During Phase I, the optical generation of the same key stream at two different locations was experimentally demonstrated. This allows secure encipherment / decipherment of data, which was also demonstrated. The physical basis of Quantum Digital Random Noise (QDRN) is the conversion of optical phase noise into random cryptanalysis. The optical generation of key streams supports arbitrarily high data rates. Optimal digitization of analog signals was identified as the major design issue. QDRN is compatible with single mode fiber, optical amplifiers, and WDM components, but not with electronic regenerators. QDRN is perfectly suited to key distribution; no distribution center or initial shared secret is required. A rudimentary QDRN could also be key manager for conventional cryptography. Phase II will provide for the design, development and testing of a prototype unit. The prototype will be able to transmit secure data through standard single mode fiber using polarization control and will be tested with 1, 10, and 40 km of fiber. The unit will also be tested with optical amplifiers and dense WDM components. It will be delivered and made available for insertion into a testbed optical network to ensure compatibility.