<PAGE>

                  OPTICAL DATA SYSTEMS, INC. AND SUBSIDIARIES

                     SELECTED CONSOLIDATED FINANCIAL DATA
                     (IN THOUSANDS, EXCEPT PER SHARE DATA)

INCOME STATEMENT DATA:
                                           YEAR ENDED DECEMBER 31,
                           -----------------------------------------------------
                             1996        1995         1994       1993      1992
                           --------    --------     -------    -------   -------
Net sales                  $117,864    $111,450     $86,608    $55,948   $49,244
Operating income             16,897      21,160      13,290      7,570     7,874
Net income                   11,051      13,678       8,562      4,904     5,029
Net income per share       $    .66    $    .81     $   .52    $   .30   $   .33
Weighted average 
 shares outstanding          16,825      16,876      16,424     16,274    15,050

BALANCE SHEET DATA:
                                                  DECEMBER 31,
                           -----------------------------------------------------
                             1996        1995         1994       1993      1992
                           --------    --------     -------    -------   -------
Working capital            $ 54,529    $ 49,645     $38,242    $29,610   $24,495
Total assets                 81,935      71,685      52,551     40,469    35,033
Total stockholders' equity   70,938      58,698      43,361     34,272    28,039


     See Management's Discussion and Analysis of  Financial Condition and
     Results of Operations and Notes to Consolidated Financial Statements.

<PAGE>

               MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
                      CONDITION AND RESULTS OF OPERATIONS


RESULTS OF OPERATIONS

     The following tables set forth, for the periods indicated, certain 
     financial data as a percentage of net sales.

                                              YEAR ENDED DECEMBER 31,
                                            1996       1995       1994
                                           ------     ------     ------
          Net sales                        100.0%     100.0%     100.0%
          Cost of sales                     51.5       49.8       54.0
                                           -----      -----      -----
            Gross profit                    48.5       50.2       46.0
          Operating expenses:
            Sales and marketing             22.0       20.2       18.4
            Research and development         8.8        7.2        8.7
            General and administrative       3.3        3.8        3.5
                                           -----      -----      -----
          Operating income                  14.4       19.0       15.4
          Interest income, net               0.8        0.8        0.6
                                           -----      -----      -----
          Income before income taxes        15.2       19.8       16.0
          Income taxes                       5.8        7.5        6.1
                                           -----      -----      -----
          Net income                        9.4%       12.3%       9.9%
                                           -----      -----      -----
                                           -----      -----      -----


                                            1996       1995       1994
                                           ------     ------     ------
          Ethernet sales                    61.9%      64.1%      57.0%
          Token Ring sales                  16.6       14.5       22.0
          FDDI sales                        15.9       17.2       15.0
          ATM sales                          3.6        2.9        4.5
          Other sales                        2.0        1.3        1.5
                                           -----      -----      -----
          Net sales                        100.0%     100.0%     100.0%
                                           -----      -----      -----
                                           -----      -----      -----


                                            1996       1995       1994
                                           ------     ------     ------
          Domestic sales                    85.6%      88.4%      85.0%
          Export sales to:
             Europe                          7.9        6.6       10.0
             Canada                          2.9        3.3        4.3
             Asia                            2.9        1.1        0.4
             Latin America                   0.7        0.6        0.3
                                           -----      -----      -----
          Net sales                        100.0%     100.0%     100.0%
                                           -----      -----      -----
                                           -----      -----      -----

<PAGE>

1996 COMPARED WITH 1995

NET SALES

    Net sales in 1996 increased by 5.8% to $117.9 million from $111.5 million 
in 1995.  The Infinity Intelligent Hub and Switch product line increased to 
$101.2 million of net sales in 1996 compared to $98.9 million in 1995 but 
decreased as a percentage of net sales to 85.9% in 1996 from 88.7% in 1995.  
Sales of the Infinity Intelligent Hub product line are expected to decrease 
as a percentage of net sales in future periods as the market is migrating to 
higher performance switch products, such as the Company's InfiniteSwitch 
product line introduced in September of 1996.

    Export sales in 1996 increased to $17.1 million, or 14.4% of net sales, 
compared to $12.9 million , or 11.6% of net sales in 1995.  Export sales 
increased in 1996 as the Company increased its international sales and 
marketing efforts, especially in Asia.

    In 1996, 19.4% of net sales were to Electronic Data Systems Corporation 
("EDS") compared to 28.3% of net sales in 1995; 13.5% of net sales in 1996 
were to various agencies of the U.S. Government (aggregated as one), compared 
to 6.4% of net sales in 1995; and 12.1% of net sales in 1996 were to AT&T 
Corp. ("AT&T") compared to 12.0% of net sales in 1995.  


GROSS PROFIT

    Gross profit increased to $57.1 million in 1996 compared to $56.0 million 
in 1995 but decreased as a percentage of net sales to 48.5% in 1996 from 
50.2% in 1995.  Gross profit as a percentage of net sales was impacted during 
1996 by an increase in reserves for slow-moving inventory, product mix and 
the market transition to higher performance switch products.  Gross profit 
margins in future periods may be affected by several factors such as sales 
volume, shifts in product mix, 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 $26.0 million or 22.0% of net 
sales in 1996 compared to $22.6 million or 20.2% of net sales in 1995.  The 
increase in sales and marketing expense was primarily due to expansion of 
domestic and international sales and marketing personnel and associated 
costs.  The Company anticipates sales and marketing expenses will 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 $10.4 million or 8.8% of 
net sales in 1996 compared to $8.0 million or 7.2% of net sales in 1995.   
The Company's research and development costs are expensed in the period 
incurred. The increase in research and development expenses in 1996 was 
primarily due to an increase in the number of developmental personnel, 
additional product development expenses and increased costs related to the 
development and testing of new switching products.  The Company expects to 
continue to invest 

<PAGE>

in research and development activities in the future in order to broaden its 
family of switching products.


GENERAL AND ADMINISTRATIVE

    General and administrative expenses decreased in amount to $3.8 million 
in 1996 compared to $4.2 million in 1995 and declined as a percentage of net 
sales to 3.3% in 1996 from 3.8% in 1995.  As the Company continues to expand 
its domestic and foreign operations, general and administrative expenses are 
expected to increase in amount.  General and administrative expenses may vary 
as a percentage of net sales in the future. 


NET INTEREST INCOME

    Net interest income remained constant at $0.9 million for both 1996 and 
1995. Net interest income may vary in the future based on the Company's cash 
flow and interest rates.


INCOME TAXES

    The Company's effective tax rate remained unchanged at 38.1% for both 
1996 and 1995.  See Note 7 of Notes to Consolidated Financial Statements.


1995 COMPARED WITH 1994


NET SALES

    Net sales in 1995 increased by 28.7% to $111.5 million from $86.6 million 
in 1994 as the result of an increased new customer base and continued strong 
sales to existing customers.  The Infinity Intelligent Hub product line grew 
to 88.7% of net sales in 1995 compared to 80.0% of net sales in 1994.   
    Export sales in 1995 were  $12.9 million, or 11.6% of net sales, compared 
to $13.0 million or 15.0% of net sales in 1994.
    In 1995, 28.3% of net sales were to EDS compared to 19.4% of net sales in 
1994; and 12.0% of net sales in 1995 were to AT&T compared to 18.1% of net 
sales in 1994.  A large portion of sales to AT&T in 1995 and 1994 were 
attributable to a major U.S. Army customer of AT&T.

GROSS PROFIT

    Gross profit increased to $56.0 million in 1995 compared to $39.8 million 
in 1994 and increased  as a percentage of net sales to 50.2% in 1995 from 
46.0% in 1994.  The increase in gross profit as a percentage of net sales 
resulted primarily from variations of product mix, economies of scale 
achieved through higher production volumes and manufacturing efficiencies 
achieved through product cost reductions.

<PAGE>

SALES AND MARKETING

    Sales and marketing expenses increased in amount to $22.6 million or 
20.2% of net sales compared to $16.0 million or 18.4% of net sales in 1994.  
The increase in sales and marketing expenses was related to the expansion of 
the Company's sales personnel and associated supporting costs.


RESEARCH AND DEVELOPMENT

    Research and development expenses increased to $8.0 million in 1995 
compared to $7.5 million in 1994 but decreased as a percentage of net sales 
to 7.2% in 1995 from 8.7% in 1994.  The growth in research and development 
expenses was primarily due to increased software and hardware engineering 
expenses relating to new product development.


GENERAL AND ADMINISTRATIVE

    General and administrative expenses increased to $4.2 million or 3.8% of 
net sales in 1995 from $3.0 million or 3.5% of net sales in 1994.  The 
increase in these expenses was due primarily to increased personnel costs, 
insurance and professional services.


NET INTEREST INCOME

    Net interest income was $0.9 million for 1995 compared to $0.5 million 
for 1994.  Interest income increased as a result of increases in cash, cash 
equivalents and short-term investment amounts and increased interest rates.


INCOME TAXES

    The Company's effective tax rate remained unchanged at 38.1% for both 
1995 and 1994.  See Note 7 of Notes to Consolidated Financial Statements.


FACTORS THAT MAY AFFECT FUTURE RESULTS OF OPERATIONS


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.

<PAGE>

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") 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.


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 continue to 
maintain its then current levels of revenue growth, if any, the Company will 
therefore 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, will decrease as switching products with enhanced 
price/performance characteristics gain market acceptance. Although the 
Company has introduced network switching products which it believes offer 
competitive price/performance characteristics and is committed to future 
product development efforts, there can be no assurance that the Company will 
be able to introduce new products 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, 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 components are 
available from one or a limited number of suppliers.  The lead times for 
delivery of components vary significantly and exceed ten weeks for certain 
components.  If the Company should fail to forecast its requirements 
accurately for components, it may experience excess 

<PAGE>

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.


DEPENDENCE ON KEY CUSTOMERS  

    Although there is a large number of end-users of the Company's products, 
a relatively small number of customers have accounted for a significant 
portion of the Company's revenue. U.S. Government agencies and strategic 
network integrators, such as EDS and AT&T, 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.


INTERNATIONAL OPERATIONS  

    Export sales accounted for approximately 14.4% of the Company's revenue 
for the year ended December 31, 1996.  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 is 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.

<PAGE>

GENERAL  

    Sales of networking products fluctuate, from time to time, based on 
numerous factors, including customers' capital spending levels and general 
economic conditions.  While certain industry analysts believe that there is a 
significant market for network intelligent hubs and switches, there can be no 
assurance as to the rate or extent of the growth of such market 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.


"SAFE HARBOR" STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION 
REFORM ACT OF 1995

    With the exception of historical information, the matters discussed in 
this annual report are forward-looking statements that involve risks and 
uncertainties, including, but not limited to, economic conditions, trends in 
the networking market, product acceptance and demand, competitive products 
and pricing, new product development, availability of competitive components 
and other risks indicated in this filing and prior filings of the Company 
with the Securities and Exchange Commission. 


LIQUIDITY AND CAPITAL RESOURCES

    The Company's principal sources of liquidity at December 31, 1996 were 
$6.6 million of cash and cash equivalents, $13.8 million of short-term 
investments, $5.0 million of highly liquid investments with a stated maturity 
beyond one year and an available line of credit. As of December 31, 1996, 
working capital was $54.5 million compared to $49.6 million as of December 
31, 1995.

    Cash flows provided by operations in 1996 were $3.9 million, primarily 
due to net income partially offset by increases in accounts receivable and 
inventory balances and decreases in accounts payable.  The increase in 
accounts receivable reflects the increase in net sales to $26.0 million 
during the quarter ended December 31, 1996 compared to $24.5 million during 
the quarter ended December 31, 1995.  The increase in inventory reflects the 
continued support of the Company's Infinity Intelligent Hub product line and 
the increase in inventory of its switching products.

    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.

<PAGE>

    Cash used in investing activities during 1996 consisted of purchases of 
property and equipment of $4.9 million and net purchases of investments of 
$3.5 million.

    Cash provided by financing activities in 1996 was $0.6 million which 
consisted of the issuance of common stock relating to the exercise of certain 
warrants and employee stock options.  

    During 1996 the Company funded its operations solely through cash flow 
from operations.  The Company's revolving bank credit facility provides an 
unsecured line of credit of up to $5.0 million, subject to certain 
limitations and conditions.  At December 31, 1996, the Company had no 
borrowings outstanding under its bank credit facility, and had $5.0 million 
available for allowable borrowings at an applicable interest rate of 8.25% 
per annum.  See Note 4 of Notes to Consolidated Financial Statements.

    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 1997. 

<PAGE>

REPORT OF INDEPENDENT AUDITORS



THE BOARD OF DIRECTORS AND STOCKHOLDERS,
OPTICAL DATA SYSTEMS, INC.

We have audited the accompanying consolidated balance sheets of Optical Data 
Systems, Inc., and subsidiaries (the Company) as of December 31, 1996, and 
1995, and the related consolidated statements of income, stockholders' 
equity, and cash flows for each of the three years in the period ended 
December 31, 1996. These financial statements are the responsibility of the 
Company's management. Our responsibility is to express an opinion on these 
financial statements based on our audits.

We conducted our audits in accordance with generally accepted auditing 
standards.  Those standards require that we plan and perform the audit to 
obtain reasonable assurance about whether the financial statements are free 
from material misstatement.  An audit includes examining, on a test basis, 
evidence supporting the amounts and disclosures in the financial statements.  
An audit also includes assessing the accounting principles used and 
significant estimates made by management, as well as evaluating the overall 
financial statement presentation.  We believe that our audits provide a 
reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in 
all material respects, the consolidated financial position of Optical Data 
Systems, Inc., and subsidiaries at December 31, 1996 and 1995, and the 
consolidated results of their operations and their cash flows for each of the 
three years in the period ended December 31, 1996, in conformity with 
generally accepted accounting principles.



                                                 ERNST & YOUNG LLP


Dallas, Texas
January 21, 1997 

<PAGE>
                                       
                  OPTICAL DATA SYSTEMS, INC. AND SUBSIDIARIES
                          CONSOLIDATED BALANCE SHEETS
                    (IN THOUSANDS, EXCEPT PAR VALUE AMOUNTS)


                                                    DECEMBER 31, 
                                                -------------------
                                                  1996        1995 
                                                -------     -------
ASSETS

Current Assets:
   Cash and cash equivalents                    $ 6,565     $10,397
   Short-term investments                        13,790      15,328
   Accounts receivable, net of allowance 
     for doubtful accounts and returns 
     of $822 in 1996 and $617 in 1995            16,573      15,238
   Income taxes receivable                           85        -   
   Inventories, net (Note 3)                     25,573      19,374
   Deferred tax assets (Note 7)                   1,499         951
   Other assets                                     840         837
                                                -------     -------
Total current assets                             64,925      62,125
Property and Equipment:
   Land                                             600         600
   Building and building improvements             2,471       1,796
   Machinery and equipment                       17,571      13,544
   Furniture and fixtures                           897         806
   Leasehold improvements                           936         830
                                                -------     -------
                                                 22,475      17,576
   Accumulated depreciation                     (10,736)    ( 8,118)
                                                -------     -------
                                                 11,739       9,458
Long-term investments                             5,050        -   
Other assets                                        221         102
                                                -------     -------

TOTAL ASSETS                                    $81,935     $71,685
                                                -------     -------
                                                -------     -------


LIABILITIES AND STOCKHOLDERS' EQUITY

Current Liabilities:
   Accounts payable and accrued 
     expenses (Note 3)                          $10,396     $11,867
   Income taxes payable                            -            612
                                                -------     -------
Total current liabilities                        10,396      12,479
Deferred tax liabilities (Note 7)                   601         508
Commitments (Note 5)                               -           -   
Stockholders' Equity (Note 8):
   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 - 16,328 
     in 1996 and 16,150 in 1995                     163         162
   Additional paid-in capital                    18,908      17,729
   Retained earnings                             51,969      40,918
   Foreign currency translation adjustments        (102)       (111)
                                                -------     -------
Total stockholders' equity                       70,938      58,698
                                                -------     -------

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY      $81,935     $71,685
                                                -------     -------
                                                -------     -------


                                   
                       See accompanying notes.
<PAGE>

                  OPTICAL DATA SYSTEMS, INC. AND SUBSIDIARIES 

                        CONSOLIDATED STATEMENTS OF INCOME 
                    (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)


                                                YEAR ENDED DECEMBER 31,
                                           --------------------------------
                                             1996         1995        1994
                                           --------     --------    ------- 

Net sales                                  $117,864     $111,450    $86,608
Cost of sales                                60,737       55,499     46,804
                                           --------     --------    ------- 
  Gross profit                               57,127       55,951     39,804

Operating expenses:
  Sales and marketing                        25,969       22,555     15,965
  Research and development                   10,417        8,021      7,503
  General and administrative                  3,844        4,215      3,046
                                           --------     --------    ------- 
                                             40,230       34,791     26,514
                                           --------     --------    ------- 

Operating income                             16,897       21,160     13,290
Interest income, net                            944          938        546
                                           --------     --------    ------- 
Income before provision for income taxes     17,841       22,098     13,836
Provision for income taxes                    6,790        8,420      5,274
                                           --------     --------    ------- 
Net income                                 $ 11,051     $ 13,678    $ 8,562
                                           --------     --------    ------- 
                                           --------     --------    ------- 
Net income per share                       $   0.66     $   0.81    $  0.52
                                           --------     --------    ------- 
                                           --------     --------    ------- 
Weighted average shares outstanding          16,825       16,876     16,424
                                           --------     --------    ------- 
                                           --------     --------    ------- 



                              See accompanying notes.

<PAGE>

                   OPTICAL DATA SYSTEMS, INC. AND SUBSIDIARIES

                 CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
                                 (IN THOUSANDS)

<TABLE>
                                                                              Foreign
                                                     Additional               Currency
                                 Number of   Common     Paid      Retained   Translation     Stockholders'
                                   Shares    Stock     Capital    Earnings    Adjustment        Equity
                                   ------    -----     -------    --------    ----------        ------

<S>                                <C>       <C>        <C>        <C>         <C>              <C>
Balance at December  31, 1993      15,668     $157     $15,473     $18,678      $ (35)          $34,273
Foreign currency translation 
  adjustment                          -        -           -           -          (58)              (58)

Exercise of employee stock
  options                             172        1         314         -          -                 315 

Tax benefit derived from the
  exercise of employee stock
  options                             -        -           269         -          -                 269

Net income for 1994                   -        -           -         8,562        -               8,562 
                                   ------     ----     -------     -------      ------          -------

Balance at December 31, 1994       15,840      158      16,056      27,240        (93)           43,361

Foreign currency translation
  adjustment                          -        -           -           -          (18)              (18)

Exercise of stock warrants             52        1         234         -          -                 235

Exercise of employee stock
  options                             258        3         615         -          -                 618 

Tax benefit derived from the
  exercise of employee stock
  options                             -        -           824         -          -                 824

Net income for 1995                   -        -           -        13,678        -              13,678
                                   ------     ----     -------     -------      ------          -------

Balance at December 31, 1995       16,150      162      17,729      40,918       (111)           58,698

FOREIGN CURRENCY TRANSLATION
  ADJUSTMENT                          -        -           -           -            9                 9

EXERCISE OF STOCK WARRANTS            5        -            22         -          -                  22

EXERCISE OF EMPLOYEE STOCK
  OPTIONS                             173        1         614         -          -                 615

TAX BENEFIT DERIVED FROM THE
  EXERCISE OF EMPLOYEE STOCK
  OPTIONS                             -        -           543         -          -                 543 

NET INCOME FOR 1996                   -        -           -        11,051        -              11,051 
                                   ------     ----     -------     -------      ------          -------

BALANCE AT DECEMBER 31, 1996       16,328     $163     $18,908     $51,969      $(102)          $70,938
                                   ------     ----     -------     -------      ------          -------
                                   ------     ----     -------     -------      ------          -------
</TABLE>


                              See accompanying notes.

<PAGE>


                  OPTICAL DATA SYSTEMS, INC. AND SUBSIDIARIES

                       CONSOLIDATED STATEMENTS OF CASH FLOWS 
                                (IN THOUSANDS)

<TABLE>
                                                           YEAR ENDED DECEMBER 31,
                                                         ----------------------------
                                                           1996       1995      1994
                                                         -------    -------    ------
<S>                                                        <C>        <C>        <C>
OPERATING ACTIVITIES:

 Net income                                              $11,051    $13,678    $8,562
 Adjustments to reconcile net income to net cash
    provided by operating activities:
  Depreciation                                             2,618      2,083     1,752
  Provision for deferred income taxes                       (455)      (386)        4
  Provision for doubtful accounts and returns                227        382        90
Changes in operating assets and liabilities:
    Accounts receivable                                   (1,300)    (3,479)     (411)
    Other receivables                                       (262)        48        52
    Inventories                                           (6,199)    (5,211)   (2,394)
    Other assets                                            (122)      (316)     (106)
    Accounts payable and accrued expenses                 (1,471)     3,152     3,266
    Income taxes payable                                    (154)     1,328       (22)
                                                         -------    -------   -------
 Net cash provided by operating activities                 3,933     11,279    10,793

INVESTING ACTIVITIES:
  Purchases of short-term investments                    (23,707)   (21,473)  (43,280)
  Maturities of short-term investments                    25,245     18,130    38,388
  Sale of short-term investments                             -        1,498       -
  Purchases of long-term investments                      (5,050)       -         -
  Purchases of property and equipment                     (4,899)    (6,123)   (2,224)
                                                         -------    -------   -------
 Net cash used in investing activities                    (8,411)    (7,968)   (7,116)

FINANCING ACTIVITIES:
 Exercise of stock purchase warrants                          22        235       -
 Exercise of employee stock options                          615        618       315
                                                         -------    -------   -------
 Net cash provided by financing activities                   637        853       315
                                                         -------    -------   -------

Effect of foreign currency translation
 adjustment on cash and cash equivalents                       9        (18)      (58)
Net (decrease) increase in cash and cash equivalents      (3,832)     4,146     3,934
Cash and cash equivalents at beginning of period          10,397      6,251     2,317
                                                         -------    -------   -------
Cash and cash equivalents at end of period               $ 6,565    $10,397   $ 6,251
                                                         -------    -------   -------
                                                         -------    -------   -------
</TABLE>


                                    See accompanying notes.

<PAGE>

OPTICAL DATA SYSTEMS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1.  DESCRIPTION OF BUSINESS

  Optical Data Systems, Inc. and subsidiaries (the Company) designs, 
develops, manufactures, markets and supports computer networking and 
internetworking products for application in Local Area Networks (LANs) in 
compliance with the four industry standards currently applicable in the LAN 
industry: Ethernet, Asynchronous Transfer Mode (ATM), Fiber Distributed Data 
Interface (FDDI) and Token Ring.  These products allow customers to integrate 
efficiently a wide variety of computer equipment in numerous flexible 
configurations into a single, enterprise-wide computer network.  Sales of the 
Company's products are primarily made directly to major corporations and 
government agencies for networking their internal computer systems and to a 
lesser extent through reseller channels.

  On April 3, 1995, the Board of Directors declared a two-for-one common 
stock split, to be effected in the form of a distribution of one additional 
share of common stock paid on May 5, 1995 to the holders of record on April 
19, 1995. All share and per share data have been retroactively restated to 
give effect to this stock split.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

PRINCIPLES OF CONSOLIDATION
  The consolidated financial statements include the accounts of Optical Data
Systems, Inc. and its wholly-owned subsidiaries.   Intercompany balances and
transactions have been eliminated in consolidation.

CASH EQUIVALENTS
  The Company considers cash and all highly liquid investments with maturities
of three months or less when purchased to be cash equivalents.

SHORT-TERM INVESTMENTS
  The Company's short-term investments consist of U.S. government obligations
and money market funds.  Short-term investments are classified as available for
sale. These investments are valued at market value, which approximates amortized
cost, and have maximum maturities of one year.  The difference between fair
value and amortized cost is not material.

RISK CONCENTRATION
  Financial instruments which potentially subject the Company to concentrations
of credit risk are primarily cash and cash equivalents, investments and accounts
receivable.  The Company places its investments in U.S. government obligations,
corporate obligations and money market funds.  Substantially all of the
Company's cash, cash equivalents and investments are maintained with one major
financial institution. 
  The Company sells its products to customers in diversified industries
worldwide, primarily in 


<PAGE>

North America, Europe, Asia and Latin America.  The Company performs ongoing 
credit evaluations of its customers' financial condition and generally 
requires no collateral.  The Company maintains reserves for potential credit 
losses and such losses, in the aggregate, have not exceeded management 
expectations.
  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 components are available from one or a limited number of suppliers.

INVENTORIES
  Inventories are stated at the lower of cost or market.  Cost is computed
using standard cost, which approximates actual cost on a first-in, first-out
basis.  Management estimates the allowance required to state inventory at the
lower of cost or market.  There is a risk that the Company will forecast demand
for its products and market conditions incorrectly and produce excess
inventories.  Therefore, there can be no assurance that the Company will not
produce excess inventory and incur inventory lower of cost or market charges in
the future.

PROPERTY AND EQUIPMENT
  Property and equipment is stated at cost and depreciated on a straight-line
basis over the estimated useful lives of the assets.  Such lives vary from 5 to
20 years.  Leasehold improvements are amortized over the shorter of their useful
lives or the terms of the leases.  Repair and maintenance costs are expensed as
incurred.

LONG-TERM INVESTMENTS
  Long-term investments consist of U.S. government obligations and corporate
obligations with maturities which range up to two years.  Long-term investments
are classified as available for sale.  These investments are valued at market
value, which approximates amortized cost.  The difference between fair value and
amortized cost is not material.

FOREIGN CURRENCY TRANSLATION
  The Company's international subsidiaries use their local currencies as their
functional currencies.  Assets and liabilities are translated at the exchange
rate in effect at the balance sheet date, and income and expense accounts at
average exchange rates during the year.  Resulting translation adjustments are
recorded directly to a separate component of stockholders' equity.

ACCOUNTING FOR STOCK OPTIONS
  The Company has elected to continue to follow APB Opinion No. 25, ACCOUNTING
FOR STOCK ISSUED TO EMPLOYEES, (APB 25) and related interpretations in
accounting for its employee stock options.  Under APB 25, if the exercise price
of an employee's stock option equals or exceeds the market price of the
underlying stock on the date of grant, no compensation expense is recognized. 
The FASB has issued Statement of Financial Accounting Standard No. 123,
ACCOUNTING FOR STOCK-BASED COMPENSATION, which provides for either recognition
or disclosure of a hypothetical charge for stock options.  The Company did not
recognize any charge in its income statement, but has provided the required
disclosure in Note 8.

NET INCOME PER SHARE
  Net income per common share is computed using the weighted average number of
shares of common stock and dilutive common stock equivalents outstanding during
each period.  The dilutive effect of stock options and warrants, treated as
common stock equivalents, is calculated using the treasury stock method.

<PAGE>

REVENUE RECOGNITION
  The Company generally recognizes product revenue upon shipment of product. 
The Company accrues for estimated warranty costs, sales returns and other
allowances at the time of shipment.  Revenue from maintenance contracts is
deferred and recognized over the contractual period the services are performed.
To date, warranty costs and sales returns have not been material.  There is a
risk that technical issues on new products could result in unexpected warranty
costs and returns.

USE OF ESTIMATES
  The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities at the date of the
financial statements and the reported amounts of revenue and expenses during the
reporting period.  Actual results could differ from those estimates.

INCOME TAXES
  The Company accounts for income taxes pursuant to Statement of Financial
Accounting Standard No. 109, ACCOUNTING FOR INCOME TAXES, which uses the
liability method to calculate deferred income taxes.  The realization of
deferred tax assets is based on historical tax positions and expectations about
future taxable income.

 RECLASSIFICATION
  Certain amounts in prior year financial statements have been reclassified to
conform with current year presentation.

3. BALANCE SHEET DETAIL (IN THOUSANDS)

INVENTORIES 

                                               DECEMBER 31,
                                            -----------------
                                             1996       1995
                                           -------    -------
       Raw materials                       $ 6,138    $ 4,079
       Work in process                       2,308      2,724
       Finished products                    13,530     10,769
       Demonstration systems                 3,597      1,802
                                           -------    -------
                                           $25,573    $19,374
                                           -------    -------
                                           -------    -------

ACCOUNTS PAYABLE AND ACCRUED EXPENSES

                                             1996       1995
                                           -------    -------
Trade accounts payable                     $ 5,440    $ 5,317
Accrued sales commissions                      681        934
Accrued incentive bonus                        -        1,178
Accrued vacation                               538        468
Accrued property taxes                         631        434
Deferred maintenance revenue                 1,714      1,397
Accrued warranty expense                       475        600
Other (individually less than
 5% of current liabilities)                    917      1,539
                                           -------    -------
                                           $10,396    $11,867
                                           -------    -------
                                           -------    -------

<PAGE>

4.  LINE OF CREDIT

  The Company has a line of credit agreement with a bank that allows the
Company to borrow amounts up to $5.0 million.  Borrowing on this line is
unsecured.  The Company is also restricted under this agreement as to the
payment of dividends.
  Borrowings accrue interest at prime (8.25% at December 31, 1996) with
interest due monthly and principal due April 14, 1997.  A fee of 1/4% is paid
quarterly on the average unused portion of the line of credit. 
  At December 31, 1996, the Company had not borrowed against this line and had
$5.0 million available for additional borrowings allowable under this agreement.
  The Company made no interest payments during 1996, 1995 or 1994.


5. LEASES

  The Company leases office space for its corporate headquarters in Richardson,
Texas under an operating lease, the base term of which expires in February 2005,
with two seven-year options to extend the term of the lease, subject to
compliance with certain conditions.  The Company also leases a separate
warehouse facility adjacent to its headquarters under a lease which expires in
June 1997.  In addition, the Company leases office space for its U.S. and
international sales offices. 
  Future minimum lease payments consisted of the following at December 31, 1996
(in thousands):


      1997             $1,316
      1998                845
      1999                841
      2000                805
      2001                805
      Thereafter        2,503
                       ------
                       $7,115
                       ------
                       ------

  Total rental expense of $1.9 million, $1.3 million and $1.2 million was
charged to operations during 1996, 1995, and 1994, respectively.


6.  EMPLOYEE BENEFIT PLAN

  The Company adopted a defined contribution savings plan to provide retirement
and incidental benefits for its employees on April 1, 1993, known as the ODS
401(k) Savings Plan (the Plan). The Plan covers substantially all employees who
meet minimum age and service requirements.  As allowed under Section 401(k) of
the Internal Revenue Code, the Plan provides tax deferred salary deductions for
eligible employees.
  Employees may contribute from 1% to 15% of their annual compensation to the
Plan, limited to a maximum amount as set by the Internal Revenue Service.  The
Company matches employee contributions at the rate of $.25 per each $1.00 of
contribution on the first 4% of deferred compensation.  Company matching
contributions to the Plan were approximately $110,000, $83,000, and $68,000 in
1996, 1995 and 1994, respectively. 

<PAGE>

7.  INCOME TAXES

   Deferred income taxes reflect the net tax effects of temporary 
differences between the carrying amounts of assets and liabilities for 
financial reporting purposes and the amounts used for income tax purposes.  
Significant components of the Company's deferred tax assets and liabilities 
as of December 31, 1996 and December 31, 1995 are as follows (in thousands):

                                                     1996      1995
                                                     ----      ----
   Deferred tax assets:

      Foreign subsidiaries net operating loss
        carryforward                                 $560      $588
      Vacation accrual                                202       176
      Allowance for doubtful accounts and returns     309       232
      Warranty accrual                                178       226
      Inventory allowance                             745       238
      Other                                            65        79
                                                   ------     ------
          Deferred tax assets                       2,059     1,539
      Valuation allowance for deferred tax assets    (560)     (588)
                                                   ------     ------
          Deferred tax assets, net of allowance     1,499       951
                                                   ------     ------

   Deferred tax liabilities:

      Tax over book depreciation                      535       423
      Other                                            66        85
                                                   ------     ------
          Total deferred tax liabilities              601       508
                                                   ------     ------

   Net deferred tax assets                           $898      $443
                                                   ------     ------
                                                   ------     ------


Significant components of the provision for income taxes for the years 
ended 1996, 1995 and 1994 are as follows (in thousands):

                                        YEAR ENDED DECEMBER 31, 
                                       ------------------------ 
                                        1996     1995     1994  
Income tax provision                    ----     ----     ----
  Federal:                           
    Current                            $6,437   $7,798   $4,610
    Deferred                             (403)    (336)       3
                                     
  State:                                     
    Current                               766      988      660
    Deferred                              (52)     (50)       1
                                     
  Foreign:                           
    Current                                42       20      -  
                                       ------   ------   ------
                                       $6,790   $8,420   $5,274
                                       ------   ------   ------
                                       ------   ------   ------
<PAGE>

  The differences between the provision for income taxes and income taxes
computed using the federal statutory rate for the years ended 1996, 1995 and
1994 are as follows (in thousands):


                                                YEAR ENDED DECEMBER 31,
                                               -------------------------
                                               1996      1995      1994
                                               ----      ----      ----
Reconciliation of income tax provision to
 statutory rate:
   Income tax expense at statutory rate       $6,244    $7,734    $4,843
   Benefited losses of foreign subsidiaries      -         -         (83)
   State taxes, less federal benefit             466       620       429
   Other                                          80        66        85
                                              ------    ------    ------
                                              $6,790    $8,420    $5,274
                                              ------    ------    ------
                                              ------    ------    ------

   Net operating loss carryforwards of the foreign subsidiaries of $1.1 
million at December 31, 1996 is available indefinitely for offset only 
against taxable income generated by the subsidiary.

   The Company made income tax payments of $7.4 million, $7.6 million and 
$5.3 million during 1996, 1995 and 1994, respectively.

8. STOCK OPTIONS AND WARRANTS

  At December 31, 1996, the Company has four stock-based compensation 
plans, which are described below .  The Company established an Incentive 
Stock Option Plan in 1983, which provides for the issuance of options to 
key employees of the Company to purchase common stock of the Company.  The 
1983 Incentive Stock Option Plan was terminated on November 10, 1993.  In 
1987, an additional Incentive Stock Option Plan was established with 
similar provisions to allow for further issuance of options.  Each plan 
provides for the issuance of up to 1.2 million shares of common stock upon 
exercise of options granted pursuant to the plans.

  In 1995, the Company adopted the 1995 Stock Option Plan (the 1995 Plan) 
which provides for the issuance of up to 1.6 million shares of common stock 
upon exercise of options granted pursuant to the 1995 Plan.  The 1995 Plan 
provides for the issuance of both non-qualified and incentive stock options 
to employees, officers, and employee-directors of the Company.

  In 1995, the Company adopted the 1995 Non-employee Director Stock Option 
Plan (the 1995 Non-employee Director Plan) which provides for the issuance 
of up to 160,000 shares of common stock upon exercise of options granted 
pursuant to the 1995 Non-employee Director Plan.  The Plan provides for the 
issuance of non-qualified stock options to non-employee directors.

  In 1995 and 1994, options to purchase 60,000 shares, and 12,000 shares, 
respectively, were granted to directors.  The terms and exercise prices of 
these options are similar to the incentive stock options.

  Common shares reserved for future issuance under all of the stock option 
plans described above amounted to 1.6 million shares at December 31, 1996.  

<PAGE>

  The Compensation Committee of the Board of Directors determines the term 
of each option, option exercise price within limits set forth in the plans, 
number of shares for which each option is granted and the rate at which 
each option is exercisable (generally ratably over five years from grant 
date).  However, the exercise price of any incentive stock option may not 
be less than the fair market value of the shares on the date granted (or 
less than 110% of the fair market value in the case of optionees holding 
more than 10% of the voting stock of the Company), and the term cannot 
exceed ten years (five years for incentive stock options granted to holders 
of more than 10% of the Company's voting stock).

   A summary of the Company's stock option activity and related information 
for the years ended December 31, 1996, 1995 and 1994, is as follows:

<TABLE>
                                      1996                    1995                       1994
                          ------------------------  ------------------------  ------------------------
                                          WEIGHTED                  Weighted                  Weighted
                            NUMBER OF     AVERAGE     Number of     Average     Number of     Average
                             OPTIONS      EXERCISE     Options      Exercise     Options      Exercise
                          (IN THOUSANDS)   PRICE    (in Thousands)   Price    (in Thousands)   Price
                          --------------  --------  --------------  --------  --------------  --------
<S>                           <C>          <C>         <C>          <C>          <C>          <C>
Outstanding at beginning
 of year                       1,086        $9.27       1,083        $4.33        1,063        $2.95
Granted                          431        22.63         302        21.47          248         8.34
Exercised                       (173)        3.53        (258)        2.40         (171)        1.83
Cancelled                       (144)       17.80         (41)       11.02          (57)        3.69
                               ------                   ------                    -----
Outstanding at end of year     1,200        13.88       1,086         9.27        1,083         4.33
                               ------                   ------                    -----
                               ------                   ------                    -----
Options exercisable at
 end of year                     481                      512                       417
</TABLE>
     Information related to options outstanding at December 31, 1996, is
summarized below:

<TABLE>
                             OPTIONS OUTSTANDING             OPTIONS EXERCISABLE 
               ------------------------------------------  -----------------------
                                   WEIGHTED      WEIGHTED                 WEIGHTED
   RANGE OF      OUTSTANDING       AVERAGE       AVERAGE    EXERCISABLE    AVERAGE
   EXERCISE      AT 12/31/96       REMAINING     EXERCISE   AT 12/31/96   EXERCISE
    PRICES     (IN THOUSANDS)  CONTRACTUAL LIFE   PRICE   (IN THOUSANDS)   PRICE
   --------    --------------  ----------------  -------- --------------  --------
<S>                <C>            <C>            <C>           <C>         <C>
 $2.50 - $5.63       402          3.25 YEARS     $ 3.41         357        $ 3.22
  6.07 - 21.00       478          8.25 YEARS      15.96         111         12.68
 22.55 - 36.25       320          8.00 YEARS      23.95          13         25.54
                   -----                                        ---
                   1,200          6.50 YEARS      13.88         481          6.00
                   -----                                        ---
                   -----                                        ---
</TABLE>

     Statement of Financial Accounting Standards No. 123, ACCOUNTING FOR STOCK
BASED COMPENSATION, (SFAS 123) requires the disclosure of pro forma net income
and earnings per share information computed as if the Company had accounted for
its employee stock options granted subsequent to December 31, 1994, under the
fair value method set forth in SFAS 123. The fair value for these options was
estimated using a Black-Scholes 

<PAGE>

option pricing model with the following weighted-average assumptions for 1996 
and 1995, respectively: risk-free interest rates of 5.1% and 5.7%; a dividend 
yield of 0%; and a volatility factor of  .62. In addition, the fair value of 
these options was estimated based on an expected life of one year from the 
vesting date using the multiple option method.
     The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options which have no vesting restrictions
and are fully transferable.  In addition, option valuation models require the
input of highly subjective assumptions including the expected stock price
volatility.  Because the Company's employee stock options have characteristics
significantly different from those of traded options, and because changes in the
subjective input assumptions can materially affect the fair value estimate, in
management's opinion, the existing models do not necessarily provide a reliable
single measure of the fair value of its employee stock options.  In addition,
because SFAS 123 is applicable only to options granted subsequent to December
31, 1994, the pro forma information does not reflect the pro forma effect of all
previous stock option grants of the Company, and thus the pro forma information
is not necessarily indicative of future amounts until SFAS 123 is applied to all
outstanding stock options. 
     Information relating to the fair value of option grants made during 1996
and 1995 is as follows:

                                              1996           1995
                                             ------         ------
Options granted with exercise price
 equal to fair value of common
 stock:

  Number of options (in thousands)              393           266
  Weighted average exercise
     price per share                         $22.35        $21.36
  Weighted average fair value
     of stock option grants per
     Black-Scholes option
     valuation model                         $11.32        $10.95

Options granted with exercise price
 greater than fair value of common
 stock:

  Number of options (in thousands)               38            36
  Weighted average exercise
     price per share                         $25.57        $22.55
  Weighted average fair value
     of stock option grants per
     Black-Scholes option
     valuation model                         $10.95         $9.92



     For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the options' vesting period.  For purposes
of pro forma disclosure, the Company assumed that it would not receive a tax
deduction or tax benefit for financial reporting purposes related to incentive
stock options.  In 

<PAGE>

management's opinion, the pro forma disclosure is not necessarily indicative 
of the net financial effect assuming the Company was required to expense the 
fair value of employee stock options because an incentive stock option often 
generates a tax deduction for the Company because the stock option holder 
does not comply with the holding period requirements under applicable tax 
laws.  The Company's pro forma information follows (in thousands, except 
earnings per share information):

                                             1996          1995
                                            ------       -------
        Pro forma net income                $8,946       $12,837
        Pro forma earnings per share        $ 0.54       $  0.77


     In connection with the Company's private placement of common stock in 1983,
the Company issued common stock purchase warrants to purchase 140,000 shares of
common stock at an exercise price of $4.50 per share, subject to adjustments
under certain circumstances, which are exercisable at any time prior to May 21,
1997.  The Company, subject to certain limitations, has granted the holders
thereof unlimited incidental registration rights to include their respective
shares of common stock in future registration statements.
     During 1996 and 1995, a total of 5,000 shares and 52,000 shares,
respectively, of common stock were issued to holders of the common stock
warrants upon exercise.  At December 31, 1996, 83,000 common stock purchase
warrants remain outstanding. 


9.   MAJOR CUSTOMERS AND GEOGRAPHIC INFORMATION

     The Company's operations are concentrated in one segment - the design,
development and manufacture of local area network products.  Sales to customers
exceeding 10% of total sales were as follows: 1996 - $22.9 million to EDS, $15.9
million to various agencies of the U.S. Government (aggregated as one) and $14.2
million to AT&T; 1995 - $31.6 million to EDS and $13.4 million to AT&T; 1994  -
$16.8 million to EDS and $15.7 million to AT&T.  A large portion of sales to
AT&T in 1995 and 1994 were attributable to a major U.S. Army customer of AT&T.
     Export sales, primarily to Europe, Asia, Latin America and Canada, were 
$17.1 million in 1996, $12.9 million in 1995, and $13.0 million in 1994.


<PAGE>

SUPPLEMENTAL FINANCIAL DATA
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------

SUMMARIZED QUARTERLY DATA (UNAUDITED)
(In thousands, except per share amounts)


                                                1996
                          ------------------------------------------------
                             Q1        Q2        Q3        Q4      TOTAL
                          ------------------------------------------------
REVENUE                   $29,505   $31,007   $31,303   $26,049   $117,864

GROSS PROFIT               14,366    15,366    14,893    12,502     57,127

NET INCOME                  3,494     3,637     2,976       944     11,051

NET INCOME PER SHARE         0.21      0.22      0.18      0.06       0.66


                                                1995
                          ------------------------------------------------
                             Q1        Q2        Q3        Q4      TOTAL
                          ------------------------------------------------
Revenue                   $24,499   $30,873   $31,597   $24,481   $111,450

Gross profit               12,491    14,638    16,132    12,690     55,951

Net income                  2,982     3,849     4,243     2,604     13,678

Net income per share         0.18      0.23      0.25      0.15       0.81

STOCK MARKET INFORMATION

     The Company's common stock is traded on The Nasdaq Stock Market (National
Market System) under the symbol ODSI.  As of March 3, 1997, there were
approximately 225 holders of record of the common stock.  The following table
sets forth, for the periods indicated, the high and low sales prices for the
common stock, as reported by The Nasdaq Stock Market, after giving retroactive
effect to the 2-for-1 stock split in 1995.

                                    1996       1995               1994
                      -----------------  -----------------   -----------------
                        HIGH      LOW      High      Low       High      Low
                      -------   -------  -------   -------   -------   -------
     First Quarter    $28 3/4   $17 1/4  $18 1/4   $13       $ 8 1/2   $5 3/8
     Second Quarter    27 3/8    19 1/4   26 3/4    17 5/8     8 5/8    6 5/16
     Third Quarter     23 1/4    16 7/8   42 1/4    25         9 5/8    6 3/8
     Fourth Quarter    16 5/8    11 3/8   37 1/8    20 1/8    14 3/4    8 1/2


     The Company has not paid any cash dividends on its common stock and 
currently intends to continue its policy of retaining earnings for the 
Company's operations and planned expansion of its business.  In addition, the 
Company's bank credit facility restricts the payment of dividends.