<PAGE>
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                                    UNITED STATES
                          SECURITIES AND EXCHANGE COMMISSION
                               Washington, D.C.  20549


                                      FORM 10-Q


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

                     For the quarterly period ended June 30, 1997

                                          OR

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

  For the transition period from ______________to______________

                         Commission File Number   0-20191   

                                   *  *  *  *  *  *

                                  ODS NETWORKS, INC.
                ------------------------------------------------------
                (Exact name of Registrant as specified in its charter)


            Delaware                               75-1911917    
-------------------------------               -------------------
(State or other jurisdiction of                (I.R.S. Employer
incorporation or organization)                Identification No.)


                   1101 East Arapaho Road, Richardson, Texas 75081
                   -----------------------------------------------
                       (Address of principal executive offices)
                                      (Zip Code)

                                    (972) 234-6400                   
                 ----------------------------------------------------
                 (Registrant's telephone number, including area code)

                                    Not Applicable                
                     -------------------------------------------
                     (Former name, if changed since last report)

                                   *  *  *  *  *  *

Indicate by check mark whether the 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 reports), 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, $.01 par
value, on August 1, 1997 was 16,477,776.

-------------------------------------------------------------------------------
<PAGE>
                                  ODS NETWORKS, INC.

                                        INDEX

                            PART I - FINANCIAL INFORMATION
<TABLE>
<CAPTION>
                                                                   PAGE
                                                                   ----
<S>                                                                <C>
Item 1.  Financial Statements

Condensed Consolidated Balance Sheets as of June 30, 1997
     and December 31, 1996 . . . . . . . . . . . . . . . . . . .      3

Condensed Consolidated Statements of Operations for the three
     months ended June 30, 1997 and June 30, 1996. . . . . . . .      4

Condensed Consolidated Statements of Operations for the six
     months ended June 30, 1997 and June 30, 1996. . . . . . . .      5

Condensed Consolidated Statements of Cash Flows for the six       
     months ended June 30, 1997 and June 30, 1996. . . . . . . .      6

Notes to Condensed Consolidated Financial Statements . . . . . .      7

Item 2.  Management's Discussion and Analysis of Results of
         Operations and Financial Condition. . . . . . . . . . .   8-13


    PART II - OTHER INFORMATION

Item 4.  Submission of Matters to a Vote of Security Holders . .     14

Item 6.  Exhibits and Reports on Form 8-K. . . . . . . . . . . .     14

Signature Page . . . . . . . . . . . . . . . . . . . . . . . . .     15

</TABLE>


                                     -2-
<PAGE>

                            PART I - FINANCIAL INFORMATION


Item 1.  FINANCIAL STATEMENTS.

                         ODS NETWORKS, INC. AND SUBSIDIARIES
                        CONDENSED CONSOLIDATED BALANCE SHEETS
                       (In thousands, except par value amounts)
<TABLE>
<CAPTION>
                                                 June 30,    Dec. 31,
                                                   1997        1996
                                                 --------    --------
                                               (Unaudited)
<S>                                             <C>          <C>
                            ASSETS

Current Assets:
   Cash and cash equivalents                     $10,814      $ 6,565
   Short-term investments                         15,711       13,790
   Accounts receivable (net)                      13,967       16,573
   Income taxes receivable                            -            85
   Inventories                                    18,942       25,573
   Deferred tax assets                             2,792        1,499  
   Other assets                                      933          840
                                                 --------    --------
Total current assets                              63,159       64,925

Property and equipment (net)                      12,152       11,739
Long-term investments                              5,528        5,050
Other assets                                         167          221
                                                 --------    --------
TOTAL ASSETS                                     $81,006      $81,935
                                                 --------    --------
                                                 --------    --------

                  LIABILITIES AND STOCKHOLDERS' EQUITY

Current Liabilities:
   Accounts payable                              $ 4,831      $ 5,440
   Accrued expenses                                4,825        4,956
   Income taxes payable                              348           -  
                                                 --------    --------
Total current liabilities                         10,004       10,396

Deferred tax liabilities                             629          601

Stockholders' Equity:
   Preferred stock, $.01 par value,
      Authorized shares - 5,000
      No shares issued and outstanding
   Common stock, $.01 par value, 
      Authorized shares - 80,000
      Issued and outstanding shares - 16,455
      in 1997 and 16,328 in 1996                     165          163
   Additional paid-in capital                     19,398       18,908
   Retained earnings                              50,920       51,969
   Foreign currency translation adjustments         (110)        (102)
                                                 --------    --------
Total stockholders' equity                        70,373       70,938
                                                 --------    --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY       $81,006      $81,935
                                                 --------    --------
                                                 --------    --------
</TABLE>
                               See accompanying notes.


                                       -3-
<PAGE>

                         ODS NETWORKS, INC. AND SUBSIDIARIES
                   CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
                       (In thousands, except per share amounts)
                                   (Unaudited)
<TABLE>
<CAPTION>
                                                     Three Months Ended
                                                   -----------------------
                                                   June 30,       June 30,
                                                     1997           1996
                                                   --------       --------
<S>                                               <C>            <C>
Net sales                                          $27,868        $31,007 
Cost of sales                                       16,076         15,641
                                                   --------       --------
     Gross profit                                   11,792         15,366

Operating expenses: 
     Sales and marketing                             7,877          6,395
     Research and development                        2,823          2,448
     General and administrative                      1,258            872
                                                   --------       --------
Operating income (loss)                               (166)         5,651

Interest income, net                                   374            215 
                                                   --------       --------
Income before income taxes                             208          5,866

Income tax provision                                    79          2,229
                                                   --------       --------
Net income                                         $   129        $ 3,637
                                                   --------       --------
                                                   --------       --------
Net income per share                               $  0.01        $   .22
                                                   --------       --------
                                                   --------       --------
Weighted average common and common
 equivalent shares outstanding                      16,753         16,880
                                                   --------       --------
                                                   --------       --------

</TABLE>

                               See accompanying notes.


                                        -4-
<PAGE>

                         ODS NETWORKS, INC. AND SUBSIDIARIES
                   CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
                       (In thousands, except per share amounts)
                                   (Unaudited)
<TABLE>
<CAPTION>
                                                      Six Months Ended
                                                   -----------------------
                                                   June 30,       June 30,
                                                     1997           1996
                                                   --------       --------
<S>                                               <C>            <C>
Net sales                                          $48,029        $60,512 
Cost of sales                                       27,241         30,780
                                                   --------       --------
     Gross profit                                   20,788         29,732

Operating expenses: 
     Sales and marketing                            15,018         12,324
     Research and development                        5,653          4,609
     General and administrative                      2,520          1,759
                                                   --------       --------
Operating income (loss)                             (2,403)        11,040

Interest income, net                                   711            462
                                                   --------       --------
Income (loss) before income taxes                   (1,692)        11,502

Income tax (benefit) provision                        (643)         4,371
                                                   --------       --------
Net income (loss)                                  $(1,049)       $ 7,131
                                                   --------       --------
                                                   --------       --------
Net income (loss) per share                        $ (0.06)       $  0.42
                                                   --------       --------
                                                   --------       --------
Weighted average common and common
 equivalent shares outstanding                      16,392         16,874
                                                   --------       --------
                                                   --------       --------

</TABLE>

                               See accompanying notes.


                                       -5-
<PAGE>

                         ODS NETWORKS, INC. AND SUBSIDIARIES
                   CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                                    (In thousands)
                                    (Unaudited)
<TABLE>
<CAPTION>
                                                      Six Months Ended
                                                   ----------------------
                                                   June 30,      June 30,
                                                     1997          1996
                                                   --------      --------
<S>                                               <C>            <C>
Operating Activities:
Net income (loss)                                 ($ 1,049)       $ 7,131
Adjustments to reconcile net income (loss) to
 net cash provided (used) by operating activities:
   Depreciation                                      1,530          1,145  
   Deferred income taxes                            (1,265)            (5)
   Provision for doubtful accounts and returns          35             60
   Changes in operating assets and liabilities:
      Accounts receivable                            2,571         (8,421)
      Inventories                                    6,631         (4,331) 
      Other assets                                     (39)          (254)
      Accounts payable and accrued expenses           (740)         1,484 
      Income taxes payable                             460           (710)
                                                   --------      --------
Net cash provided by (used in) 
    operating activities                             8,134         (3,901)
                                                   --------      --------
Investing Activities:
  Purchases of short-term investments              (10,849)        (8,092) 
  Maturities of short-term investments              10,932          9,100
  Purchases of long-term investments                (2,495)           -
  Maturities of long-term investments                   13            -
  Purchases of property and equipment               (1,943)        (2,860)
                                                   --------      --------
Net cash used in investing activities               (4,342)        (1,852)
                                                   --------      --------
Financing Activities:
  Exercise of warrants and employee stock options      465            344
                                                   --------      --------
Net cash provided by financing activities              465            344
                                                   --------      --------
Effect of foreign currency translation 
 adjustment on cash and cash equivalents                (8)            (4)
                                                   --------      --------
Net increase (decrease) in cash and cash
 equivalents                                         4,249         (5,413)

Cash and cash equivalents at beginning of
 period                                              6,565         10,397
                                                   --------      --------
Cash and cash equivalents at end of period         $10,814        $ 4,984  
                                                   --------      --------
                                                   --------      --------

Supplemental disclosure of income taxes paid       $   239        $ 5,086
                                                   --------      --------
                                                   --------      --------

Supplemental schedule of non cash activities:
   Tax benefit of stock options exercised
     and sold                                      $    27        $   426
                                                   --------      --------
                                                   --------      --------

</TABLE>

                               See accompanying notes.


                                        -6-

<PAGE>

                         ODS NETWORKS, INC. AND SUBSIDIARIES
           NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)


Note A - Basis of Presentation

The accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Article 10 of
Regulation S-X.  Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements.  In the opinion of management, all the adjustments
(consisting of normal recurring adjustments) considered necessary for fair
presentation have been included.

In February 1997, the Financial Accounting Standards Board issued Statement No.
128, EARNINGS PER SHARE, which is required to be adopted on December 31, 1997. 
At that time, the Company will be required to change the method currently used
to compute earnings per share and to restate all prior periods.  Under the new
requirements for calculating primary earnings per share, the dilutive effect of
stock options will be excluded.  The change in method is expected to have no
effect on primary earnings per share for the quarter or six months ended June
30, 1997.  The change in method is expected to have no effect on primary
earnings per share for the quarter ended June 30, 1996 and an increase in
primary earnings per share for the six months ended June 30, 1996 of $0.02 per
share.  The impact of Statement 128 on the calculation of fully diluted earnings
per share for these quarters is not expected to be significant. 

The results of operations for the six month period ending June 30, 1997 are 
not necessarily indicative of the results which may be achieved for the full 
fiscal year or for any future period.  The condensed consolidated financial 
statements included herein should be read in conjunction with the 
consolidated financial statements and notes thereto included in the Company's 
annual report on Form 10-K for the year ended December 31, 1996.

Note B - Inventories (in Thousands)

Inventories consist of:
                                          June 30,       Dec. 31,
                                           1997           1996      
                                         ---------      ---------
   Raw materials                         $ 3,907        $ 6,138
   Work in process                         2,311          2,308
   Finished products                       8,851         13,530
   Demonstration systems                   3,873          3,597 
                                         -------        -------
                                         $18,942        $25,573
                                         -------        -------
                                         -------        -------
Note C - Accrued Expenses (in Thousands)

Included in accrued expenses are the following:

                                          June 30,       Dec. 31, 
                                           1997           1996    
                                         ---------      ---------
      Accrued sales commissions          $   865        $   681
      Accrued property taxes                 377            631
      Accrued vacation expense               816            538
      Deferred maintenance revenue         1,377          1,714
      Other (individually less than
       5% of current liabilities)          1,390          1,392
                                         -------        -------
                                         $ 4,825        $ 4,956
                                         -------        -------
                                         -------        -------


                                       -7-
<PAGE>

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


This quarterly report, other than historical information, may include 
forward-looking statements with respect to financial results, product 
introductions, market demand, industry trends, sufficiency of cash resources 
and certain other matters. These statements are made under the "safe harbor" 
provisions of the Private Securities Litigation Reform Act of 1995 and 
involve risks and uncertainties which could cause actual results to differ 
materially from those in the forward-looking statements, including those 
discussed in the section entitled "Factors That May Affect Future Results of 
Operations" and elsewhere in this filing, as well as those discussed in the 
Company's Annual Report on Form 10-K and other filings with the Securities 
and Exchange Commission.

The following table sets forth, for the periods indicated, certain financial
data as a percentage of net sales:

<TABLE>
<CAPTION>
                                  Three Months Ended June 30,  Six Months Ended June 30,
                                  ---------------------------  -------------------------
                                       1997         1996           1997         1996 
                                      ------       ------         ------       ------
 
<S>                                  <C>          <C>            <C>          <C>
Net sales                             100.0%       100.0%         100.0%       100.0% 
Cost of sales                          57.7         50.4           56.7         50.9
                                      ------       ------         ------       ------
Gross profit                           42.3         49.6           43.3         49.1
Sales and marketing expenses           28.3         20.6           31.3         20.4
Research and development expenses      10.1          7.9           11.8          7.6
General and administrative expenses     4.5          2.9            5.2          2.9
                                      ------       ------         ------       ------
Operating income (loss)                (0.6)        18.2           (5.0)        18.2
Interest income, net                    1.3          0.7            1.5          0.8
                                      ------       ------         ------       ------
Income (loss) before income taxes       0.7         18.9           (3.5)        19.0
Income taxes                            0.3          7.2           (1.3)         7.2
                                      ------       ------         ------       ------
Net income (loss)                       0.4%        11.7%          (2.2)%       11.8%
                                      ------       ------         ------       ------
                                      ------       ------         ------       ------

Switching product sales                42.3%        11.5%          35.7%         9.5%
Shared bandwidth hub sales             52.3         86.7           58.3         88.8
Other sales                             5.4          1.8            6.0          1.7
                                      ------       ------         ------       ------
Net sales                             100.0%       100.0%         100.0%       100.0%
                                      ------       ------         ------       ------
                                      ------       ------         ------       ------

Domestic sales                         68.3%        88.4%          72.5%        86.4
Export sales to:
  Europe                                7.7          6.5            8.7          7.7
  Canada                                2.3          2.4            3.6          3.1
  Asia                                 18.6          1.6           12.5          2.1
  Latin America                         3.1          1.1            2.7          0.7
                                      ------       ------         ------       ------
Net sales                             100.0%       100.0%         100.0%       100.0%
                                      ------       ------         ------       ------
                                      ------       ------         ------       ------
</TABLE>
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RESULTS OF OPERATIONS

    NET SALES.  Net sales for the quarter and six months ended June 30, 1997
decreased to $27.9 million and $48.0 million, respectively, compared to $31.0
million and $60.5 million, respectively, for the same periods of 1996 as sales
of the Company's new network switching products did not increase quickly enough
to offset the decrease in sales of its prior generation shared bandwidth
intelligent hubs.


                                       -8-
<PAGE>

    Export sales for the quarter and six months ended June 30, 1997 increased
to $8.8 million and $13.2 million, respectively, compared to $3.6 million and
$8.2 million, respectively, for the same periods of 1996 primarily due to growth
in export sales to the Asian region.

    Sales to Electronic Data Systems Corporation ("EDS") were 14.6% and 14.5%,
respectively, of net sales during the quarter and six months ended June 30,
1997, compared to 31.2% and 26.3%, respectively, of net sales for the same
periods of 1996. Sales to Sapura Holdings Sdn. Bhd. ("Sapura") were 13.9% and
8.1%, respectively, of net sales during the quarter and six months ended June
30, 1997. Direct net sales to various agencies of the U.S. Government were 13.2%
and 11.6%, respectively, of net sales during the quarter and six months ended
June 30, 1997, compared to 11.4% and 10.5%, respectively, of net sales for the
same periods of 1996. Sales to AT&T Corp. ("AT&T") were 2.7% and 3.0%,
respectively, of net sales during the quarter and six months ended June 30,
1997, compared to 8.1% and 13.6%, respectively, of net sales for the same
periods of 1996.

    GROSS PROFIT.  Gross profit decreased to $11.8 million or 42.3% of net
sales for the second quarter of 1997 compared to $15.4 million or 49.6% of net
sales for the second quarter of 1996.  Gross profit decreased to $20.8 million
or 43.3% of net sales for six months ended June 30, 1997 compared to $29.7
million or 49.1% of net sales for the same period of 1996.  Gross profit as
percentages of net sales in the quarter and six months ended June 30, 1997 were
impacted by several factors, including a decline in the net realizable value of
certain prior generation products, product mix and lower sales volumes.  Gross
profit margins in future periods may be affected by several factors such as
continued product transition, declining market demand for prior generation
products, obsolescence or surplus of inventory, shifts in product mix, changes
in channels of distribution, sales volume, fluctuation in manufacturing costs,
pricing strategies of the Company and its competitors and fluctuations in sales
of integrated third-party products. Gross profit margins are typically lower on
sales of integrated third-party products.

    SALES AND MARKETING.  Sales and marketing expenses increased to $7.9
million or 28.3% of net sales for the second quarter of 1997 from $6.4 million
or 20.6% of net sales for the second quarter of 1996.  Sales and marketing
expenses increased to $15.0 million or 31.3% of net sales for six months ended
June 30, 1997 compared to $12.3 million or 20.4% of net sales for the same
period of 1996.  The increase in sales and marketing expense was primarily due
to higher levels of staffing in sales, marketing and technical support and
associated costs.  The Company expects sales and marketing expenses to continue
to increase in amount, but may vary as a percentage of net sales in the future.

    RESEARCH AND DEVELOPMENT.  Research and development expenses increased to
$2.8 million or 10.1% of net sales for the second quarter of 1997 from $2.4
million or 7.9% of net sales for the second quarter of 1996. Research and
development expenses increased to $5.7 million or 11.8% of net sales for six
months ended June 30, 1997 compared to $4.6 million or 7.6% of net sales for the
same period of 1996.  The increase in research and development expense was
primarily due to an increase in the number of development personnel and
increased costs related to the development and testing of new switching
products.  The Company expects to continue to invest in research and development
activities in the future in order to broaden its family of switching products.

    GENERAL AND ADMINISTRATIVE.  General and administrative expenses increased
to $1.3 million or 4.5% of net sales for the second quarter of 1997 from $0.9


                                       -9-
<PAGE>

million or 2.9% of net sales for the second quarter of 1996. General and
administrative expenses increased to $2.5 million or 5.2% of net sales for six
months ended June 30, 1997 compared to $1.8 million or 2.9% of net sales for the
same period of 1996.  As the Company continues to expand its domestic and
foreign operations, general and administrative expenses are expected to increase
in amount, but may vary as a percentage of net sales in the future.

    INTEREST.  Net interest income increased to $0.4 million and $0.7 million,
respectively, for the quarter and six months ended June 30, 1997 compared to
$0.2 million and $0.5 million, respectively, for the same periods of 1996.  Net
interest income may vary in the future based on the Company's cash flow and rate
of return on investments. 

    INCOME TAXES.  The Company's effective income tax rate remained constant at
38.0% for the quarter and six months ended June 30, 1997 compared to the same
periods of 1996.

LIQUIDITY AND CAPITAL RESOURCES

    The Company's principal sources of liquidity at June 30, 1997 were $10.8
million of cash and cash equivalents, $15.7 million of short-term investments,
$5.5 million of highly liquid investments with a stated maturity beyond one year
and an available line of credit.  As of June 30, 1997, working capital was 
$53.2 million compared to $54.5 million as of December 31, 1996.

    Cash flows provided by operations for the first six months of 1997 were
$8.1 million, primarily due to a decrease in inventory and accounts receivable
balances partially offset by a net loss for the period.  Future fluctuations in
accounts receivable and inventory balances will be dependent upon several
factors, including but not limited to quarterly sales, ability to collect
accounts receivable timely, the Company's strategy as to building inventory in
advance of receiving orders from customers, and the accuracy of the Company's
forecasts of product demand and component requirements.

    Cash used in investing activities in the first six months of 1997 consisted
of net purchases of short-term and long-term investments of $2.4 million, and
property and equipment purchases of $1.9 million.

    Cash provided by financing activities in the first six months of 1997 was
$0.5 million, which consisted of the issuance of common stock relating to the
exercise of certain warrants and employee stock options.

    During the first six months of 1997 the Company funded its operations
solely through cash flow from operations.  In April 1997, the Company renewed
its unsecured bank line of credit agreement and increased the maximum available
borrowings under the credit facility to $15.0 million.  Borrowings under this
line are subject to certain limitations and conditions, including the
maintenance of certain financial ratios such as debt-to-equity and fixed charge
coverage ratios. Borrowings on this line accrue interest at prime with interest
due monthly and principal due April 12, 1999.  As of June 30, 1997, the Company
had no borrowings outstanding under its bank credit facility.

    The Company believes that its cash, cash equivalents and investment
balances, cash expected to be generated from operations and the availability of
borrowings under its bank credit facility will provide sufficient cash resources
to finance its operations and currently projected capital expenditures through
the remainder of 1997.


                                       -10-
<PAGE>

FACTORS THAT MAY AFFECT FUTURE RESULTS OF OPERATIONS

As noted above, the foregoing discussions may include forward-looking 
statements that involve risks and uncertainties.  In addition to those 
factors discussed elsewhere in this report and those discussed in the 
Company's Annual Report on Form 10-K and other filings with the Securities 
and Exchange Commission, the Company identifies the following factors which 
could affect the Company's actual results and cause actual results to differ 
materially from those in the forward-looking statements.

TECHNOLOGICAL CHANGES.  The market for the Company's products is characterized
by frequent product introductions, rapidly changing technology and continued
evolution of new industry standards. The market for network intelligent hubs and
switches requires the Company's products to be compatible and interoperable with
products and architectures offered by various vendors, including other
networking products, workstation and personal computer architectures and
computer and network operating systems.  The Company's success will depend to a
substantial degree upon its ability to develop and introduce in a timely manner
new products and enhancements to its existing products that meet changing
customer requirements and evolving industry standards.  The development of
technologically advanced products is a complex and uncertain process requiring
high levels of innovation as well as the accurate anticipation of technological
and market trends.  There can be no assurance that the Company will be able to
identify, develop, manufacture, market and support new or enhanced products
successfully in a timely manner.  Further, the Company or its competitors may
introduce new products or product enhancements that shorten the life cycle of or
obsolete the Company's existing product lines which could have a material
adverse effect on the Company's business, operating results and financial
condition.  

COMPETITION AND MARKET ACCEPTANCE.  The market for network intelligent hubs and
switches is intensely competitive and subject to frequent product introductions
with improved price/performance characteristics.  Even if the Company does
introduce advanced products which meet evolving customer requirements in a
timely manner, there can be no assurance that the new Company products will gain
market acceptance.  Many networking companies, including Cisco Systems, Inc.
("Cisco"), Cabletron Systems, Inc. ("Cabletron"), Bay Networks, Inc.("Bay
Networks"), FORE Systems, Inc. ("FORE Systems"), Xylan Corporation ("Xylan") and
others, have substantially greater financial, technical, sales and marketing
resources, better name recognition and a larger customer base than the Company. 
In addition, many of the Company's large competitors offer customers a broader
product line which provides a more comprehensive networking solution than the
Company currently offers.  Increased competition in the networking industry
could result in significant price competition, reduced profit margins or loss of
market share, any of which could have a material adverse effect on the Company's
business, operating results and financial condition.

Cisco, Cabletron, Bay Networks, FORE Systems and other competitors have recently
acquired several networking companies with complementary technologies, and the
Company anticipates that such acquisitions will continue in the future.  These
acquisitions may permit such competitors to accelerate the development and
commercialization of broader product lines and more comprehensive networking
solutions than the Company currently offers.  In the past, the Company has
relied upon a combination of internal product development and partnerships with
other networking vendors to provide competitive networking solutions to
customers.  Certain of the recent and future acquisitions by the Company's
competitors may have the effect of limiting the Company's access to commercially
significant technologies.  Further, the business combinations and acquisitions
in the networking industry are creating companies with larger market shares,
customer 


                                      -11-
<PAGE>

bases, sales forces, product offerings and technology and marketing 
expertise.  There can be no assurance that the Company will be able to 
compete successfully in such an environment.

PRODUCT TRANSITIONS.  Once current networking products have been in the market
place for a period of time and begin to be replaced by higher performance
products (whether of the Company's or a competitor's design), the Company
expects the net sales of such networking products to decrease.  In order to
achieve revenue growth in the future the Company will be required to design,
develop and successfully commercialize higher performance products in a timely
manner.  For example, the Company believes that the market for shared bandwidth
intelligent hubs, sales of which have represented the vast majority of the
Company's net sales over the past several years, decreased over the past several
quarters and may continue to decrease as switching products with enhanced
price/performance characteristics gain market acceptance.  There can be no
assurance that the Company will be able to introduce new products and gain
market acceptance quickly enough to avoid adverse revenue transition patterns
during current or future product transitions.

MANUFACTURING AND AVAILABILITY OF COMPONENTS.  The Company's manufacturing
operations consist primarily of final assembly, testing and quality control of
subassemblies and finished units.  Materials used by the Company in its
manufacturing processes include semiconductors such as microprocessors, memory
chips and application-specific integrated circuits ("ASICs"), printed circuit
boards, power supplies and enclosures.  All of the materials used in the
Company's products are purchased under contracts and purchase orders with third
parties.  While the Company believes that many of the materials used in the
production of its products are generally readily available from a variety of
sources, certain key components are available from one or a limited number of
suppliers. For example, certain ASICs designed into the Company's InfiniteSwitch
products are supplied by FORE Systems (see Factors That May Affect Future
Results of Operations - Competition and Market Acceptance).  The lead times for
delivery of components vary significantly and exceed twelve weeks for certain
components.  If the Company should fail to forecast its requirements accurately
for components, it may experience excess inventory or shortages of certain
components which could have an adverse effect on the Company's business and
operating results.  Further, any interruption in the supply of any of these
components, or the inability of the Company to procure these components from
alternative sources at acceptable prices within a reasonable time, could have an
adverse effect on the Company's business and operating results.

THIRD-PARTY PRODUCTS.  The Company believes that it is beneficial to work with
third parties with complementary technologies to broaden the appeal of the
Company's switches and intelligent hub products.  These alliances allow ODS to
provide integrated solutions to its customers, combining ODS developed
technology with third-party products such as certain routers from Cisco and ATM
switches from FORE Systems.  As the Company also competes with these technology
partners in certain segments of the market, there can be no assurance that the
Company will have access to all of the third-party products which may be
desirable in order to offer fully integrated solutions to ODS customers.

DEPENDENCE ON KEY CUSTOMERS.  A relatively small number of customers has
accounted for a significant portion of the Company's revenue. U.S. Government
agencies and strategic network integrators, such as EDS, which purchase the
Company's products for internal use and offer the Company's products for resale,
are expected to continue to account for a substantial portion of the Company's
net revenue.  The Company continuously faces competition from Cisco, Cabletron,
Bay Networks and others for U.S. Government networking projects and corporate
networking installations.  Any reduction or delay in sales of the Company's
products to these customers could have a material adverse effect on the
Company's operating results.


                                      -12-
<PAGE>

INTERNATIONAL OPERATIONS.  Export sales accounted for approximately 31.7% of the
Company's revenue for the three months ended June 30, 1997.  The Company intends
to expand its international presence and expects that export sales will
represent a significant portion of its business in the future.  While the
Company's current products are designed to meet relevant regulatory requirements
of the foreign markets in which they are sold, any inability to obtain any
required foreign regulatory approvals on a timely basis could have a material
adverse effect on the Company's operating results.  Additionally, the Company's
international operations may be affected by changes in demand resulting from
fluctuations in currency exchange rates and local purchasing practices,
including seasonal fluctuations in demand, as well as by risks such as increases
in duty rates, difficulties in distribution and other constraints upon
international trade.

INTELLECTUAL PROPERTY.  The Company's success and its ability to compete are
dependent, in part, upon its proprietary technology.  The Company does not hold
any issued patents and currently relies on a combination of contractual rights,
trade secrets and copyright laws to establish and protect its proprietary rights
in its products.  There can be no assurance that the steps taken by the Company
to protect its intellectual property will be adequate to prevent
misappropriation of its technology or that the Company's competitors will not
independently develop technologies that are substantially equivalent or superior
to the Company's technology.

The Company is also subject to the risk of adverse claims and litigation
alleging infringement of intellectual property rights of others.  The Company
could incur substantial costs in defending itself and its customers against any
such claim regardless of the merits of such claims.  In the event of a
successful claim of infringement, the Company may be required to obtain one or
more licenses from third parties.  There can be no assurance that the Company
could obtain the necessary licenses on reasonable terms.

GENERAL.  Sales of networking products fluctuate, from time to time, based on
numerous factors, including customers' capital spending levels and general
economic conditions.  There can be no assurance as to the rate or extent of the
growth of the market for network intelligent hubs and switches or the potential
adoption of alternative technologies.  Future declines in networking product
sales as a result of general economic conditions, adoption of alternative
technologies or any other reason could have a material adverse effect on the
Company's business, operating results and financial condition.

Due to the factors noted above and elsewhere in Management's Discussion and
Analysis of Financial Condition and Results of Operations, the Company's future
earnings and stock price may be subject to significant volatility, particularly
on a quarterly basis.  Past financial performance should not be considered a
reliable indicator of future performance and investors should not use historical
trends to anticipate results or trends in future periods.  Any shortfall in
revenue and earnings from the levels anticipated by securities analysts could
have an immediate and significant effect on the trading price of the Company's
common stock in any given period.  Also, the Company participates in a highly
dynamic industry which often results in volatility of the Company's common stock
price.


                                      -13-
<PAGE>

                             PART II - OTHER INFORMATION
                                           
Item 4.     SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.

            The Annual Meeting of Stockholders was held on April 24, 1997 at the
            Holiday Inn Richardson Select in Richardson, Texas.  The following 
            is a brief description of each matter voted upon by stockholders,
            including number of votes cast for, against, or withheld with regard
            to each matter of nominee.

            (1) Election of five (5) directors to serve until the next Annual
                Meeting of Stockholders and until their respective successors 
                are duly elected and qualified.

                                                    FOR            WITHHELD
                                                ----------        ---------
                   Ward Paxton                  15,174,728         65,939
                   Robert Anderson              15,166,028         74,639
                   Fred Bucy                    15,134,808        105,859
                   T. Joe Head                  15,175,178         65,489
                   Donald M. Johnston           15,171,228         69,439

            (2) Approval of an amendment to the Company's Certificate of
                Incorporation to change the formal name of the Company to ODS
                Networks, Inc.

                               FOR         AGAINST       WITHHELD  
                           ----------      -------       --------
                           15,162,846      59,297         18,524
                 
            (3) Approval of the Optical Data Systems, Inc. 1997 Employee Stock
                Purchase Plan for the benefit of eligible employees of the
                Company or its subsidiaries.

                               FOR         AGAINST       WITHHELD  
                           ----------     --------       --------
                           14,709,507     256,786         57,308

            (4) Ratification and approval of selection by the Board of Directors
                of Ernst & Young LLP as independent auditors of the Registrant 
                for the fiscal year ending December 31, 1997.

                               FOR         AGAINST       WITHHELD  
                           ----------      -------       --------
                           15,169,373      26,405         20,889

Item 6.     EXHIBITS AND REPORTS ON FORM 8-K.

            (A.)  EXHIBITS.  The following exhibits are included herein:

                  (10.12)  Second Amended and Restated Revolving Credit Loan
                           Agreement, dated April 12, 1997, between NationsBank
                           of Texas, N.A. (formerly, NCNB Texas National Bank) 
                           and the Company.
                  (11)     Schedule of Computation of Per Share Earnings
                  (27)     Financial Data Schedule
            (B.)  FORM 8-K.  On May 7, 1997, the Company filed a report on 
                             Form 8-K to announce the change in the formal name 
                             of the Company to ODS Networks, Inc.


                                       -14-
<PAGE>

                                 S I G N A T U R E S



Pursuant to the requirements of the Securities Exchange Act of 1934, the Company
has duly caused this report to be signed on its behalf by the undersigned
thereunto duly authorized.



                                    ODS NETWORKS, INC.
                                        (Company)



Date: August 13, 1997         By: /s/ TIMOTHY W. KINNEAR 
                              --------------------------
                                  Timothy W. Kinnear
                                Chief Financial Officer
                              (Principal Financial Officer)



                              By: /s/ KANDIS TATE THOMPSON 
                              ----------------------------
                                   Kandis Tate Thompson
                            Controller - Finance and Accounting
                              (Principal Accounting Officer)


                                     -15-
<PAGE>


                                 EXHIBIT INDEX

EXHIBIT
-------

    10.12     Second Amended and Restated Revolving Credit Loan Agreement, dated
              April 12, 1997, between NationsBank of Texas, N.A. (formerly NCNB
              Texas National Bank) and the Company.
    
    11        Schedule of Computation of Per Share Earnings

    27        Financial Data Schedule


                                     -16-