property and equipment, net                                                             10,947                    9,917
Other assets                                                                               209                      203
                                                                                 -------------            -------------
                 Total assets                                                    $      80,550            $      86,262
                                                                                 =============            =============

                                            LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
    Accounts payable and accrued liabilities                                     $       7,920            $       7,287
    Accrued litigation charge                                                            4,650                    4,100
    Notes payable                                                                          361                       --
                                                                                 -------------            -------------
                 Total current liabilities                                              12,931                   11,387
    Revolving credit facility                                                           10,000                       --
    Other long-term liabilities                                                            815                      809
                                                                                 -------------            -------------
                 Total liabilities                                                      23,746                   12,196
                                                                                 -------------            -------------
Stockholders' equity:
    Preferred stock, $.0001 par value; authorized 20,000,000
                 shares; no shares issued or outstanding                                    --                       --
    Common stock, $.0001 par value; authorized 200,000,000
                 shares; issued and outstanding 31,371,681 and
                 31,269,723 shares in 2002 and 2001, respectively                            3                        3
    Additional paid-in capital                                                          80,817                   80,511
    Accumulated deficit                                                                (24,020)                  (6,448)
    Accumulated other comprehensive income                                                   4                       --
                                                                                 -------------            -------------
                  Total stockholders' equity                                            56,804                   74,066
                                                                                 -------------            -------------
                 Total liabilities and stockholders' equity                      $      80,550            $      86,262
                                                                                 =============            =============
</TABLE>

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


<PAGE>

                            DIGITAL LIGHTWAVE, INC.

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

<TABLE>
<CAPTION>
                                                                                 THREE MONTHS ENDED
<S>  <C>                    <C>                               <C>     <C>                  <C>
                                                                                     JUNE  30,
                                                                                --------------------
                                                                              2002                2001
                                                                          ------------        ------------
Net sales                                                                 $      4,214        $     34,517
Cost of goods sold                                                               8,370              10,423
                                                                          ------------        ------------
     Gross profit (loss)                                                        (4,156)             24,094
                                                                          ------------        ------------
Operating expenses:
     Engineering and development                                                 3,461               3,773
     Sales and marketing                                                         2,331               4,866
     General and administrative                                                  1,695               2,383
     Litigation charge                                                             550                   -
                                                                          ------------        ------------
                            Total operating expenses                             8,037              11,022
                                                                          ------------        ------------
Operating income (loss)                                                        (12,193)             13,072
Other income, net                                                                  168                 444
                                                                          ------------        ------------
Income (loss) before income taxes                                              (12,025)             13,516
Provision for income taxes                                                           -               4,193
                                                                          ------------        ------------
                            Net income (loss)                             $    (12,025)       $      9,323
                                                                          ============        ============
Per share of common stock:
     Basic net income (loss) per share                                    $      (0.38)       $       0.30
                                                                          ============        ============
     Diluted net income (loss) per share                                  $      (0.38)       $       0.28
                                                                          =============       ============
     Weighted average common shares outstanding                              31,356,470         30,851,260
                                                                          =============       ============
     Weighted average common and common equivalent shares outstanding        31,356,470         32,731,565
                                                                          =============       ============
</TABLE>



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


<PAGE>
                            DIGITAL LIGHTWAVE, INC.

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



<TABLE>
<CAPTION>
                                                                                  SIX MONTHS ENDED
<S>  <C>                    <C>                               <C>     <C>                  <C>
                                                                                     JUNE  30,
                                                                                --------------------
                                                                              2002                2001
                                                                          ------------        ------------
Net sales                                                                 $     10,513        $     68,935
Cost of goods sold                                                              11,913              20,922
                                                                          ------------        ------------
     Gross profit (loss)                                                        (1,400)             48,013
                                                                          ------------        ------------
Operating expenses:
     Engineering and development                                                 6,793               7,411
     Sales and marketing                                                         4,789               9,891
     General and administrative                                                  3,082               3,943
     Restructuring charge                                                        1,300                   -
     Litigation charge                                                             550                   -
                                                                          ------------        ------------
                            Total operating expenses                            16,514              21,245
                                                                          ------------        ------------
Operating income (loss)                                                        (17,914)             26,768
Other income, net                                                                  342                 854
                                                                          ------------        ------------
Income (loss) before income taxes                                              (17,572)             27,622
Provision for income taxes                                                           -               5,320
                                                                          ------------        ------------
                            Net income (loss)                             $    (17,572)       $     22,302
                                                                          ============        ============
Per share of common stock:
     Basic net income (loss) per share                                    $      (0.56)       $       0.73
                                                                          ============        ============
     Diluted net income (loss) per share                                  $      (0.56)       $       0.69
                                                                          ============        ============
     Weighted average common shares outstanding                             31,332,766          30,691,928
                                                                          ============        ============
     Weighted average common and common equivalent shares outstanding       31,332,766          32,444,532
                                                                          ============        ============
</TABLE>



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


<PAGE>
                            DIGITAL LIGHTWAVE, INC.

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


<TABLE>
<CAPTION>
                                                                               SIX MONTHS ENDED
<S> <C>     <C>                                                     <C> <C>                 <C>
                                                                                   JUNE 30,
                                                                             --------------------
                                                                            2002               2001
Cash flows from operating activities:                                    ----------         ----------
    Net income (loss)                                                    $  (17,572)        $   22,302
    Adjustments to reconcile net income to cash (used in)  provided
            by operating activities:
            Depreciation and amortization                                     1,762              1,603
            Loss on disposal of property                                         41                 12
            Provision for uncollectible accounts                                 --                252
            Provision for excess and obsolete inventory                       6,000                 --
            Income tax benefit from stock options                                --              5,320
            Restructuring charges                                             1,300                 --
    Changes in operating assets and liabilities:
            Decrease (increase) in accounts receivable                          495            (10,811)
            Increase in inventories                                          (7,079)            (2,443)
            Increase in prepaid expenses and other assets                    (2,115)              (426)
            Decrease in accounts payable and accrued expenses                  (261)            (2,125)
            Increase in accrued litigation charge                               550                 --
                                                                         ----------         ----------
            Net cash (used in) provided by operating activities             (16,879)            13,684
                                                                         ----------         ----------
Cash flows from investing activities:
    Purchases of short-term investments                                     (14,690)                --
    Increase in restricted cash and cash equivalents                        (12,839)                --
    Purchases of property and equipment                                        (749)            (1,160)
    Increase in notes receivable                                               (175)              (200)
                                                                         ----------         ----------
            Net cash used in investing activities                           (28,453)            (1,360)
                                                                         ----------         ----------
Cash flows from financing activities:
    Proceeds from notes payable                                                 811                 --
    Principal payments on notes payable                                        (451)                --
    Borrowing under revolving credit facility                                10,000                 --
    Proceeds from sale of common stock                                          306              2,832
    Payments received from lease receivables                                     --                 33
    Principal payments on capital lease obligations                            (268)              (268)
                                                                         ----------         ----------
            Net cash  provided by financing activities                       10,398              2,597
                                                                         ----------         ----------
Net (decrease) increase in cash and cash equivalents                        (34,934)            14,921
Effect of translation adjustment                                                  4                 --
Cash and cash equivalents at beginning of period                             51,044             30,481
                                                                         ----------         ----------
Cash and cash equivalents at end of period                               $   16,114         $   45,402
                                                                         ==========         ==========
Other supplemental disclosures:
    Cash paid for interest                                               $       19         $       34
    Fixed assets capitalized from inventory                              $    2,186         $      753
</TABLE>




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


<PAGE>
                            DIGITAL LIGHTWAVE, INC.

              NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
                                   (Unaudited)
1.  BASIS OF PRESENTATION

   The accompanying unaudited  consolidated  condensed  financial statements of
Digital   Lightwave,  Inc.  and  its  subsidiaries  (the  "Company",   "Digital
Lightwave",  "us,"  "we,"  "our,"  etc.)  have been prepared in accordance with
generally accepted accounting principles for  interim financial information and
with  the  instructions  to  Form  10-Q  and  Article  10  of  Regulation  S-X.
Accordingly, they do not include all of the information  and footnotes required
by generally accepted accounting principles for complete financial  statements.
In  the  opinion  of  management,  these  statements  include  all adjustments,
consisting of normal and recurring adjustments, considered necessary for a fair
presentation  of  results for such periods. The results of operations  for  the
six month period  ended  June  30,  2002  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, 2001.

2.  NEW SUBSIDIARIES AND BRANCH OFFICES

   During the second  quarter  of  2002,  two  new  subsidiaries  were  formed.
Digital  Lightwave  Asia  Pacific  Pty, Ltd. is based in Australia and provides
sales and sales support in the Asia  Pacific region.   Digital Lightwave Latino
Americana  Ltda.  is  based in Brazil and  provides  sales  and  sales  support
in Latin  America. All significant intercompany transactions and balances are
eliminated  in  consolidation. The  translation  adjustment that results  when
converting  the financial statements of these subsidiaries  from  their  local
currencies to US  dollars  is  recorded  as  a component of other comprehensive
income.

   During  the second quarter of 2002, four new offices were established.   The
offices are  located  in  Australia,  China, Taiwan and Brazil and will provide
sales  and  sales  support  for those respective  countries.   The  offices  in
Australia, China and Taiwan will  be  managed by Digital Lightwave Asia Pacific
Pty, Ltd. and the office in Brazil will  be managed by Digital Lightwave Latino
Americana Ltda.

3.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

SHORT-TERM INVESTMENTS

   The  Company's  short-term  investments  consist  of  highly  liquid  debt
instruments  with  strong  credit ratings and remaining maturities of less than
one year.  Commercial paper  investments  with  a  maturity  greater than three
months,  but  less than one year at the time of purchase are considered  to  be
short-term  investments.    The  Company  classifies  its  existing  short-term
investments as available-for-sale  in  accordance  with  Statement of Financial
Accounting Standards No, 115, "Accounting For Certain Investments  In  Debt And
Equity  Securities."   These securities are carried at fair market value,  with
unrealized gains and losses  reported in stockholders' equity as a component of
other comprehensive income.  Gains or losses on securities sold are recorded as
other income (loss) in the consolidated  statement  of  operations based on the
specific identification method.

ACCOUNTS RECEIVABLE

   The balance in accounts receivable includes approximately  $7.4  million  in
trade  receivables,  $1.5  million in the allowance for doubtful accounts, $0.8
million in a receivable from  Jabil  Circuit,  Inc.  and  approximately $0.4
million in other miscellaneous receivables.

   The  reduction  in  the  allowance  for  doubtful  accounts  was   primarily
attributable to the write-off of uncollectible balances and the repossession of
approximately  $3.5 million in product that was previously deemed uncollectible
and included in the allowance for doubtful accounts.   The repossessed products
were taken from  customers  in  financial  difficulty  through  the  collection
efforts  of  the  Company.  Since these balances were previously reserved,  the
original cost of the  repossessed  units  was charged against the allowance for
doubtful accounts when the units were returned to inventory.

#


<PAGE>
INVENTORY

  Inventories are stated at the lower of cost (first-in, first-out) or market.
The Company records a provision for excess and obsolete inventory whenever such
an impairment has been identified.

REVENUE RECOGNITION

  The Company derives its revenue from product  sales.   The Company recognizes
revenue from the sale of products when persuasive evidence  of  an  arrangement
exists, the product has been delivered, the price is fixed and determinable and
collection of the resulting receivable is reasonably assured.

  For all sales, the Company uses a binding purchase order as evidence  that  a
sales  arrangement  exists.    Sales  through  international  distributors  are
evidenced   by   a   master  agreement  governing  the  relationship  with  the
distributor.  The Company either obtains an end-user purchase order documenting
the order placed with  the  distributor or proof of delivery to the end user as
evidence that a sales arrangement  exists.   For  demonstration  units  sold to
distributors,  the  distributor's binding purchase order is evidence of a sales
arrangement.

  For domestic sales,  delivery generally occurs when product is delivered to a
common carrier.  Demonstration  units  sold  to  international distributors are
considered delivered  when the units are delivered  to  a  common  carrier.  An
allowance is provided for sales returns based on historical experience.

  For sales made under an OEM arrangement, delivery generally occurs  when  the
product  is  delivered  to a common carrier.  OEM sales are defined as sales of
the Company's products to  a  third  party  that will market the products under
their brand.

  For trade-in sales, including both Company and competitor products, that have
a cash component of greater than 25% of the fair value of the sale, the Company
recognizes revenue based upon the fair value  of  what  is  sold  or  received,
whichever  is  more  readily determinable, if the Company has demonstrated  the
ability to sell its trade-in  inventory  for  that  particular  product  class.
Otherwise,  the  Company  accounts  for  the  trade-in  sale  as a  nonmonetary
transaction  and  follows  the  guidance  found in Accounting Principles  Board
Opinion  No.  29,  "Accounting  for  Nonmonetary   Transactions"   and  related
interpretations.   Revenue and cost of sales are recorded based upon  the  cash
portion of the transaction.   The remaining costs associated with the new units
are assigned to the units received  on  trade.   When  the  trade-in  units are
resold,  revenue is recorded based upon the sales price and cost of goods  sold
is charged  with  the  value  assigned  to  trade-in  units  from  the original
transaction.

  At  the  time  of  the  transaction,  the  Company assesses whether the price
associated with its revenue transactions is fixed  and determinable and whether
or not collection is reasonably assured. The Company assesses whether the price
is  fixed  and  determinable  based on the payment terms  associated  with  the
transaction.  Standard payment  terms  for  domestic customers are 30 days from
the invoice date.  Distributor contracts  provide standard  payment terms of 60
days from the invoice date.  The Company does not offer extended payment terms.

  The Company assesses collection based on a  number of factors, including past
transaction  history  with  the  customer  and  the  credit-worthiness  of  the
customer. Collateral is not requested from customers.  If it is determined that
collection of an accounts receivable is not reasonably  assured,  the amount of
the  accounts  receivable  is  deferred  and  revenue  recognized  at  the time
collection becomes reasonably assured.

  Most sales arrangements do not generally include acceptance clauses. However,
if a sales arrangement includes an acceptance provision, acceptance occurs upon
the  earlier  of receipt of a written customer acceptance or expiration of  the
acceptance period.

TRADE-IN REVENUE

  For the quarter ended June 30, 2002 the Company recorded approximately $1.3
million in revenue from transactions that included a trade-in component.  For
the six months ended June 30, 2002 the Company recorded approximately $2.0
million in revenue from transactions that included a trade-in component.
#


<PAGE>
  4.  INVENTORIES

   Inventories  at  June  30,  2002  and  December  31,  2001 are summarized as
follows:

<TABLE>
<CAPTION>
                                                 JUNE 30,        DECEMBER 31,
<S>                     <C>                 <C> <C>              <C>
                                                   2002              2001
                                                ----------         ----------
                                                        (IN THOUSANDS)
Raw materials                                   $   10,795         $    9,341
Work-in-process                                      4,701              6,417
Finished goods                                       5,724              4,640
In transit                                           2,332                 --
Provision for excess and obsolete inventory         (8,095)            (3,833)
                                                ----------         ----------
                                                $   15,457    $        16,565
                                                ==========         ==========
</TABLE>

   In December 2001, the Company signed a manufacturing service  agreement with
Jabil  Circuit,  Inc. ("Jabil"), a leading provider of technology manufacturing
services with a customer  base  of industry-leading companies.  Under the terms
of  the  agreement,  Jabil  will  serve   as  the  Company's  primary  contract
manufacturer for the Company's circuit board and product assembly and will also
provide engineering design services.  Jabil's  cumulative  purchases  from  the
Company  have  been  approximately  $12.0 million through June 30, 2002.  As of
June 30, 2002, the Company was committed  to  purchase $5.7 million of finished
goods from Jabil through 2002.  Under the  terms  of  the agreement, Jabil
will  continue to purchase the Company's existing inventory to  fulfill  orders
until the Company's present inventory is depleted to safety stock levels.

   At June 30, 2002 inventories included approximately $3.1 million of trade-in
products.

   In June  2002,  the Company recorded a $6.0 million provision for excess and
obsolete inventory.  When evaluating the adequacy of the reserve for excess and
obsolete inventory the  Company analyzes current and expected sales trends, the
amount of current parts on  hand, the current market value of parts on hand and
the viability and technical obsolescence of products.


5.  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 three months
and six months ended June 30, 2002, 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 total incremental
shares  from common stock equivalents were 119,215 and 168,916  for  the  three
months and six months ended June 30, 2002, respectively.  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
<S> <C>                <C>                          <C> <C>              <C> <C>
                                                                   JUNE 30,
                                                       --------------------------------
                                                           2002               2001
                                                       -----------        -----------
Basic:
    Weighted average common shares outstanding          31,356,470         30,851,260
    Total basic                                         31,356,470         30,851,260
Diluted:
    Incremental shares for common stock equivalents             --          1,880,305
    Total dilutive                                      31,356,470         32,731,565
</TABLE>

#


<PAGE>

<TABLE>
<CAPTION>
                                                              SIX MONTHS ENDED
<S> <C>                <C>                          <C> <C>              <C> <C>
                                                                  JUNE 30,
                                                      --------------------------------
                                                           2002              2001
                                                       -----------        -----------
Basic:
    Weighted average common shares outstanding          31,332,766         30,691,928
    Total basic                                         31,332,766         30,691,928
Diluted:
    Incremental shares for common stock equivalents             --          1,752,604
    Total dilutive                                      31,332,766         32,444,532
</TABLE>

6.  LEGAL PROCEEDINGS

   On November 23, 1999, Seth P. Joseph, a former officer and  director  of the
Company  commenced  arbitration proceedings against the Company alleging breach
of his employment agreement  and  stock  option  agreements,  violation  of the
Florida  Whistleblower  statute  and breach of an indemnification agreement and
the Company bylaws. As relief, Mr.  Joseph  sought  $500,000,  attorneys' fees,
interest  and  stock  options for 656,666 shares of the Company's common  stock
exercisable at a price  of $5.25 per share. The Company filed an answer denying
Mr.  Joseph's  allegations  and  alleging  multiple  affirmative  defenses  and
counterclaims. The  Company's counterclaims against Mr. Joseph sought repayment
of  loans  totaling  approximately   $113,000   plus   interest.    Mr.  Joseph
subsequently dismissed without prejudice all of his claims other than his claim
under  the  Whistleblower  Statute.   The  arbitration  hearing on Mr. Joseph's
Whistleblower  claim and the Company's counterclaims concluded  on  October  5,
2001. The parties  submitted proposed findings to the arbitrator on October 17,
2001. As part of his  proposed  findings,  Mr.  Joseph  sought  an award of $48
million  and attorneys' fees and costs.  On November 9, 2001, the  Company  was
notified of  the  arbitrator's  decision  which  awarded  Mr. Joseph the sum of
approximately  $3.7  million and attorneys' fees and costs.   On  December  20,
2001, the arbitrator issued a corrected award and awarded Mr. Joseph the sum of
$3.9 million and attorneys' fees and costs in amounts yet to be determined.  On
January 23, 2002, Mr.  Joseph  filed a motion seeking the award of $1.1 million
in  attorneys'  fees,  costs and interest  thereon.   On  July  18,  2002,  the
arbitrator issued an award  to  Mr.  Joseph  of  $575,000  for attorneys' fees,
$165,000 for costs, $10,000 for a portion of the arbitrator fees, plus interest
from November 1, 2001 until paid.

   On December 3, 2001, the Company  filed a petition to vacate  or  modify the
arbitration award in the Circuit Court of the Sixth Judicial Circuit,  Pinellas
County,  Florida,  in  an  action  entitled  Digital Lightwave, Inc. v. Seth P.
Joseph,  Case  No.  01-9010C1-21.  The Company filed  an  amended  petition  on
December 26, 2001, following  the  corrected  arbitration award.  Subsequently,
Mr.  Joseph  filed  a  cross-motion  to confirm the  arbitration  award.   Oral
argument on the Company's petition and  Mr.  Joseph's cross-motion was heard by
the  Court  on February 27, 2002.  On March 26,  2002,  the  Court  denied  the
Company's petition to vacate the arbitration award, granted Mr. Joseph's cross-
motion to confirm  the  award, and entered a judgment in favor of Mr. Joseph in
the amount of $4.0 million  including  interest.   The Company is appealing the
decision  and  judgment of the Circuit Court.  On April  4,  2002  the  Company
posted a civil supersedeas bond in the amount of $4.8 million, which represents
the amount of the  judgment  plus two times the estimated interest, to secure a
stay of enforcement of the Circuit Court judgment pending the Company's appeal.
The Company has recorded an accrual of $4.7 million related to this arbitration
as  of June 30, 2002.  The Company  believes  its  appeal  is  meritorious  and
intends to pursue the appeal vigorously.

   In  January  2002,  an  employee terminated as part of the Company's October
2001 restructuring initiatives,  filed  a  lawsuit claiming the Company wrongly
discharged the employee and has withheld payments  due  the employee.  The suit
does  not  seek  a specified amount of damages, but does claim  that  the  2001
compensation plan  presented  to  the employee in October 2001 unfairly lowered
the  employee's  salary. The plaintiff  seeks  attorneys'  fees,  interest  and
punitive damages.   The  Company  has responded to the complaint and denied the
substantive allegations therein. The  Company  intends  to defend against these
claims vigorously.

   In  March  2002, a  former  employee  filed a lawsuit claiming  the  Company
breached the employee's severance agreement  by  paying  the employee less than
the  agreement provided.  The suit seeks damages in excess  of  $100,000.   The
Company  has  responded to the complaint and denied the substantive allegations
therein. The Company intends to vigorously defend the action.

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




7.  RESTRUCTURING CHARGES

   In  October  2001, the Company's board of directors approved a reduction  in
force of 38 employees  and  consultants  across  all departments and instituted
temporary executive salary reductions of up to 20%.   The  overall objective of
the  initiative  was  to  lower  operating  costs and improve efficiency.   All
affected employees were terminated in October  2001  and  given severance based
upon years of service with the Company.  The Company recorded  a  restructuring
charge  of  $0.5  million in 2001 related to this cost reduction program.   The
costs included in a  restructuring  charge  for severance payments to employees
included  in  the  reduction in force, legal costs  associated  with  the  cost
reduction program and  remaining lease liabilities on the Company's facility in
New Jersey.  In January  2002,  the board of directors approved additional cost
reduction initiatives aimed at further reducing operating costs. These included
a second reduction in force of 46 employees and contractors and the outsourcing
of manufacturing and production.   All  affected  employees  were terminated in
January 2002 and given severance based upon years of service with  the Company.
The  Company  recorded  a  restructuring  charge  of  $1.3 million in the first
quarter of 2002.

  The costs associated with both of these actions are expected  to  be  paid by
January  2003.   Activity associated with the restructuring charges during  the
quarter ended June 30, 2002 was as follows:


<TABLE>
<CAPTION>
                         Balance at March 31, 2002   Additions   Payments/ Reductions  Balance at June 30, 2002
<S>                      <C>                       <C> <C>         <C> <C>                  <C> <C>
                                 --------            --------          --------                --------
                                                             (in thousands)
Severance                        $    563            $     --          $    (36)               $    527
Legal and other expenses              113                  --               (16)                     97
Lease payments                         86                  --               (21)                     65
                                 --------            --------          --------                --------
                                 $    762            $     --          $    (73)               $    689
                                 ========            ========          ========                ========
</TABLE>

8.  COMMITMENTS

   At June 30, 2002,  the Company had outstanding non-cancelable purchase order
commitments to purchase  certain  inventory  items  totaling approximately $7.9
million, excluding the $5.7 million commitment to Jabil more fully described in
Note 4.  The majority of the quantities under order are deliverable upon demand
by the Company or within thirty (30) days upon written notice of either party.

9.  REVOLVING CREDIT FACILITY

   In  April  2002, the Company entered into a Revolving  Credit  and  Security
Agreement ("the  Agreement") with Wachovia Bank ("the Bank").  The terms of the
Agreement provide the Company with a $27.5 million line of credit at LIBOR plus
0.7% collateralized  by  the Company's cash and cash equivalents and short-term
investments.    The advance  rate  varies  between 80% and 95% and is dependent
upon the composition and maturity of the available collateral.  An availability
fee of 0.10% per annum is payable quarterly  based  on  the  Average  Available
Principal  Balance  (as  defined in the Agreement) for such three months.   The
Agreement has an initial term  of three years.  The Agreement may be terminated
by the Company at any time upon  at  least fifteen days prior written notice to
the Bank, and the Bank may terminate the  Agreement at any time, without notice
upon or after the occurrence of an event of  default.  There were $10.0 million
in borrowings under the Agreement at June 30,  2002.   Under  the  terms of the
Agreement,  $12.8  million  of  the  Company's  cash and cash equivalents  were
classified  as  restricted at June 30, 2002.  This  includes  amounts  borrowed
under the Agreement  based  upon  an advance rate of 95% and approximately $2.2
million in letters of credit required  by  the  leases for the Company's office
space.  The Company plans to use the facility for  short-term  working  capital
and   general   corporate   purposes,   including   potential  acquisitions  of
complementary  businesses  and  technologies. The Company's  previous  line  of
credit with Congress Financial was  terminated  in  April  2002 as part of this
transaction.

10.  RELATED PARTY TRANSACTIONS

     In  April  2002,  an  officer  of the Company borrowed $175,000  from  the
Company.  On April 12, 2002, this borrowing  was  combined with a previous note
of $200,000 plus accrued interest of approximately $16,000 into one note with a
principal balance of approximately $391,000.  This  note  accrues  interest  at
8.0%  with  the principal and accrued interest thereon payable on demand or, if
earlier, from  the  proceeds  of any sale of the officer's stock holdings or on
the date of termination of the  officer's  employment  with  the Company.  This
note is collateralized by the officer's stock holdings in the  Company,  future
cash  bonuses  which  may  become  payable  and  a second lien on the officer's
residence.

#


<PAGE>
11. SUBSEQUENT EVENT

      On August 9, 2002, the Board of Directors accepted the resignation of Dr.
Bryan Zwan as President  and  Chief Executive Officer of the Company.  Dr. Zwan
will continue as the Company's  Chairman  of  the Board and will concentrate on
developing the Company's strategy and technology,  as well as potential mergers
and acquisitions.  Also on August 9, 2002, the Board of Directors appointed the
Company's  current  Chief  Operating  Officer,  Jim Green  to  the  offices  of
President  and  Chief  Executive  Officer.  As President  and  Chief  Executive
Officer Mr. Green will direct all of  the  Company's  day to day operations and
serve as the Company's principal executive officer.  On  August  9,  2002,  the
Board of Directors also promoted the Company's current Chief Financial Officer,
Mark  Scott  to  the  offices  of  Executive Vice President and Chief Financial
Officer.
#


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

FORWARD LOOKING STATEMENTS

  The following discussion of our financial condition and results of operations
contains forward-looking statements within the meaning  of  Section  27A of the
Securities Act of 1933 and Section 21E of the Securities Exchange Act  of 1934.
These  statements  relate to future events or our future financial performance.
In some cases, you can  identify forward-looking statements by terminology such
as may, will, should, expect,  plan,  anticipate,  believe,  estimate, predict,
potential  or  continue,  the negative of terms like these or other  comparable
terminology.  These statements  are only predictions.  These statements involve
known and unknown risks and uncertainties  and  other  factors  that  may cause
actual  events or results to differ materially. In evaluating these statements,
you should  specifically  consider  various  risks and uncertainties, including
fluctuations in operating results, changes in  the  United States and worldwide
economy and fluctuations in capital expenditures within  the telecommunications
industry, our dependence on a limited number of products and  uncertainties  of
the  market  for  our  current  and planned products, technological change, our
dependence on growth of the Internet,  competition, our dependence on a limited
number  of  major  customers,  our dependence  on  contract  manufacturers  and
suppliers,  our products may not  continue  to  meet  changing  regulatory  and
industry standards,  our  ability to achieve sustained operating profitability,
our dependence on key personnel,  the  significant  influence  of our principal
stockholder,  our dependence on proprietary technology, the volatility  of  our
market price, the sale of a significant number of our shares pursuant to future
sales  contracts  could  depress  the price of our stock, the effect that anti-
takeover provisions have on the  price  of our common stock and past and future
litigation risk, as outlined under the caption  "Factors that May Affect Future
Results" set forth at the end of Item 1 in our Annual Report filed on Form 10-K
and such other risks and uncertainties contained from time to time in our other
filings with the SEC.  All forward-looking statements included in this document
are based on information available to us on the date  of  filing, and we assume
no  obligation  to  update  any  such forward-looking statements.   We  caution
investors  that  our  business  and  financial   performance   are  subject  to
substantial risks and uncertainties.

OVERVIEW

  Digital  Lightwave,  Inc.  provides  the  global  fiber-optic  communications
industry  with  products  and  technology  used  to develop, install, maintain,
monitor  and  manage  fiber  optic-based networks.  Telecommunications  service
providers and equipment manufacturers  deploy the Company's products to provide
quality  assurance  and  ensure  optimum  performance   of   advanced   optical
communications networks and network equipment.  The Company's products are sold
worldwide   to  leading  and  emerging  telecommunications  service  providers,
telecommunications  equipment  manufacturers,  equipment  leasing companies and
international distributors.

   Fiber  optics  deliver increased network bandwidth for the  transmission  of
voice, video, audio,  and  data  traffic  over  public  and  private  networks,
including  the  Internet.   The Company's products provide the capabilities  to
cost-effectively deploy and manage  fiber-optic  networks to address increasing
demand  for bandwidth.  While the technology of optical  networking  is  highly
advanced,  the  Company's  products  are used to verify that telecommunications
products  and  systems  function  and  perform   properly.   Specific  customer
applications of the Company's diagnostic equipment include the qualification of
products  during  manufacturing,  the verification of  service  during  network
installation and the monitoring and maintenance of deployed networks.

   The  Company's  main two product lines  are  Network  Information  Computers
("NIC") and Network  Access  Agents ("NAA").  Network Information Computers are
portable instruments for the installation  and maintenance testing of advanced,
high-speed  networks  and  transmission  equipment.   The  NIC  product  family
provides diagnostic capabilities for testing  the  performance  of both optical
and  legacy  electrical networks with an array of communications standards  and
transmission  rates.  NAAs  are  unattended,  software-controlled,  performance
monitoring and  diagnostic  systems  permanently installed within optical-based
networks.  NAAs embed the capabilities  of  our  portable  Network  Information
Computers  within  a  customer's  network  infrastructure, allowing centralized
remote network management.

   The Company's portable NICs and network-embedded  NAAs  are  software-based,
modular  products  that  combine  a  multitude  of  test functions in a  single
integrated solution, including SONET/SDH, T-carrier/PDH, ATM, and POS analysis.
The recent migration of these products to next-generation platforms has enabled
the accelerated introduction of new modules and product line enhancements. As a
result, customers utilizing these products are able to  enjoy  the advanced and
feature-rich functionality provided by these new enhancements while  protecting
their   original   investment.   These   expanded   diagnostic  and  management
capabilities are designed for communications service  providers  and  equipment
manufacturers,  enabling them to deploy advanced solutions to markets of  their
current focus --  including  both  metropolitan  and long-haul Dense Wavelength
Division Multiplexing (DWDM) and Internet Protocol (IP) networks.


   During the first quarter of 2002, the Company announced  new  extensions  of
its  portable  Network  Information  ComputerR  NICR  product family. These new
products include the NIC ONATM, which provides a single solution for multi-rate
SONET/SDH  testing and optical spectrum analysis; the NIC  GigETM  for  Gigabit
Ethernet network  deployment;  and  the  NIC  622MTM,  an  economical SONET/SDH
analyzer   designed   to  meet  emerging  global  market  requirements.   These
enhancements include:

      * A Gigabit Ethernet  (GigE)  Module  comprised  of two fully independent
        ports configurable for LX (single-mode fiber, 1310  nm)  or  SX (multi-
        mode  fiber,  850  nm)  gigabit network topologies. This module enables
        packet-level testing as well  as the more traditional bit-error testing
        on GigE traffic. With the integration  of  the GigE module into the NIC
        or NAA, network providers can now test their high-speed optical network
        and IP traffic with a single platform solution.

      * An  eight-port, comprehensive 10-Gbps solution  for  ultra-high-density
        optical  network test and turn-up. This new functionality increases the
        port density  to  up  to  eight channels in a single portable NIC or to
        over  16  channels  in an NAA.  This  expanded  port  capacity  greatly
        decreases  turn-up  time   and   significantly   lowers   the  cost  of
        provisioning high-speed networks.


      * An Optical Spectrum Analyzer (OSA) module with both C & L band (1525 nm
        to  1603  nm),  which  provides  optical  spectrum measurements and  an
        enhanced graphical touch-screen interface,  including  zoom, auto-scan,
        and snapshot-graphic save functionality. When this module is integrated
        into  a NIC or NAA, network technicians can complete a full  complement
        of optical  physical  measurements,  as well as perform a comprehensive
        bit-error-rate analysis with a single solution.


      * An Element Management System (EMS) for  the  integrated  NAA  platform,
        which  enables concurrent management of multiple NAAs within a network.
        This new  JavaTM-based  EMS  is  a  multi-user solution offering remote
        dial-in, network-wide configuration control,  test access, and security
        to protect and manage test results. The new EMS  was  designed  with an
        intuitive   graphical  interface  for  easy  system  configuration  and
        testing.

   In July 2002, the  Company  announced  the  new  Lightwave  (LW)  series  of
handheld  and compact test equipment and accessories for measuring, maintaining
and documenting  the  physical  layer performance of fiber-optic networks. This
new  product  family  is designed to  complement  Digital  Lightwave's  Network
Information Computer NIC  product family, providing technicians with a range of
fiber-optic analysis solutions   from  entry-level  handheld  units  to  multi-
functional high-speed test sets.

   This new Lightwave (LW) series includes the following palm-sized products:

      *LW  OPM-6TM,  an optical power meter with six wavelengths from 850nm  to
       1625nm and a dynamic range from +26dB to -50dB.

      *LW DLSTM, a dual-laser  source  product with output measurements at both
       1310nm and 1550nm for accurate and portable fiber testing.

      *LW VLRTM, designed to allow for visual  location  of  faults  on  either
       single  or multimode fiber-optic cables through the use of a "red laser"
       or 650nm laser source.

      *LW OSDTM,  or Optical Signal Detection unit, which is designed to detect
       optical signals  without  disrupting  traffic  during  test and turn-up,
       where specific fiber identification is critical.

      *LW  TSDTM, a dual talk set at 1550nm designed for providing  full-duplex
       voice communication over spare fibers.

      *LW SFSTM,  a  safe-viewing  fiber  scope for use in inspecting connector
       end-faces, which was designed to eliminate  the  direct  optical path to
       the installers' eyes.  The LW SFS contains a miniature camera, state-of-
       the-art displays and an NTSC video output for safe fiber inspection.

      *LW  LRLTM  Series,  designed  for  the  global  marketplace,  where  the
       measurement  of  loss  and  return  loss on high-speed digital or analog
       fiber lines is critical. The LRL Series  will include the LRL-D, a dual-
       source  1330/1550nm  wavelength  unit;  the LRL-DV,  which  is  a  dual-
       wavelength unit incorporating talkset, as  well;  and  the LRL-T, or the
       triple wavelength solution at 1310, 1550, and 1625nm for a comprehensive
       loss/return loss solution.

   The ultra-compact units include:

      *LW  OTDRTM,  a  single-mode  Optical  Time Domain Reflectometer  (OTDR),
       providing a range designed to accept both  1310  and  1550nm sources. In
       addition,  trace analysis software enables complete fiber  documentation
       either on the  unit  itself or a personal computer, and supports various
       trace  manipulations, such  as  two-way  averaging,  trace  overlay  and
       graphing.

      *LW  WPMTM,  a  small  wavelength-selectable  power  meter  designed  for
       automatic  analysis  of each channel, which provides information such as
       channel center, power  level  and  Optical  Signal to Noise Ratio (OSNR)
       either locally or remotely for analysis. Weighing just over 4 lbs., this
       small   unit  was  designed  for  the  installation,   maintenance   and
       troubleshooting of long-haul and metro DWDM applications.

   The Company's  net  sales  are  generated from sales of its products less an
estimate  for  customer returns.  We expect  that  the  average selling price
(ASP) of our products 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 our business, financial condition and results of operations.

   The Company primarily sells its products domestically through a direct sales
force   to   telecommunications   service   providers  and  network   equipment
manufacturers. The Company primarily sells its  products  in  Asia  through the
direct  sales force of its subsidiary Digital Lightwave Asia Pacific Pty,  Ltd.
The Company  primarily  sells  its products in Latin America through the direct
sales force of its subsidiary Digital  Lightwave  Latino  Americana  Ltda.  The
Company  primarily  sells  its  products in Europe through distributor channels
located in Europe.  Sales of our products have tended to be concentrated with a
few major customers and we expect sales will continue to be concentrated with a
few major customers in the future.   For the six months ended June 30, 2002 our
largest customer, Test Equipment Remarketers, accounted for 11% of total sales.
No other customer accounted for more than 10%.

   The Company has not entered into long-term  agreements  or  blanket purchase
orders for the sale of its products. It generally obtains purchase  orders  for
immediate  shipment.  The  Company does not expect to carry substantial backlog
from quarter to quarter in the  future.  Our  sales during a particular quarter
are highly dependent upon orders placed by customers during that quarter.  Most
of our operating expenses are fixed and cannot be easily reduced in response to
decreased  revenues.  Variations  in  the  timing  of   revenues   could  cause
significant  variations  in  results of operations from quarter to quarter  and
result in continuing quarterly losses. The deferral of any large order from one
quarter to another would negatively  affect  the  results of operations for the
earlier  quarter.   The  Company  must obtain orders during  each  quarter  for
shipment in that quarter to achieve revenue and profit objectives.

   Reduced customer capital expenditures  and  the  overall  economic  weakness
caused the Company to incur net operating losses beginning in the third quarter
of  2001.   In October 2001 and January 2002, the Company took certain measures
to reduce its  future  operating costs.  These measures included a reduction in
force,  pay cuts for management  and  other  expense  reduction  actions.   The
Company can  give  no  assurance  as  to  whether  its  revenues will return to
previous levels, when it will generate positive cash flows  from  operations or
when it will return to profitability.

BUSINESS OUTLOOK

   Prior to 2001, we had experienced sequential growth over a five-year period.
This  growth  was attributable primarily to the rapid expansion and substantial
installation of  fiber  optic  networks  fueled  by an unprecedented demand for
bandwidth  to  accommodate  exponentially  increasing   Internet   traffic.  We
participated in that growth as a leading supplier of products that are  used in
the  installation,  maintenance  and  management  of  fiber optic communication
networks.

   During 2001, our industry experienced a dramatic economic  downturn that was
brought on by a significant decrease in network build-outs and capital spending
by the telecommunications carriers and equipment manufacturers.  Our customers'
declining business resulted in a major decrease in sales of our  products.   We
do not anticipate a near-term recovery of the fiber optic test equipment market
and  do  not  expect the overall capital spending by telecommunication carriers
and equipment factors will increase during 2002.

   In January 2002,  we  announced  a  program  for  rescaling  our business in
response to the current market environment.  Specific actions taken  as part of
our plan include:

   Reducing  Cost.  We  have taken immediate steps during the last two quarters
of 2001 and in January  of  2002 to reduce costs.  These initiatives included a
reduction in workforce and expenses  that  we  expect  will  reduce expenses by
approximately  $14  million  on  an  annualized  basis.   With  the  successful
migration  of our current product lines to next-generation platforms, we  began
outsourcing  manufacturing  activities  with  Jabil Circuit, Inc. in January of
2002.   We  expect this to further reduce operating  expenses  associated  with
manufacturing  overhead  and  lower  the  carrying  risks  of  inventory during
economically driven shifts in customer demand.

   Growing Market Share.  We are focused on maintaining market leadership  with
our   product   lines.   We  have  evaluated  our  sales  efforts  to  identify
opportunities where  our  account  presence  can be improved and are working to
exploit  those  opportunities.  We expect new applications  for  our  installed
product base to be realized with  use  of new modular add-ons and enhancements.
During the second quarter, we established  offices in Australia, Brazil, China,
and Taiwan.  We also added approximately twenty international sales and support
representatives  across  Europe,  Australia, Brazil,  China,  and  Taiwan.   We
believe that having a direct sales  force  in  key markets will have a positive
impact on our ability to grow our market share.

   Accelerating Product Development.  We are escalating  our  efforts  to bring
products currently under development to market faster.  We are concentrating on
the  products  and  technologies  that  we  believe  are  most important to our
customers.   We  plan to introduce enhancements to our product  lines  to  meet
growing international  needs  and  global high-speed data service requirements.
During the second quarter of 2002, we  added  three  new  products  to  our NIC
product  line.   In  July  2002,  we  expanded our product portfolio to include
handheld  and other ultra-compact products.  These  products  are  expected  to
complement  our  current product offerings and offer our customers a wide range
of options to meet their requirements for fiber-optic products.

   Also, during the  second  quarter  of  2002, we signed our first third-party
product agreements with Micron Optics, Inc.  and  Remote Management Systems Pty
Ltd.    These  agreements  cover  international, and in  some  cases  domestic,
product  distribution.  We believe these  third-party  distribution  agreements
will further  complement  our  product portfolio and enable us to offer a broad
range of products to our customers.

   Expanding into Additional Telecommunications  Markets.   We  are identifying
and pursuing specific telecommunication market segments, both domestically  and
internationally,  that we believe will be synergistic with our current business
and create opportunities for growth.

   We believe that  the  initiatives outlined will allow us to meet our current
customer needs, develop new opportunities and position the Company for a market
recovery.

CRITICAL ACCOUNTING POLICIES

   We believe that the following accounting policies are critical in that they
are important to portrayal of the Company's financial conditions and results
and they require difficult, subjective and complex judgments that are often the
results of estimates that are inherently uncertain:

      * Revenue recognition; and

      * Estimating valuation allowances and accrued liabilities, specifically
        sales returns and other allowances, the reserve for uncollectible
        accounts, the reserve for excess and obsolete inventory and assessment
        of the probability of the outcome of our current litigation.

  Revenue Recognition

  The Company derives its  revenue  from product sales.  The Company recognizes
revenue from the sale of products when  persuasive  evidence  of an arrangement
exists, the product has been delivered, the price is fixed and determinable and
collection of the resulting receivable is reasonably assured.

  For all sales, the Company uses a binding purchase order as evidence  that  a
sales  arrangement  exists.    Sales  through  international  distributors  are
evidenced   by   a   master  agreement  governing  the  relationship  with  the
distributor.  The Company either obtains an end-user purchase order documenting
the order placed with  the  distributor or proof of delivery to the end user as
evidence that a sales arrangement  exists.   For  demonstration  units  sold to
distributors,  the  distributor's binding purchase order is evidence of a sales
arrangement.

  For domestic sales,  delivery generally occurs when product is delivered to a
common carrier.  Demonstration  units  sold  to  international distributors are
considered delivered when the units are delivered  to  a  common  carrier.   An
allowance is provided for sales returns based on historical experience.

  For sales made under an OEM arrangement, delivery generally occurs  when  the
product  is  delivered  to a common carrier.  OEM sales are defined as sales of
the Company products to a third party that will market the products under their
brand.

  For trade-in sales, including both Company and competitor products, that have
a cash component of greater than 25% of the fair value of the sale, the Company
recognizes revenue based  upon  the  fair  value  of  what is sold or received,
whichever  is more readily determinable, if the Company  has  demonstrated  the
ability to sell  its  trade-in  inventory  for  that  particular product class.
Otherwise,  the  Company  accounts  for  the  trade-in sale as  a   nonmonetary
transaction  and  follows  the  guidance found in Accounting  Principles  Board
Opinion  No.  29,  "Accounting  for  Nonmonetary   Transactions"   and  related
interpretations.   Revenue and cost of sales are recorded based upon  the  cash
portion of the transaction.   The remaining costs associated with the new units
are assigned to the units received  on  trade.   When  the  trade-in  units are
resold,  revenue is recorded based upon the sales price and cost of goods  sold
is charged  with  the  value  assigned  to  trade-in  units  from  the original
transaction.

  At  the  time  of  the  transaction,  the  Company assesses whether the price
associated with its revenue transactions is fixed  and determinable and whether
or not collection is reasonably assured. The Company assesses whether the price
is  fixed  and  determinable  based on the payment terms  associated  with  the
transaction.  Standard payment  terms  for  domestic customers are 30 days from
the invoice date.  Distributor contracts provide  standard  payment terms of 60
days from the invoice date.  The Company does not offer extended payment terms.

  The Company assesses collection based on a number of factors,  including past
transaction  history  with  the  customer  and  the  credit-worthiness  of  the
customer. Collateral is not requested from customers.  If it is determined that
collection  of an accounts receivable is not reasonably assured, the amount  of
the accounts  receivable  is  deferred  and  revenue  recognized  at  the  time
collection becomes reasonably assured.

  Most sales arrangements do not generally include acceptance clauses. However,
if a sales arrangement includes an acceptance provision, acceptance occurs upon
the  earlier  of  receipt of a written customer acceptance or expiration of the
acceptance period.

  Sales Returns and  Other  Allowances,  Reserve  for  Uncollectible  Accounts,
Reserve for Excess and Obsolete Inventory and Litigation

  The  preparation  of  financial statements requires us to make estimates  and
assumptions  that affect the  reported  amount  of  assets  and  disclosure  of
contingent assets  and  liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reported period.

  We estimate the amount of potential future product returns related to current
period product revenue.   We  consider  many factors when making our estimates,
including analyzing historical returns, current  economic  trends,  changes  in
customer  demand and acceptance of our products to evaluate the adequacy of the
sales returns  and  other allowances.  Our estimate for the provision for sales
returns and other allowances as of June 30, 2002 was $0.6 million.

  We  also estimate the  uncollectibility  of  our  accounts  receivables.   We
consider  many  factors when making our estimates, including analyzing accounts
receivable and historical  bad debts, customer concentrations, customer credit-
worthiness, current economic  trends  and changes in our customer payment terms
when evaluating the adequacy of the reserve  for  uncollectible  accounts.  Our
accounts receivable balance as of June 30, 2002 was $7.1 million,  net  of  our
estimated reserve for uncollectible accounts of $1.5 million.

  We  estimate  the  amount of excess and obsolete inventory.  We consider many
factors when making our  estimates,  including  analyzing  current and expected
sales trends, the amount of current parts on hand, the current  market value of
parts on hand and the viability and technical obsolescence of our products when
evaluating the adequacy of the reserve for excess and obsolete inventory.   Our
inventory  balance  was $15.5 million as of June 30, 2002, net of our estimated
reserve for excess and obsolete inventory of $8.1 million.

  We estimate the amount  of  liability  the  Company  may incur as a result of
pending litigation.  Our estimate of legal liability is  uncertain and is based
on the size of the outstanding claims and an assessment of  the  merits  of the
claims.    We  accrued  $4.7  million  for  liability  resulting  from  pending
litigation as of June 30, 2002.

  We make significant  judgments  and  estimates  and assumptions in connection
with  establishing  the  amount  of  sales  returns and other  allowances,  the
uncollectibility of our account receivables,  the amount of excess and obsolete
inventory and the amount of liability related to  pending litigation during any
accounting period.  If we made different judgments  or used different estimates
or assumptions for establishing such amounts, it is likely  that the amount and
timing of our revenue for any period would be materially different.



  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, 2002 compared to the quarter and six months ended June 30, 2001. The
following  sets  forth certain financial data as a percent of net sales.

<TABLE>
<CAPTION>
<S>    <C>                        <C> <C>                   <C> <C>                 <C> <C>              <C> <C>              <C>
                                               PERCENT OF NET SALES                          PERCENT OF NET SALES
                                               FOR THE QUARTER ENDED                       FOR THE SIX MONTHS ENDED
                                                     JUNE 30,                                      JUNE 30,
                                                  ---------------                               ---------------
                                           2002                     2001                   2002                 2001
                                        ----------               ----------             ----------           ----------
Net sales                                      100 %                    100 %                  100 %                100 %
Cost of goods sold                            (199)                      30                   (113)                  30
                                        ----------               ----------             ----------           ----------
Gross profit (loss)                            (99)                      70                    (13)                  70
                                        ----------               ----------             ----------           ----------
Engineering and development                     82                       11                     65                   11
Sales and marketing                             55                       14                     46                   14
General and administrative                      40                        7                     29                    6
Restructuring charges                           --                       --                     12                   --
Litigation charge                               13                       --                      5                   --
                                        ----------               ----------             ----------           ----------
       Total operating expenses                190                       32                    157                   31
                                        ----------               ----------             ----------           ----------
Operating income (loss)                       (289)                      38                   (170)                  39
Other income, net                                4                        1                      3                    1
                                        ----------               ----------             ----------           ----------
Income (loss) before income taxes             (285)                      39                   (167)                  40
Provision for income taxes                      --                      (12)                    --                   (8)
                                        ----------               ----------             ----------           ----------
Net income (loss)                             (285)%                     27 %                 (167) %                32 %
                                        ==========               ==========             ==========           ==========
</TABLE>


Net Sales

   Net  sales  for the quarter ended June 30, 2002 decreased $30.3 million,  or
88%, to $4.2 million  from  $34.5  million for the quarter ended June 30, 2001.
The sales decrease relates to lower  pricing  and  a  significant  decrease  in
capital  spending  by  telecommunications carriers and equipment manufacturers.
Sales to new customers during  the  quarter ended June 30, 2002 represented 33%
of sales or $1.4 million.  International  sales  for the quarter ended June 30,
2002, were $1.3 million, or 31% of total sales as compared to $10.4 million, or
30% of total sales for the quarter ended June 30, 2001.

   Net sales for the six months ended June 30, 2002 decreased $58.4 million, or
85%, to $10.5 million from $68.9 million for the year ago period ended June 30,
2001.  The sales decrease relates to lower pricing  and  a significant decrease
in capital spending by telecommunications carriers and equipment manufacturers.
Sales  to new customers during the six months ended June 30,  2002  represented
26% of sales  or  $2.7  million.   International sales for the six months ended
June 30, 2002, were $4.0 million, or  38%  of total sales, as compared to $14.9
million, or 22% of total sales for the six months ended June 30, 2001.

Cost of Goods Sold

   Cost of goods sold for the quarter ended  June  30,  2002  decreased by $2.0
million to $8.4 million as compared to $10.4 million for the quarter ended June
30, 2001.  Cost of goods sold for the six months ended June 30,  2002 decreased
by  $9.0  million  to  $11.9 million as compared to $20.9 million for  the  six
months ended June 30, 2001.   The  decrease  in cost of goods sold was due to a
reduction in volume of units sold offset by a  $6.0  million reserve for excess
inventory recorded in the quarter ended June 30, 2002 and a $0.5 million charge
related  to the outsourcing of manufacturing operations  recorded  in  the  six
months ended June 30, 2002.

Gross Profit (Loss)

   Gross profit (loss) for the quarter ended June 30, 2002 decreased by $28.3
million to a negative $4.2  million  from  $24.1 million for the quarter ended
June 30, 2001.  Gross  margin for the second quarter of  2002  decreased to a
negative 99% from 70% during the second quarter of 2001. The decrease in gross
profit was due to a $6.0 million reserve for excess inventory and a reduction
in volume of units sold at lower sales prices. Without the $6.0 million reserve
for excess inventory, gross margin for the three months ended June 30, 2002 was
44%.

   Gross profit(loss) for the six months ended June 30, 2002 decreased by $49.4
million to a negative $1.4  million from $48.0 million for the six months ended
June 30, 2001.  Gross margin for the six months ended June 30 2002 decreased to
a negative 13% from 70% during  the  six  months  ended  June  30,  2001.   The
decrease  in  gross  profit  was  due  to  a  $6.0  million  reserve for excess
inventory,  a  $0.5 million charge related to the outsourcing of  manufacturing
operations, and  a  reduction  in  volume  of units sold at lower sales prices.
Without the $6.0 million reserve for excess  inventory  and  the  $0.5  million
charge related to the outsourcing of manufacturing operations, gross margin for
the six months ended June 30, 2002 was 49%.

Engineering and Development

   Engineering  and  development  expenses  principally  include  salaries  for
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, 2002 decreased  by  $0.3
million to $3.5 million from  $3.8 million for the quarter ended June 30, 2001.
The dollar decrease was due to  lower  salary and other expenses as a result of
the Company's reduction in force initiatives  implemented  in  October 2001 and
January 2002.

   Engineering and development expenses for the six months ended  June 30, 2002
decreased by $0.6 million to $6.8 million from $7.4 million for the  six months
ended  June  30,  2001.  The dollar decrease was due to lower salary and  other
expenses  as  a  result   of  the  Company's  reduction  in  force  initiatives
implemented in October 2001 and January 2002.

Sales and Marketing

   Sales  and marketing expenses  principally  include  salaries,  commissions,
travel, tradeshows,  promotional  materials  and  warranty expenses.  Sales and
marketing  expenses  for  the  quarter ended June 30, 2002  decreased  by  $2.6
million to $2.3 million from $4.9  million for the quarter ended June 30, 2001.
The dollar decrease is directly related to lower commissions resulting from the
decreased sales activity, along with  lower  salary  and  other  expenses  as a
result  of  the Company's reduction in force initiatives implemented in October
2001 and January 2002.

       Sales  and  marketing  expenses  for  the six months ended June 30, 2002
decreased by $5.1 million to $4.8 million from  $9.9 million for the six months
ended  June  30,  2001.   The  dollar  decrease is directly  related  to  lower
commissions  resulting from the decreased  sales  activity,  along  with  lower
salary and other  expenses  as  a  result  of  the Company's reduction in force
initiatives implemented in October 2001 and January 2002

General and Administrative

   General   and   administrative   expenses  principally   include   salaries,
professional  fees,  facility rentals,  compensation  and  information  systems
related to general management  functions.   General and administrative expenses
for the quarter ended June 30, 2002 decreased  by  $0.7 million to $1.7 million
from $2.4 million for the quarter ended June 30, 2001.  The dollar decrease was
due to lower salary and other expenses as a result of  the  Company's reduction
in force initiatives implemented in October 2001 and January 2002.

   General and administrative expenses for the six months ended  June  30, 2002
decreased by $0.8 million to $3.1 million from $3.9 million for the six  months
ended  June  30,  2001.   The dollar decrease was due to lower salary and other
expenses  as  a  result  of  the   Company's  reduction  in  force  initiatives
implemented in October 2001 and January 2002.

Restructuring Charges

   In October 2001, the Company's board  of  directors  approved a reduction in
force  of  38 employees and consultants across all departments  and  instituted
temporary executive  salary  reductions of up to 20%.  The overall objective of
the  initiative  was to lower operating  costs  and  improve  efficiency.   All
affected employees  were  terminated  in October 2001 and given severance based
upon years of service with the Company.   The  Company recorded a restructuring
charge of $500,000 in 2001 related to this cost  reduction  program.  The costs
included in a restructuring charge for severance payments to employees included
in  the  reduction  in  force,  legal costs associated with the cost  reduction
program  and remaining lease liabilities  on  the  Company's  facility  in  New
Jersey.  In  January  2002,  the  board  of  directors approved additional cost
reduction initiatives aimed at further reducing operating costs. These included
a second reduction in force of 46 employees and contractors and the outsourcing
of manufacturing and production.  All affected  employees  were  terminated  in
January  2002 and given severance based upon years of service with the Company.
The Company  recorded  a  restructuring  charge  of  $1.3  million in the first
quarter of 2002.

   The costs associated with both of these actions are expected  to  be paid by
January  2003.   Activity associated with the restructuring charges during  the
quarter ended June 30, 2002 was as follows:

<TABLE>
<CAPTION>
                         Balance at March 31, 2002   Additions   Payments/ Reductions  Balance at June 30, 2002
<S>                      <C>                       <C> <C>         <C> <C>                  <C> <C>
                                 --------            --------          --------                --------
                                                             (in thousands)
Severance                        $    563            $     --          $    (36)               $    527
Legal and other expenses              113                  --               (16)                     97
Lease payments                         86                  --               (21)                     65
                                 --------            --------          --------                --------
                                 $    762            $     --          $    (73)               $    689
                                 ========            ========          ========                ========
</TABLE>

Litigation Charge

   On July 18, 2002,  the arbitrator in the Seth Joseph arbitration case issued
an award to Mr. Joseph  of  $575,000  for  attorneys' fees, $165,000 for costs,
$10,000 for a portion of the arbitrator fees,  plus  interest  from November 1,
2001 until paid.  The Company has recorded a litigation charge of  $0.6 million
for  the  quarter  and six months ended June 30, 2002 associated with the  Seth
Joseph arbitration case  and appeal thereof.  There were no corresponding costs
during the quarter or six month period ended June 30, 2001

Other Income, net

   Other income for the quarter  ended  June 30, 2002 decreased by $0.2 million
to $0.2 million from $0.4 million for the  quarter  ended June 30, 2001.  Other
income for the six months ended June 30, 2002 decreased by $0.6 million to $0.3
million  from  $0.9  million  for  the six months ended June  30,  2001.   This
primarily represents interest earned on invested cash balances partially offset
by fees related to a credit facility  and  interest  expense  on  capital lease
obligations.

Provision for Income Taxes


   No  provision  for income taxes was made for the three- and six-months ended
June 30, 2002 due to  the  Company's  net  loss  of $12.0 million for the three
months ended June 30, 2002 and net loss of $17.6 million  for  the  six  months
ended June 30, 2002.

   The provisions for income taxes for the three- and six-months ended June 30,
2001  reflect  income  taxes  due  at  federal statutory rates and state income
taxes, net of federal benefit. The effective  income  tax  rate for the quarter
ended June 30, 2001 was 31.0% and for the six months ended June  30,  2001  was
19.3%.   The  effective rates differ from the federal and state statutory rates
(net of federal  benefit)  due  to  the  recognition of deferred tax assets for
which a full valuation allowance had previously  been established.  A valuation
allowance  for deferred tax assets was recorded as  a  result  of  management's
belief it is more likely than not that future tax benefits will not be realized
as a result of current and future income.  During the second quarter of 2001, a
research and  experimentation  credit  was recognized resulting in a benefit of
$1.0 million which offset the otherwise  recognized tax expense of $5.2 million
resulting in a net tax expense of $4.2 million  or  31.0%.  For  the six months
ended June 30, 2001, the effect of this credit coupled with recognition  during
first  quarter  of  2001 of the  remaining  deferred  tax asset of $4.3 million
resulted in a benefit offsetting the otherwise recognized  tax expense of $10.6
million producing a net tax expense of $5.3 million or 19.3%.


Net Income (Loss)

   Net loss for the quarter ended June 30, 2002 was $12.0 million  or $0.38 per
diluted  share  compared  with net income of $9.3 million or $0.28 per  diluted
share for the quarter ended June 30, 2001 for the reasons discussed above.

   Net loss for the six months  ended  June 30, 2002 was $17.6 million or $0.56
per  diluted share compared with net income  of  $22.3  million  or  $0.69  per
diluted  share for the six months ended June 30, 2001 for the reasons discussed
above.


LIQUIDITY AND CAPITAL RESOURCES

   As of June  30,  2002,  the Company's unrestricted cash and cash equivalents
and short-term investments were  approximately  $30.8  million,  a  decrease of
$20.2  million  from  December  31,  2001.   As of June 30, 2002, the Company's
working capital was approximately $56.5 million as compared to $64.8 million at
December 31, 2001. During 2001, the Company reported net income of $2.8 million
and cash flows from operations of $20.8 million.  For the six months ended June
30, 2002 the Company reported a net loss of $17.6  million  and  cash  used  by
operations  of $16.9 million.   The Company had an accumulated deficit of $24.0
million at June 30, 2002.

   Beginning  in  the  third quarter of 2001 through the quarter ended June 30,
2002, the Company has experienced  combined  net  losses of $37.1 million.  The
Company expects to continue to incur operating losses  through 2002. Management
has taken actions to increase net sales and significantly  reduce cost of goods
sold,  operating  expenses  and  capital  expenditures.  These actions  include
restructuring operations to more closely align operating costs with revenues.

   The Company continues to consider various financing alternatives,  including
other   equity  or  debt  issuances  (the  "Financing  Sources").  The  Company
anticipates  that  its  existing cash and cash equivalents and anticipated cash
flow from operations together  with funds provided from  the  revolving  credit
facility with Wachovia Bank will be sufficient  to  fund  the Company's working
capital and  capital  expenditure  requirements  for at least the  next  twelve
months. The anticipated cash flow from operations assumes  the Company achieves
a level of sales that is sufficient to offset expected operating  expenses.  In
the event that these sales levels are not attained, the Company may be required
to use its cash reserves to  fund operations  or supplement its working capital
with additional funding or financing alternatives. There can be  no  assurance,
however, that the Company will achieve sufficient sales levels or that adequate
additional financing will  be  available  when  needed or if available on terms
acceptable to the Company.

Operating Activities

   Net cash used by operating activities for the  six  months  ending  June 30,
2002 was $16.9 million. This was primarily the result of the net loss of  $17.6
million,  a  decrease  in  accounts  receivable of $0.5 million, a $7.1 million
increase in inventory, increases in prepaid  and  other  assets of $2.1 million
and a decrease in accounts payable and accrued expenses of $0.3 million.  These
were  partially  offset  by  non-cash  expenses  consisting  primarily   of   a
restructuring  charge  of  $1.3  million, depreciation and amortization of $1.8
million, $6.0 million provision for  excess  and  obsolete  inventory, and $0.6
million increase in accrued litigation charge.

   Net cash provided by operating activities for the six months ending June 30,
2001 was $13.7 million. This was primarily the result of net  income  of  $22.3
million,  accompanied  by  non-cash  expenses  of income tax benefit from stock
option  exercises of $5.3 million and depreciation  and  amortization  of  $1.6
million. This was partially offset by increases in accounts receivable of $10.8
million, inventory of $2.4 million and prepaid and other assets of $0.4 million
along with a decrease in accounts payable and accrued expenses of $2.1 million.

Investing Activities

   Net cash used in investing activities for the six months ended June 30, 2002
was $28.5  million.   This  was  the  result  of $14.7 million used to purchase
short-term investments, an increase of $12.8 million  in  restricted  cash  and
cash equivalents, $0.8 million for the purchase of property and equipment and a
$0.2 million increase in notes receivable.

     Net  cash  used  in investing activities for the six months ended June 30,
2001 was $1.4 million.  This was the result of $1.2 million for the purchase of
property and equipment and a $0.2 million increase in notes receivable.

Financing Activities

   Net cash provided by  financing activities for the six months ended June 30,
2002 was $10.4 million.  This  was  primarily  the  result  of  a $10.0 million
advance from a revolving credit facility, a $0.8 million advance against a note
payable and net proceeds  of  $0.3  million  from  employee  exercises of stock
options. This was partially offset by principal  payments of  $0.3  on  capital
lease obligations and principal payments of $0.4 million made on notes payable.

   Net cash provided  by financing activities for the six months ended June 30,
2001 was $2.6 million.   This  was  primarily the result of $2.8 million in net
proceeds from employee exercises of stock  options  partially  offset  by  $0.3
million of principal payments on capital lease obligations.

Revolving Credit Facility

   In  April  2002, the Company entered into a Revolving Credit and Security
Agreement ("the Agreement") with Wachovia Bank ("the  Bank"). The terms of the
Agreement provide the Company with a $27.5 million line of credit at LIBOR plus
0.7% collateralized  by the  Company's cash and cash equivalents and short-term
investments. The advance rate  varies between 80% and 95% and is dependent upon
the composition and maturity of the available collateral. An availability fee
of  0.10%  per  annum is  payable  quarterly  based on the  Average  Available
Principal Balance (as defined in the Agreement) for such three months. The
Agreement has an initial term of three  years. The Agreement may be  terminated
by  the  Company at any time upon at least fifteen  days  prior written notice
o the Bank,  and  the  Bank  may terminate the Agreement at any time,  without
notice upon or after the occurrence  of  an  event  of  default. There were
$10.0  million  in borrowings under the Agreement at June 30, 2002. Under the
terms of  the  Agreement,  $12.8  million  of  the  Company's  cash  and cash
equivalents were classified as restricted  at  June  30,  2002.   This includes
amounts  borrowed  under  the Agreement based upon an advance rate of  95%  and
approximately $2.2 million  in letters of credit required by the leases for the
Company's office space.  The  Company  plans to use the facility for short-term
working   capital   and   general  corporate  purposes,   including   potential
acquisitions  of  complementary  businesses  and  technologies.  The  Company's
previous line of credit with Congress Financial was terminated in April 2002 as
part of this transaction.

Legal Proceedings

   As discussed more fully in the Notes to the Consolidated Condensed Financial
Statements Note 6 -  Legal  Proceedings, the Company is currently appealing the
judgment of the Circuit Court  of  the Sixth Judicial Circuit, Pinellas County,
Florida, that awarded $3.9 million plus attorneys' fees to a former officer and
director of the Company.  As of June  30, 2002 no amounts under this award have
been paid.  On April 4, 2002 the Company posted a civil supersedeas bond in the
amount of $4.8 million to secure a stay  of  enforcement  of  the Circuit Court
judgment pending the Company's appeal.  On July 18, 2002, the arbitrator issued
an  award  to Mr. Joseph of $575,000 for attorneys' fees, $165,000  for  costs,
$10,000 for  a  portion  of the arbitrator fees, plus interest from November 1,
2001 until paid.

ITEM 3.    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

   We are not exposed to fluctuations  in  currency  exchange rates because the
majority of our sales and expenses are denominated  in  U.S.  dollars.   We are
exposed  to  the  impact  of  interest  rate  changes  on  our  short-term cash
investments,  consisting of U.S. Treasury obligations and other investments  in
institutions with  the  highest credit ratings, all of which have maturities of
three months or less. These  short-term  investments carry a degree of interest
rate risk.  We believe that the impact of a 10% increase or decline in interest
rates would not be material to our investment income.


#


<PAGE>
                                    PART II

                                OTHER INFORMATION

ITEM 1.    LEGAL PROCEEDINGS

   On November 23, 1999, Seth P. Joseph, a  former  officer and director of the
Company commenced arbitration proceedings against the  Company  alleging breach
of  his  employment  agreement  and stock option agreements, violation  of  the
Florida Whistleblower statute and  breach  of  an indemnification agreement and
the  Company bylaws. As relief, Mr. Joseph sought  $500,000,  attorneys'  fees,
interest  and  stock  options  for 656,666 shares of the Company's common stock
exercisable at a price of $5.25  per share. The Company filed an answer denying
Mr.  Joseph's  allegations  and  alleging  multiple  affirmative  defenses  and
counterclaims. The Company's counterclaims  against Mr. Joseph sought repayment
of   loans  totaling  approximately  $113,000  plus   interest.    Mr.   Joseph
subsequently dismissed without prejudice all of his claims other than his claim
under  the  Whistleblower  Statute.   The  arbitration  hearing on Mr. Joseph's
Whistleblower  claim and the Company's counterclaims concluded  on  October  5,
2001. The parties  submitted proposed findings to the arbitrator on October 17,
2001. As part of his  proposed  findings,  Mr.  Joseph  sought  an award of $48
million  and attorneys' fees and costs.  On November 9, 2001, the  Company  was
notified of  the  arbitrator's  decision  which  awarded  Mr. Joseph the sum of
approximately  $3.7  million and attorneys' fees and costs.   On  December  20,
2001, the arbitrator issued a corrected award and awarded Mr. Joseph the sum of
$3.9 million and attorneys' fees and costs in amounts yet to be determined.  On
January 23, 2002, Mr.  Joseph  filed a motion seeking the award of $1.1 million
in  attorneys'  fees,  costs and interest  thereon.   On  July  18,  2002,  the
arbitrator issued an award  to  Mr.  Joseph  of  $575,000  for attorneys' fees,
$165,000 for costs, $10,000 for a portion of the arbitrator fees, plus interest
from November 1, 2001 until paid.

   On December 3, 2001, the  Company filed a petition to vacate  or  modify the
arbitration award in the Circuit Court of the Sixth Judicial Circuit,  Pinellas
County,  Florida,  in  an  action  entitled  Digital Lightwave, Inc. v. Seth P.
Joseph,  Case  No.  01-9010C1-21.  The Company filed  an  amended  petition  on
December 26, 2001, following  the  corrected  arbitration award.  Subsequently,
Mr.  Joseph  filed  a  cross-motion  to confirm the  arbitration  award.   Oral
argument on the Company's petition and  Mr.  Joseph's cross-motion was heard by
the  Court  on February 27, 2002.  On March 26,  2002,  the  Court  denied  the
Company's petition to vacate the arbitration award, granted Mr. Joseph's cross-
motion to confirm  the  award, and entered a judgment in favor of Mr. Joseph in
the amount of $4.0 million  including  interest.   The Company is appealing the
decision  and judgment of the Circuit Court.   On April  4,  2002  the  Company
posted a civil supersedeas bond in the amount of $4.8 million, which represents
the amount  of  the judgment plus two times the estimated interest, to secure a
stay of enforcement of the Circuit Court judgment pending the Company's appeal.
The Company has recorded an accrual of $4.7 million related to this arbitration
as of June 30, 2002.   The  Company  believes  its  appeal  is  meritorious and
intends to pursue the appeal vigorously.

   In  January  2002,  an employee terminated as part of the Company's  October
2001 restructuring initiatives,  filed  a  lawsuit claiming the Company wrongly
discharged the employee and has withheld payments  due  the employee.  The suit
does  not  seek  a specified amount of damages, but does claim  that  the  2001
compensation plan  presented  to  the employee in October 2001 unfairly lowered
the  employee's  salary. The plaintiff  seeks  attorneys'  fees,  interest  and
punitive damages.   The  Company  has responded to the complaint and denied the
substantive allegations therein. The  Company  intends  to defend against these
claims vigorously.

   In  March 2002,  a  former  employee  filed a lawsuit claiming  the  Company
breached the employee's severance agreement  by  paying  the employee less than
the  agreement provided.  The suit seeks damages in excess  of  $100,000.   The
Company  has  responded to the complaint and denied the substantive allegations
therein. The Company intends to vigorously defend the action.

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

#


<PAGE>
ITEM 4.    SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

   At  the annual meeting of stockholders of the Company held on May 20,  2002,
the stockholders  voted on four proposals. The first was a proposal to re-elect
Dr. Bryan J. Zwan,  Gerald  A.  Fallon,  Dr.  William F. Hamilton and Robert F.
Hussey as directors of the Company. The following table sets forth the votes in
such election:

<TABLE>
<CAPTION>
       DIRECTOR           VOTES FOR     VOTES WITHHELD
<S>                      <C>           <C>
       --------            --------        --------
Dr. Bryan J. Zwan        30,428,020         445,252
Gerald A. Fallon         30,461,008         412,264
Dr. William F. Hamilton  30,462,008         411,264
Robert F. Hussey         30,462,008         411,264
</TABLE>

   The  second  proposal  was  to  approve three amendments  to  the  Company's
Certificate  of Incorporation and Bylaws  to  eliminate  certain  anti-takeover
provisions including:

<TABLE>
<CAPTION>
                                              PROPOSAL                                              VOTES FOR   VOTES  ABSTENTIONS
                                                                                                               AGAINST
<S>                                                                                                 <C>        <C>     <C>
                                             ----------                                             ---------- ------- ----------

(A) Article Eighth of the Certificate to eliminate the anti-takeover provisions;                    13,748,443 277,926     19,488

(B) Article Sixth of the Certificate to eliminate restrictions on certain stockholder actions;      13,790,655 178,611     76,591

(C) Articles Fifth, Sixth, Seventh and Eighth of the Certificate to eliminate supermajority voting
    requirements to amend certain provisions of the Bylaws and the Certificate;                     13,783,622 220,344     41,891

</TABLE>

   The third proposal was to approve  an  amendment  to  the Digital Lightwave,
Inc.  1997  Employee Stock Purchase Plan to increase the number  of  shares  of
Common Stock  authorized  for  issuance  thereunder  by  an  additional 300,000
shares.   The  proposal  received  13,673,360 affirmative votes, 341,398  votes
against and 31,099 abstentions.

   The fourth proposal was to approve  an  amendment  to the Digital Lightwave,
Inc. 2001 Stock Option Plan to increase the number of shares  of  Common  Stock
authorized  for  issuance  thereunder  by  an additional 3,000,000 shares.  The
proposal  received  13,192,689 affirmative votes,  833,227  votes  against  and
19,941 abstentions.


ITEM 5.    OTHER INFORMATION

   (a)On June 21, 2002,  the Company filed the Amended and Restated Certificate
of Incorporation of the Company  approved by the stockholders of the Company at
the annual meeting held on May 20,  2002,  with the State of Delaware.  On June
21,  2002,  the  Board of Directors of the Company  approved  the  Amended  and
Restated Bylaws of  the  Company approved by the stockholders of the Company at
the annual meeting held on May 20, 2002.

   (b)On August 9, 2002, the Board of Directors accepted the resignation of Dr.
Bryan Zwan as President and  Chief  Executive Officer of the Company.  Dr. Zwan
will continue as the Company's Chairman  of  the  Board and will concentrate on
developing the Company's strategy and technology, as  well as potential mergers
and acquisitions.  Also on August 9, 2002, the Board of Directors appointed the
Company's  current  Chief  Operating  Officer,  Jim  Green to  the  offices  of
President  and  Chief  Executive  Officer.   As President and  Chief  Executive
Officer Mr. Green will direct all of the Company's  day  to  day operations and
serve  as the Company's principal executive officer.  On August  9,  2002,  the
Board of Directors also promoted the Company's current Chief Financial Officer,
Mark Scott  to  the  offices  of  Executive  Vice President and Chief Financial
Officer.


#


<PAGE>
ITEM 6.    EXHIBITS AND REPORTS ON FORM 8-K

   (a) Exhibits

       A list of exhibits is set forth in the Exhibit  Index found on page 25 of
       the report.

   (b) Reports on Form 8-K.

       No  reports  on  Form 8-K were filed during the period  covered  by  this
       Report.
#


<PAGE>
                                  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/ JAMES GREEN
                                             James Green
                                             Chief Executive Officer and
                                             President
                                             (Principal Executive Officer)

                                             Date:  August 14 , 2002


                                        By:  /s/ MARK E. SCOTT
                                             Mark E. Scott
                                             Executive Vice President, Finance,
                                             Chief Financial Officer and
                                             Secretary
                                             (Principal Accounting Officer)

                                             Date: August 14, 2002




#


<PAGE>
                                 EXHIBIT INDEX

<TABLE>

<CAPTION>
EXHIBIT
NUMBER                                         DESCRIPTION
<S>       <C> <C>

3.02 +     Amended and Restated Certificate of Incorporation, dated June 21, 2002
3.03 +     Amended and Restated Bylaws, dated June 21, 2002
10.31*+    Amended and Restated Promissory Note between Jim Green and the Company
10.32*(1)  Amendment to 1997 Employee Stock Purchase Plan
10.33*(2)  Amendment to 2001 Stock Option Plan
99.1 +     Written Statement of the Chief Executive Officer Pursuant to 18 U.S.C. Section 1350
99.2 +     Written Statement of the Chief Financial Officer Pursuant to 18 U.S.C. Section 1350

</TABLE>
______________
 *    Indicates management contract or compensatory plan or arrangement.

 +    Indicates such exhibit is filed herewithin.

(1)   Incorporated  by  reference  to  Appendix  B  to  the  Registrant's Proxy
      Statement  filed  on  April  22,  2002  for  the  2002 Annual Meeting  of
      Stockholders held on May 20, 2002.

(2)   Incorporated  by  reference  to  Appendix  D  to  the Registrant's  Proxy
      Statement  filed  on  April  22,  2002  for  the 2002 Annual  Meeting  of
      Stockholders held on May 20, 2002.

#