MIDDLEWARE

Digital Lightwave, Inc. today reported second quarter results for the period ended June 30, 2004. Net sales in the quarter grew 246 percent to $5.8 million, compared to $1.7 million in the comparable prior year period. The net loss in the quarter was $1.7 million or 5 cents per diluted share, versus a net loss of $10.1 million, or 32 cents per diluted share in the comparable prior year quarter. For the six months ended June 30, 2004, net sales totaled $10.2 million, an increase of 210 percent compared to $3.3 million for the first six months of the prior year. The net loss for the first six months of the current year totaled $4.1 million, or 13 cents per diluted share as compared to a net loss of $23.3 million, or 74 cents per diluted share for the six-month period ended June 30, 2003. For the first six months of 2004, cash flows used by operations totaled approximately $11.3 million. At June 30, 2004, unrestricted cash and cash equivalents totaled approximately $50,000, and the Company reported a working capital deficit of $21.0 million. Gross margins in the three and six-month periods improved to 56 percent and 53 percent, respectively, following losses in the comparable prior year periods. New order bookings in the three-month period ended June 30, 2004 increased for the fifth consecutive quarter and exceeded quarterly net sales for the sixth consecutive quarter. Through the six months ended June 30, 2004, the Company entered into settlements agreements resolving substantially all of its previously reported litigation issues, including the dispute with CIT Technologies Corporation. Further, the Company obtained financing from Optel, LLC and Optel Capital, LLC, entities controlled by the majority stockholder and Chairman of the Board, Dr. Bryan Zwan (collectively "Optel"), to finance these settlements and provide near-term working capital requirements. The Company and Optel are currently in negotiations to restructure the Company's debt of approximately $25.3 million held by Optel as of the date of this report. James Green, Chief Executive Officer of the Company, commented, "We are pleased with the Company's accomplishments for the first half of this year, marked by consistent improvements in new order bookings and net sales, and the resolutions of long-outstanding lawsuits. We look forward to further increasing our market share, investing in new technologies and continuing to enhance our products." Green added, "Our ongoing negotiation with Optel to restructure our finances is another important step in our plans to return to profitability. We are confident in our product positioning and continue to be encouraged by the events we see in our markets." Based in Clearwater, Florida, Digital Lightwave, Inc. (the "Company") provides the global communications networking industry with products, technology and services that enable the efficient development, deployment and management of high-performance networks. Digital Lightwave's customers -- companies that deploy networks, develop networking equipment, and manage networks -- rely on its offerings to optimize network performance and ensure service reliability. The Company designs, develops and markets a portfolio of portable and network-based products for installing, maintaining and monitoring fiber optic circuits and networks. Network operators and telecommunications service providers use fiber optics to provide increased network bandwidth to transmit voice and other non-voice traffic such as internet, data and multimedia video transmissions. The Company provides telecommunications service providers and equipment manufacturers with product capabilities to cost-effectively deploy and manage fiber optic networks. The Company's product lines include: Network Information Computers, Network Access Agents, Optical Test Systems, and Optical Wavelength Managers. The Company's wholly owned subsidiaries are Digital Lightwave (UK) Limited, Digital Lightwave Asia Pacific Pty, Ltd., and Digital Lightwave Latino Americana Ltda. Digital Lightwave, Inc. Consolidated Condensed Statements of Operations (Unaudited) (In thousands, except per-share data) Three Months Ended Six Months Ended June 30, June 30, ------------------- ------------------- 2004 2003 2004 2003 --------- --------- --------- --------- Net sales $ 5,796 $ 1,673 $ 10,189 $ 3,289 Cost of goods sold 2,553 4,690 4,805 5,971 --------- --------- --------- --------- Gross profit (loss) 3,243 (3,017) 5,384 (2,682) --------- --------- --------- --------- Operating expenses 4,839 6,508 9,067 19,435 --------- --------- --------- --------- Operating loss (1,596) (9,525) (3,683) (22,117) --------- --------- --------- --------- Other loss, net (67) (572) (447) (1,187) --------- --------- --------- --------- Loss before income taxes (1,663) (10,097) (4,130) (23,304) Benefit from income taxes - - - - --------- --------- --------- --------- Net loss $ (1,663) $(10,097) $ (4,130) $(23,304) ========= ========= ========= ========= Per share of common stock: Basic net loss per share $ (0.05) $ (0.32) $ (0.13) $ (0.74) ========= ========= ========= ========= Weighted Average Shares Outstanding 32,278 31,469 32,278 31,469 ========= ========= ========= ========= Diluted net loss per share $ (0.05) $ (0.32) $ (0.13) $ (0.74) ========= ========= ========= ========= Weighted Average Shares Outstanding 31,944 31,446 31,944 31,446 ========= ========= ========= ========= Digital Lightwave, Inc. Selected Other Data (Unaudited) (In thousands) June 30, Dec. 31, 2004 2003 ---------- ---------- Unrestricted Cash and Cash Equivalents $ 50 $ 312 Working Capital Deficit $ 21,019 $ 25,930 Stockholders' Equity (Deficit) $(106,533) $(102,404) June 30, June 30, 2004 2003 ---------- ---------- Cash Flows Used by Operating Activities $ (11,334) $ (9,511)