<PAGE>

                                   UNITED STATES
                         SECURITIES AND EXCHANGE COMMISSION
                               Washington, D.C. 20549
                                          
                                     FORM 10-K
                                          
                                     (Mark one)
             [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE 
                   SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED]
                    For the fiscal year ended December 31, 1997
                                         OR
           [  ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
                  SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
                 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)
                                          
         Registrant's telephone number, including area code: (972) 234-6400
                                          
            SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
                                        None
                                          
            SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
                           Common Stock, $0.01 par value
                                  (Title of class)
                                          
     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
                                                  -----       -----

     Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of the Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K.  [ X ]

     As of March 2, 1998, the aggregate market value of the Registrant's voting
stock held by non-affiliates of the Registrant was approximately $67,780,937. 
As of March 2, 1998, 16,527,587 shares of the Registrant's Common Stock were
outstanding.

                        DOCUMENTS INCORPORATED BY REFERENCE

     Portions of the Registrant's Annual Report to Stockholders for the fiscal
year ended December 31, 1997 are incorporated by reference into Items 5, 6, 7
and 8 under Part II and Item 14 under Part IV hereof.

     Portions of the Registrant's definitive Proxy Statement filed in connection
with the Registrant's 1998 Annual Meeting of Stockholders are incorporated by
reference into Items 10, 11, 12 and 13 under Part III hereof.


<PAGE>

                                       PART I

ITEM 1.  BUSINESS.

GENERAL

     ODS Networks, Inc. ("ODS", the "Company" or the "Registrant") develops,
manufactures, markets and supports switches, intelligent hubs, sophisticated
management and security software and related computer networking and
internetworking products for application in local area networks ("LANs"). The
Company's products are designed to support the four major industry standards
currently applicable in the LAN industry: Ethernet, Token Ring, Fiber
Distributed Data Interface ("FDDI") and Asynchronous Transfer Mode ("ATM").
These products allow customers to integrate a wide variety of computer equipment
in numerous flexible configurations into enterprise-wide computer networks.

     The Company's strategy is to provide a wide variety of technologically
advanced LAN products to satisfy an ever expanding range of customer
requirements. To accomplish its objectives, the Company engages in ongoing
efforts to (i) enhance and expand its existing products in response to rapidly
changing customer preferences and evolving industry standards and technologies,
and (ii) develop and introduce, in a timely manner, products which incorporate
new technologies, comply with industry standards and achieve market acceptance.

     The Company markets and distributes its products primarily through a direct
sales force to end-users and by numerous domestic and international system
integrators and value added resellers.  The Company's end-user customers include
manufacturing, telecommunications, retail, transportation, health care,
insurance, entertainment, utilities and energy companies; government agencies;
financial institutions; and academic institutions.

     The Company was organized in Texas in September 1983 and reincorporated in
Delaware in October 1995.  The Company changed its name in April 1997 from
Optical Data Systems, Inc. to ODS Networks, Inc.  The Company's principal
executive offices are located at 1101 E. Arapaho Road, Richardson, Texas 75081,
and its telephone number is (972) 234-6400. 

THE LAN INDUSTRY

     The power of personal computers ("PCs"), workstations and network servers
has increased dramatically during the past decade.  The rapid proliferation of
these devices has created a demand for an effective method to enable users to
communicate with each other to access common databases, software and peripheral
devices.  The LAN industry has evolved to provide a means by which computers and
related devices ("nodes") located within a limited geographical area, such as a
single office building or a campus, can be interconnected by means of a common
cabling system to permit communication and the sharing of data and resources. 
These LANs can then be interconnected into wide area networks ("WANs") that
enable all of the client and server devices in an enterprise to communicate with
each other.

     In the past, LAN technologies such as Ethernet and Token Ring have required
networked devices to take turns communicating on a singe LAN.  Such technologies
are often referred to as shared-media or shared-bandwidth technologies because
they require computers to contend for the total capacity or "bandwidth" of a
LAN.  Until recent years, intelligent shared-media hubs, each of which functions
as a single LAN, interconnected with routers have represented the most widely
used network architecture.  The Company's Infinity intelligent hub product
family, introduced during the fourth quarter of 1992, represents one of the
industry's most reliable, flexible and manageable intelligent hubs.  However,
the performance of these shared-bandwidth LANs has declined in recent years due
to the increased processor speeds of computers, increased size of LANs and
higher bandwidth requirements of software applications such as document image
processing, medical imaging, video and the World Wide Web.

     In recent years, a new generation of LAN technology has emerged utilizing
"switching" to relieve the performance issues experienced in shared-bandwidth
LANs.  Some switches have been designed to enhance the performance of existing
shared-bandwidth LANs by reducing the number of devices taking 


                                         2

<PAGE>

turns and sharing the capacity of a single LAN Ethernet segment or token ring. 
More recently, switches such as the Company's InfiniteSwitch and LANBlazer
product lines have been designed to replace the traditional hub and router
architecture.  In a totally switched network, each PC, workstation and server
has its own dedicated network connection; thus, networked devices do not
experience the performance constraints of taking turns transmitting information
over the LAN. 

     The migration of data from tightly controlled mainframe computers onto
LANs, workstations and PCs and connectivity of an organization's network to the
Internet have created security issues.  In the past, an organization could rely
on tight mainframe access controls to restrict access to sensitive data. 
However, many networks now contain proprietary, intellectual property and other
sensitive data being carried by insecure network protocols.  Today, firewalls
represent the most common form of network security, forming barriers to entry
into an organization's network.  However, the hacker community has developed
innovative techniques for circumventing firewalls.  Furthermore, firewalls do
not adequately address the security issues related to disgruntled employees or
those who would commit corporate espionage.  Thus, a need has evolved in the
industry for the implementation of comprehensive monitoring of installed
networks and real-time response to security violations.  Recently, products such
as the Company's SecureDetector and SecureSwitch have been designed to improve
data security by implementing real-time network intrusion detection and response
technology.

THE ODS STRATEGY

     The Company's strategy is to provide a wide variety of technologically
advanced LAN products to satisfy evolving customer requirements.  Currently, the
Company's objective is to be a market leader in the migration of LAN technology
to switched, dedicated bandwidth connections by offering a family of LAN
switching products that lead the industry in price/performance, features,
flexibility, reliability, management, security and investment protection.  The
key elements of the Company's strategy are outlined below.

     LAN MARKET LEADERSHIP.  The Company has focused on the high end of the LAN
market.  The Company believes that high-end customers tend to be early adopters
of new technology. The Company works closely with selected large end users to
identify market needs and define product specifications early in the development
process. This approach results in a thorough understanding of end-user
requirements prior to commencement of the design process.  The Company believes
that its InfiniteSwitch and LANBlazer product lines meet the high-end LAN market
requirements to provide switched, dedicated bandwidth, high-speed connections in
modular, flexible and reliable chassis systems with competitive pricing.

     NETWORK MANAGEMENT AND SECURITY.  As LANs become more diverse and complex
and provide increased bandwidth capacity, organizations require more
sophisticated network management systems. The Company has developed advanced
network management systems to allow network administrators to monitor and
control all of the physical layer components of a network, including third-party
products.  Further, security issues created by unauthorized access to sensitive
data within an organization's intranet by employees, or by competitors, thieves
and vandals through the Internet, have created the need for additional network
security capabilities.  By working closely with selected large organizations
with stringent requirements for network security, the Company gains a thorough
understanding of security requirements and develops products to address those
requirements.  The Company intends to continue to differentiate itself from its
competitors by enhancing its current advanced network management and security
systems and developing new technology to meet evolving end-user specifications. 

     INDUSTRY STANDARDS.   A LAN is based on "protocols" or rules that govern
access to and communication over the network. To facilitate communication with
each other, connected nodes must obey protocols to access the network and
communicate with other nodes.  The Company's diverse product lines include
products compliant with Ethernet, Token Ring, FDDI, ATM and other industry
standards.  The Company intends to continue its strategy of compliance with
industry standards rather than develop proprietary networking solutions.  The
Company's research and development efforts are, in significant part, devoted to
the continued introduction and development of new products and enhancement of
existing products based on existing as well as emerging industry standards. 


                                         3

<PAGE>

     SALES, MARKETING AND SUPPORT.  The Company plans to increase its sales in
North America by expanding its direct sales and marketing programs and by
expanding the number of system integrators, original equipment manufacturers,
and value added resellers supported by the Company's direct sales force. 
Internationally, the Company intends to expand the number of  third-party
resellers supported by the Company's direct sales force.  The Company's sales
force and its field sales engineers are knowledgeable in a wide variety of
hardware and software networking environments and provide valuable consulting
services to ODS customers and partners.  ODS intends to continue to assist its
partners and end-user customers to design LAN solutions, develop a migration
path to implement advanced LAN solutions while leveraging a customer's existing
investment and provide numerous other valuable technical services for LAN
applications. 

ODS PRODUCTS

     NETWORK MANAGEMENT.  As networks evolve from shared media to purely
switched architectures, network management requirements are also evolving beyond
the traditional device-oriented management tools.  The ODS InfiniteView suite of
network management software applications provides a robust platform for
proactively managing a complex, switched-only environment.  The InfiniteView
family includes the following network management products:  Domain Director,
Health Monitor, Switch Manager and ProtoCop.  The InfiniteView family is a set
of modular, yet interoperable, products which provide a powerful view and
management capability supporting fault monitoring, security monitoring,
performance measurements, accounting and configuration management.

     The InfiniteView Domain Director is a network management application which
simplifies a network manager's job of maintaining the network by discovering all
manageable devices in the network and creating logical groupings of those
devices.  Customized graphical user interfaces ("GUIs") are provided by the
Domain Director along with real-time status of each network device.

     The InfiniteView Health Monitor is a network management application that
monitors segments, rings and switches in a network and efficiently isolates
problems down to a specific address and port to allow a user to evaluate the
health of the network.  Health Monitor uses a drill down technique to quickly
and effectively isolate problems and minimizes the time reviewing screens and
tables.

     The InfiniteView Switch Manager is the primary mechanism for managing and
controlling configurations of the switches in a network.  The Switch Manager
features a customized GUI to provide simple point and click management and
control of LAN switches and other networking components.  Switch Manager allows
the user to configure all aspects of the switch, including enabling and
disabling ports, setting up security for the switch, real-time monitoring of the
state of all switch interfaces and presenting a unified view of all agents in a
chassis.

     The InfiniteView ProtoCop is a unique network investigative tool which
offers a proactive model for analyzing, filtering and viewing network management
data.  With ProtoCop, network managers can better plan and secure their network
from outside invaders, internal configuration and performance problems and track
against performance-based service level agreements.

     NETWORK SECURITY.  In addition to the security features of the InfiniteView
ProtoCop network management software application, the ODS SecureDetector and
SecureSwitch products are designed to improve network security by implementing
comprehensive network monitoring, intrusion detection and response technologies.
The SecureDetector can be connected simultaneously to multiple Ethernet segments
to passively monitor and audit data traversing the network, and can identify
network conversations that fit known attack profiles and enable tracking,
logging and termination of unauthorized network conversations.  The SecureSwitch
combines the security capabilities of the SecureDetector into a wire-speed,
high-performance, modular switching implementation.  Consistent with ODS'
strategy to provide a high level of investment protection to its customers, the
installed base of ODS InfiniteSwitches can be upgraded to fully support the
SecureSwitch capabilities.


                                         4

<PAGE>

     INFINITESWITCH.  The expansion of bandwidth intensive operating systems and
applications, coupled with rapid advancement in client/server computing, is
driving the transition from shared-bandwidth architectures to switched
architectures.  Switched architectures, which began as high-speed switching in
the network backbone, are now extending to users' desktops to maximize network
performance and the productivity of each individual user.  The ODS
InfiniteSwitch product family, introduced in 1996, comprises flexible,
competitively priced, switched connectivity while providing scaleable,
high-speed ATM, FDDI and Fast Ethernet uplinks that fully integrate each LAN
device into more complex, enterprise networks.  
     
     The ODS InfiniteSwitch product family includes modular chassis, switch and
uplink modules, and network management software.  The modular chassis are
available with 12, 7, 4 and 2 slots.  Each switch, uplink and management module
is re-deployable across these modular chassis platforms, including the Company's
prior generation Infinity intelligent hub chassis, thereby reducing the
operating costs associated with spare units and enabling a cost-effective
migration from shared-bandwidth network architectures and small work groups to
large switched networks.

     The ODS InfiniteSwitch product family offers numerous configurations of
dedicated 10 megabit per second ("Mbps") Ethernet and 100 Mbps Fast Ethernet
connections to every device in a network using unshielded twisted pair cabling
or fiber optic transmission media.  The InfiniteSwitch utilizes a single 1.28
Gbps backplane with a dual bus architecture.  Each bus is independent of the
other, providing both load balancing capabilities and a high degree of fault
tolerance.  By separating the management function from the switching operation
and providing distributed memory architecture, fault tolerance is enhanced. 
Additionally, every ODS InfiniteSwitch module can operate in stand-alone mode
over its own 640 Mbps of bandwidth.  The dual bus architecture, number of
possible Ethernet and Fast Ethernet module configurations, modular stand-alone
mode capabilities and range of uplink options enable flexible network
configurations by network administrators using the ODS InfiniteView network
management system.
     
     LANBLAZER.  For very high bandwidth server farms, corporate backbone
switching and high-end applications at the individual user level, ODS introduced
the LANBlazer 7000 Gigabit Ethernet switch in January 1998.  The LANBlazer 7000
includes a modular 7-slot chassis that supports over 45 Gbps of bandwidth and
connects up to 24 separate Gigabit Ethernet ports or up to 120 Fast Ethernet
ports.  One implementation of the LANBlazer 7000 is as a backbone network for
users of ODS' InfiniteSwitches, high- density Ethernet switches.  Additional
features of the LANBlazer include high-speed Layer 3 switching, VLAN management
and flexible network management capabilities.
     
     TURBOACCESS SWITCHES.  The TurboAccess family of workgroup switches and
managed workgroup switches allow workgroups to migrate from conventional 10 Mbps
shared Ethernet domains to multiple dedicated switched Ethernet segments.  These
switches deliver dedicated 10 Mbps links to each attached LAN segment or
attached workstation with no need to upgrade existing cabling, hubs or network
adapters.  The TurboAccess switches include optional Fast Ethernet uplinks,
allowing a migration to higher speed networks while preserving a customer's
existing investment in network infrastructure. 
     
     INFINITY INTELLIGENT HUBS.  The ODS Infinity intelligent hub product
family, introduced in 1992, was designed to be used in large or multi-story
buildings and campus settings.  The ODS Infinity series has a flexible backplane
that supports Ethernet, Token Ring, ATM and FDDI modules in a single chassis
platform and features a large number of modules and options designed to create
highly manageable and reliable network architectures.  Each intelligent hub
ranges in size from 4 to 12 modular slots and supports up to 528 Ethernet ports
with up to 44 separate Ethernet segments or up to 352 Token Ring ports with up
to 44 managed Token Rings.  The Company's ATM and FDDI products are used by
customers in several applications such as metropolitan area networks ("MANs"),
campus backbones, interconnections for high performance workstations and file
servers, and direct connections between host computers.  Certain third-party
products, such as segment switching and router modules, can also be integrated
in Infinity intelligent hubs. 

     MICRO-INFINITY.  The ODS Micro-Infinity product family features a
micro-modular design for growing businesses, remote branch offices and work
groups within organizations.  This product family supports Ethernet, Token Ring,
ATM and FDDI modules, third-party segment switching and remote access router
modules.  


                                         5

<PAGE>

     NANO HUB.  The ODS Nano Hub product line features a managed, fixed-port
configuration with 12 to 24 ports of shared Ethernet connections.  The Nano Hub
is available with integrated Frame Relay Access Device ("FRAD") or Integrated
Service Digital Network ("ISDN") to provide reliable LAN connectivity with
remote access for branches and remote offices.

     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 Systems,
Inc., ATM switches from FORE Systems, Inc. and Gigabit Ethernet switch
technology from Lucent Technologies.  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.  

     CUSTOMER SERVICES.  In addition to manufacturing broad lines of LAN
products, the Company also offers a wide range of services for LANs, including
consulting, design and configuration, project planning and management,
performance analysis and installation and maintenance.

PRODUCT DEVELOPMENT

     The LAN industry is characterized by rapidly changing technology, standards
and customer demands. Management believes that the Company's future success
depends in large part upon the timely enhancement of existing products as well
as the development of technologically advanced new products which meet industry
standards, perform successfully and achieve market acceptance. The Company is
currently developing and marketing next-generation LAN switching products that
will support data applications, video and audio applications as well as intranet
and Internet applications. The Company is also investing in the development of
products which comply with emerging industry standards and is continuously
engaged in testing to ensure that the Company's products interoperate with other
manufacturers' products which comply with industry standards.  However, there
can be no assurance that the Company will be successful in enhancing its
existing products or in selecting, developing, manufacturing and marketing new
products which will perform satisfactorily and achieve market acceptance.  Nor
can there be any assurance that the Company will be able to respond effectively
to technological changes or new product announcements by competitors, which
could render portions of the Company's inventory obsolete.

     During 1997, 1996 and 1995, the Company's research and development
expenditures were $10.8 million, $10.4 million and $8.0 million, respectively.
All of the Company's expenditures for hardware and software research and
development costs have been expensed as incurred. At December 31, 1997, the
Company had 63 employees engaged in research and product development.  The
Company intends to continue to increase its research and development staff and
expenditures.

MANUFACTURING AND SUPPLIERS

     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 or
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 such as microprocessors and
ASICs 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 "Competition").  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 


                                         6

<PAGE>

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.

     The Company's operational strategy relies on outsourcing of printed circuit
board assembly and certain other operations to reduce fixed costs and to provide
flexibility in meeting market demand.  The Company inserts the printed circuit
board-based modules, assembled by a variety of domestic third-party contract
assembly companies, into product enclosures in combination with power supplies,
ODS software and other components to configure systems to meet the needs of
end-user customers.  There can be no assurance that the Company will effectively
manage its third-party contractors or that these contractors will meet the
Company's future requirements for timely delivery of products of sufficient
quality and quantity.  Further, the Company intends to introduce a number of new
products and product enhancements in 1998 which will require that the Company
rapidly achieve volume production of those new products by coordinating its
efforts with those of its suppliers and contractors.  The inability of the
third-party contractors to provide ODS with adequate supplies of high-quality
products could cause a delay in the Company's ability to fulfill orders and
could have an adverse effect on the Company's business and operating results.

INTELLECTUAL PROPERTY AND LICENSES

     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. 
The Company has also entered into confidentiality agreements with its employees
and enters into non-disclosure agreements with its suppliers, resellers and
certain customers to limit access to and disclosure of proprietary information. 
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.

     There are many patents held by companies which relate to the design and
manufacture of networking systems.  Potential claims of infringement could be
asserted by the holders of those patents.  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.

     The Company has entered into several  software and product license
agreements. These license agreements provide the Company with additional
software and hardware components that add value to its intelligent hub, switch
and management products. These license agreements do not provide proprietary
rights which are unique or exclusive to the Company and are generally available 
to other parties on the same or similar terms and conditions, subject to payment
of applicable license fees and royalties.

SALES, MARKETING AND CUSTOMERS

     The Company markets and distributes its products primarily through a direct
sales force to end users and through numerous domestic and international system
integrators and value added resellers.  The Company's direct sales and marketing
organization currently consists of 143 individuals, including managers, sales
representatives, marketing personnel and technical support personnel.  

     FIELD SALES FORCE.  The Company's direct sales organization focuses on
major account sales, promotes the Company's products to current and potential
customers, and monitors evolving customer requirements.  The field sales and
technical support force provides training and technical support to the Company's
resellers and end users and assists ODS customers to design LAN solutions and to
develop a migration path to implement advanced LAN solutions while leveraging an
end user's existing investment.


                                         7

<PAGE>

     The Company currently conducts its direct sales and marketing efforts from
its principal office in Richardson (Dallas), Texas; through domestic field
offices located in the following metropolitan areas:  Atlanta, Boston, Chicago,
Cleveland, Denver, Detroit, Houston, Los Angeles, Minneapolis, New York City,
Philadelphia, San Francisco,  Seattle and Washington, D.C.; and through its
foreign sales offices located in the following regions: Australia, Canada,
England, France, Germany, Malaysia, Singapore, South Korea and Taiwan.

     RESELLERS.  Domestic and international system integrators and value added
resellers (collectively, "resellers") sell ODS products as stand-alone solutions
to end users and integrate ODS products with products sold by other LAN and WAN
vendors into networking systems that are sold to end users.  The Company's field
sales force and technical support organization provide support to these
resellers.  Historically, resellers have sold the Company's products to large
corporations and government agencies.  The Company has initiated a "Partners
Plus" program targeted at resellers who serve medium sized organizations.  The
Company's agreements with resellers are non-exclusive, and the Company's
resellers generally sell other products which may compete with ODS products. 
Resellers may place higher priority on products of other suppliers who are
larger than and have more name recognition than ODS, and there can be no
assurance that resellers will  continue to sell and support the Company's
products.

     FOREIGN SALES.  The Company believes that rapidly evolving international
markets are important sources of future net sales for the Company. The Company's
export sales are currently being made through international resellers in Europe,
Asia, Latin America  and Canada supported by ODS' international sales and
technical support organization.  Export sales accounted for approximately 27.2%,
14.4% and 11.6% of net sales in 1997, 1996 and 1995, respectively.  See
Management's Discussion and Analysis of Financial Condition and Results of
Operations incorporated by reference and included in this report for a
geographic breakdown of the Company's product revenue from sales to customers
outside the United States for the years ended December 31, 1997, 1996 and 1995. 
Sales to foreign customers and resellers generally have been made in United
States dollars.  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,
regulatory approvals and other constraints upon international trade.  For
example, the fluctuations in currency exchange rates and adverse economic
developments in Malaysia, South Korea and certain other countries adversely
affected demand for the Company's products in those countries in the fourth
quarter of 1997 and may continue to adversely affect demand for the Company's
products in those countries in 1998.

     MARKETING.  The Company has implemented several methods to market its
products, including regular participation in trade shows and seminars,
advertisement in trade journals, telemarketing, distribution of sales literature
and product specifications and ongoing communications with its resellers and
installed base of end-user customers.

     CUSTOMERS.  The Company's end-user customers include manufacturing,
telecommunications, retail, transportation, health care, entertainment,
insurance, utilities and energy companies; government agencies; financial
institutions; and academic institutions.  Sales to certain customers and groups
of customers can be impacted by seasonal capital expenditure approval cycles,
and sales to customers within certain geographic regions can be subject to
seasonal fluctuations in demand.


                                         8

<PAGE>



     Although the Company sells its products to many customers, direct sales to
three such resellers and end-user customers, Electronic Data Systems Corporation
("EDS"), AT&T Corp. ("AT&T") and various agencies of the U. S. Government
(aggregated as one), have each accounted for 10% or more of the Company's net
sales in at least one of the past three fiscal years as indicated in the
following schedule.

<TABLE>
<CAPTION>
--------------------------------------------------------------------------------
CUSTOMER                             PERCENTAGE OF NET SALES
                    ------------------------------------------------------------
                            1997                1996                1995 
--------------------------------------------------------------------------------
<S>                        <C>                 <C>                 <C>
EDS                         16.1%               19.4%               28.3%
AT&T                         1.6                12.1                12.0 
U. S. Government            11.7                13.5                 9.6 
--------------------------------------------------------------------------------
</TABLE>

     A large portion of the products sold to EDS during the periods shown were
integrated with other products or services and sold to end users by EDS.  A
large portion of sales to AT&T in 1995 were attributable to a major U.S. Army
customer of AT&T.  No other customer accounted for as much as 10% of the
Company's net sales in 1997, 1996 or 1995, respectively.  The loss of any of
these customers could have a material adverse effect on the Company and its
operating results if not replaced.

     Most of the Company's business with the U.S. Government is on a fixed-price
basis. Government contracts customarily include provisions which provide for
cancellation at the convenience of the Government.  In addition, upon
cancellation by the Government, the Company generally would be entitled to
reimbursement of costs incurred, plus a pro rata share of profit. The Company
has never received a cancellation of a material government contract and has no
reason to anticipate any such cancellation. The products sold, characteristics
and business risks associated with the Company's sales to U.S. Government
agencies do not differ materially from those associated with sales of the
Company's products to commercial customers.

     BACKLOG.  The Company believes that only a small portion of its order
backlog is noncancelable and that the dollar amount associated with the
noncancelable portion is immaterial.  The Company manufactures its products
based upon its forecast of customers' demand and maintains inventories of
sub-assemblies and finished products in advance of receiving firm orders from
customers.  Orders are generally fulfilled by the Company within one to four
weeks following receipt of an order.  Because of the generally short cycle
between order and shipment and occasional customer-initiated changes in delivery
schedules or cancellation of orders which are made without significant penalty,
the Company does not believe that its backlog as of any particular date is
indicative of future net sales.  

     CUSTOMER SUPPORT, SERVICE AND WARRANTY.  The Company services, repairs and
provides technical support for its products. The ODS field sales and technical
support force work closely with resellers and end-user customers on-site and by
telephone to assist with pre- and post-sales support services such as network
design, system installation and technical consulting. By working closely with
the Company's customers, ODS employees gain a thorough understanding of end-user
requirements and provide input to the product development process.

     The Company warrants all its products against defects in materials and
workmanship for periods ranging from 90 days to 12 months. Before and after
expiration of the product warranty period, the Company offers both on-site and
factory-based support, parts replacement and repair services. Extended warranty
services are separately invoiced on a time and materials basis or on an annual
maintenance contract. 

COMPETITION

     The market for network intelligent hubs and switches is intensely
competitive and subject to frequent product introductions with improved
price/performance characteristics.  Networking suppliers compete in areas such
as conformity to existing and emerging industry standards, interoperability with
other networking products, network management capabilities, performance, price,
ease of use, scalability, reliability, flexibility, product features and
technical support.  The Company believes that its solutions-oriented approach to
networking (combining network design services, ODS products and third-party 


                                         9

<PAGE>

products to provide superior networking systems to customers) provides the
Company a competitive advantage with large organizations with complex networking
requirements.
     
     There are numerous companies competing in various segments of the
intelligent hub and switch markets.  The Company's principal competitors include
Cisco Systems, Inc., Cabletron Systems, Inc., Bay Networks, Inc., 3Com
Corporation, FORE Systems, Inc., Xylan Corporation and International Business
Machines Corporation.  Several of the Company's competitors 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 competitors offer customers a broader product line which provides
a more comprehensive networking solution than the Company currently offers.
Certain companies in the networking industry have expanded their product lines
or technologies in recent years as a result of acquisitions.  Further, more
companies have developed products which conform to existing and emerging
industry standards and have sought to compete on the basis of price.  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. 
     
     There can be no assurance that the Company will be able to compete
successfully in the future with current or new competitors.

EMPLOYEES

     As of December 31, 1997, the Company employed a total of 384 persons,
including 143 in sales, marketing and technical support, 160 in manufacturing
and operations, 63 in research and product development, and 18 in administration
and finance. 

     None of the Company's employees are represented by a labor organization,
and the Company is not a party to any collective bargaining agreement. The
Company has not experienced any work stoppages and considers its relations with
its employees to be good.

     Competition in the recruiting of personnel in the computer and
communications industry is intense. The Company believes that its future success
will depend in part on its continued ability to hire, motivate and retain
qualified management, sales and marketing, and technical personnel. To date, the
Company has not experienced significant difficulties in attracting and retaining
qualified employees.

FACTORS THAT MAY AFFECT FUTURE RESULTS OF OPERATIONS   

     This report may include forward-looking statements that involve risks and
uncertainties.  In addition to those factors discussed elsewhere in this 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.


                                         10

<PAGE>

     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.  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.  The Company anticipates increased
competition from large telecommunication equipment vendors which are expanding
their capabilities in the data networking market.  For example, Lucent
Technologies has acquired several networking companies to enhance its
capabilities in data networking.    Further the Company anticipates increased
competition from private "start-up" companies that have developed or are
developing advanced network switching products.  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. 

     The Company is pursuing a strategy to increase the percentage of its
revenue generated through indirect sales channels including value added
resellers, system integrators, original equipment manufacturers and network
service providers.  There can be no assurance that the Company's products will
gain market acceptance in these indirect sales channels.  Further, competition
among networking companies to sell products through these indirect sales
channels could result in significant price competition and reduced profit
margins.

     The Company is also pursuing a strategy to broaden and further
differentiate its product line by introducing complementary network switching,
management and security products and incorporating new technologies into its
existing product line.  There can be no assurance that the Company will
successfully introduce these products or that such products will gain market
acceptance.  The Company anticipates competition from networking companies,
network security companies and others in each of its product lines.  The Company
anticipates that profit margins will vary among its product lines and that
product mix fluctuations could have an adverse effect on the Company's overall
profit margins. 

     ACQUISITIONS. Cisco, Cabletron, Bay Networks, FORE Systems, Lucent
Technologies 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 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.

     The Company may, in the future, acquire or invest in another company,
business unit, product line, or technology to accelerate the development of
products and sales channels complementary to the Company's existing products and
sales channels.  Acquisitions involve numerous risks, including difficulties in
assimilation of operations,  technologies, and products of the acquired
companies; risks of entering markets in which the Company has no or limited
direct prior experience and where competitors in such markets have stronger
market positions; the potential loss of key employees of the acquired company;
and the diversion of management's attention from normal daily operation of the
Company's business.


                                         11

<PAGE>

     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 market for shared bandwidth intelligent hubs, sales
of which represented the  majority of the Company's net sales over the past
several years,  decreased in 1997 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.  Factors relating to
Manufacturing and Availability of Components that could affect the Company's
actual results and cause actual results to differ materially from those in
forward-looking statements are discussed in the section above entitled
"Business--Manufacturing and Suppliers".

     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, intelligent hub and network security 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, ATM switches from FORE systems and Gigabit Ethernet switch technology
from Lucent Technologies.  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 have
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, FORE Systems, Xylan 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 27.2%
of the Company's revenue in 1997.  The Company expects that export sales will
represent a significant portion of its business in the future.  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.  For example, the fluctuations in currency exchange rates
and adverse economic developments in Malaysia, South Korea and certain other
countries adversely affected demand for the Company's products in those
countries in the fourth quarter of 1997 and may continue to adversely affect
demand for the Company's products in those countries in 1998.  Additionally,
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. 

     INTELLECTUAL PROPERTY.   Factors relating to Intellectual Property that
could affect the Company's actual results and cause actual results to differ
materially from those in forward-looking statements are discussed in the section
above entitled " Business--Intellectual Property and Licenses".

     IMPACT OF YEAR 2000.   Some of the Company's older computer programs were
written using two digits rather than four to define the applicable year.  As a
result, those computer programs have time-sensitive software that recognize a
date using "00" as the year 1900 rather than the year 2000.  This could cause a
system failure or miscalculations causing disruptions of operations, including,
among other things, a temporary inability to process transactions, send
invoices, or engage in similar normal business activities.


                                         12

<PAGE>

     The Company has completed an assessment and will have to modify or replace
portions of its software so that its computer systems will function properly
with respect to dates in the year 2000 and thereafter.  The total Year 2000
project cost is estimated to be immaterial.

     The Company has initiated communications with all of its significant
suppliers and large customers to determine the extent to which the Company's
interface systems are vulnerable to those third parties' failure to remediate
their own Year 2000 Issues.  There can be no guarantee that the systems of other
companies on which the Company's systems rely will be timely converted and would
not have an adverse effect on the Company's systems.  The Company has determined
it has immaterial exposure to contingencies related to the Year 2000 Issue for
the products it has sold.  

     The Year 2000 project is estimated to be completed not later than December
31, 1998, which is prior to any anticipated impact on its operating systems. 
The Company believes that with modifications to existing software and
conversions to new software, the Year 2000 issue will not pose significant
operational problems for its computer systems.  However, if such modifications
and conversions are not made, or are not completed timely, the Year 2000 issue
could have a material impact on the operations of the Company.

     The costs of the project and the date on which the Company believes it will
complete the Year 2000 modifications are based on management's best estimates,
which were derived utilizing numerous assumptions of future events, including
the continuous availability of certain resources and other factors.  However,
there can be no guarantee that these estimates will be achieved and actual
results could differ materially from those anticipated.  Specific factors that
might cause such material differences include, but are not limited to, the
availability and cost of personnel trained in this area, the ability to locate
and correct all relevant computer codes, and similar uncertainties.

     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, switches, management and
security products 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 this Form 10-K and other 
filings with the Securities and Exchange Commission, 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.

ITEM 2.  PROPERTIES.

     The Company's headquarters is located in a modern, two-story building in
Richardson, Texas, with an aggregate of approximately 95,000 square feet of
floor space.  This facility includes the Company's corporate administration,
manufacturing, marketing, sales and technical support personnel.  The Company
occupies this facility under a lease, the base term of which expires in February
2005, with two seven-year options to extend the lease term, subject to
compliance with certain conditions. The Company owns a one-story building
consisting of approximately 50,000 square feet of floor space adjacent to the
Company's headquarters, and the Company's research and development staff are
located in this facility.  The Company also leases a separate warehouse facility
consisting of approximately 8,000 square feet adjacent to its headquarters under
a lease which expires in June 2000. 


                                         13

<PAGE>

     In addition, the Company and its subsidiaries lease small amounts of office
space for sales and technical support personnel domestically in California,
Colorado, Georgia, Illinois, Massachusetts, Michigan, Minnesota, New York, Ohio,
Pennsylvania, Texas, Virginia and Washington, and  internationally in Australia,
Canada, England, France, Germany, Malaysia, Singapore, South Korea and Taiwan
R.O.C.  The Company believes that these existing facilities will be adequate to
meet its requirements through 1998. See Note 5 of Notes to Consolidated
Financial Statements for additional information regarding the Company's
obligations under leases.

ITEM 3.  LEGAL PROCEEDINGS.

     The Company is not a party to any material litigation and is not aware of
any threatened litigation which would have a material adverse effect on the
Company, its operating results or its financial position.


ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.

     There were no matters submitted to a vote of security holders of the
Company during the fourth quarter of 1997.


                                      PART II

     The information required by Items 5 through 8, inclusive, of this report is
contained in the Company's Annual Report to Stockholders for its fiscal year
ended December 31, 1997 (the "1997 Annual Report"), selected portions of which
are incorporated herein by reference, as described below. With the exception of
the material incorporated by reference herein, the 1997 Annual Report is not
deemed filed as a part of this Annual Report on Form 10-K.

ITEM 5.   MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.

     The information under the caption "Stock Market Information" on page 34 of
the 1997 Annual Report is incorporated herein by reference.

ITEM 6.   SELECTED FINANCIAL DATA.

     The information appearing in the "Selected Consolidated Financial Data"
table on page 1 of the 1997 Annual Report is incorporated herein by reference.

ITEM 7.   MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND 
          RESULTS OF OPERATIONS.

     The information appearing under the caption "Management's Discussion and
Analysis of Financial Condition and Results of Operations" on pages 17 through
20, inclusive, of the 1997 Annual Report is incorporated herein by reference.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

     Not applicable.

ITEM 8.   FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

     The Consolidated Financial Statements of ODS Networks, Inc. and
Subsidiaries and Notes thereto appearing on pages 22 through 33, inclusive, the
Report of Independent Auditors thereon appearing on page 21, and the
Supplemental Financial Data appearing on page 34 of the 1997 Annual Report are
incorporated herein by reference.


                                         14

<PAGE>

ITEM 9.   CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND 
          FINANCIAL DISCLOSURE.

     Not applicable.

                                      PART III

ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.

DIRECTORS

     The information regarding Directors of the Company appearing under the
captions "Election of Directors" and "Compliance with Section 16 Reporting
Requirements" contained in the Company's definitive Proxy Statement filed in
connection with the Company's 1998 Annual Meeting of Stockholders is
incorporated herein by reference.


EXECUTIVE OFFICERS

     The following table sets forth the names and ages of all executive officers
of the Company, their respective positions with the Company, and the period
during which each has served as an executive officer.

<TABLE>
<CAPTION>
                                                                                          SERVED AS
                                                                                          EXECUTIVE
          NAME                AGE                POSITION(S)                              OFFICER SINCE
          ----                ---                -----------                              -------------
     <S>                      <C>  <C>                                                    <C>
     G. Ward Paxton           62   Chairman of the Board of Directors, President
                                   and Chief Executive Officer                                1983
     T. Joe Head              41   Senior Vice President and Director                         1983
     Timothy W. Kinnear       34   Vice President and Chief Financial Officer                 1996
     Billie  J. Cottongim     67   Vice President - Manufacturing Engineering                 1987
     Gregory E. Geiger        39   Vice President - Hardware Engineering                      1992
     Eric H. Gore             44   Vice President - Strategic Business Development            1994
     Garry L. Hemphill        49   Vice President - Operations                                1987
     Joseph V. Howard         39   Vice President - North American Sales                      1994
     Jerry W. Pate            45   Vice President - Chief Engineer                            1987
     Michael L. Paxton        37   Vice President and Secretary                               1987
     Stephen D. Thompson      34   Vice President - Software Engineering                      1997
     Joe W. Tucker, Jr.       55   Vice President - International Sales                       1992
     D. Keith Willette        41   Vice President - Chief Technologist                        1992
     Timothy E. Woods         37   Vice President - Technical Customer Services               1992
     Kandis L. Tate Thompson  31   Controller - Finance and Accounting                        1995
     Donna J . Combs          49   Assistant Secretary and Director of Administration         1987
</TABLE>

     G. WARD PAXTON is a co-founder of the Company and has served as Chairman of
the Board of Directors, President and Chief Executive Officer since the
Company's inception in September 1983 and  served as Chief Financial Officer
from 1983 until 1994. Prior to founding the Company, Mr. Paxton was Vice
President of Honeywell Optoelectronics, a division of Honeywell, Inc., from 1978
to 1983. From 1969 to 1978, Mr. Paxton was Chairman of the Board of Directors,
President, Chief Executive Officer and founder of Spectronics, Inc., which was
acquired by Honeywell, Inc. in 1978. Prior to founding Spectronics, Inc., Mr.
Paxton held various managerial and technical positions at Texas Instruments


                                         15

<PAGE>

Incorporated from 1959 to 1969. Mr. Paxton holds Ph.D., M.S. and B.S. degrees in
Physics from the University of Oklahoma.

     T. JOE HEAD  is co-founder of the Company and has served as Senior Vice
President and a director since the Company's inception in September 1983.  Prior
to co-founding the Company, Mr. Head held the positions of Product Marketing
Manager and Marketing Engineer at Honeywell Optoelectronics from 1980 to 1983. 
Mr. Head holds a B.S. degree in Electrical Engineering from Texas A & M
University.

     TIMOTHY W. KINNEAR  has served as Vice President and Chief Financial
Officer of the Company since September of 1996.  Prior to joining the Company,
Mr. Kinnear held various managerial positions, including Vice President of
Finance, at Cyrix Corporation from 1992 to 1996.  Prior to joining Cyrix
Corporation, Mr. Kinnear held various positions, including Audit Manager, at
Ernst & Young from 1986 to 1992.  Mr. Kinnear holds a B.B.A. degree in
Accounting from Texas Tech University.  

     BILLIE J. COTTONGIM  has served as  Vice President - Manufacturing 
Engineering of the Company since 1987 and previously served as its Director of
Manufacturing Engineering from 1983 to 1987. Prior to joining the Company, Mr.
Cottongim held the position of Senior Engineer at Honeywell Optoelectronics from
1982 to 1983.

     GREGORY E. GEIGER  has served the Company as Vice President - Hardware
Engineering since February 1992. Mr. Geiger previously held positions with the
Company as Director of Hardware Engineering in 1991 and Design Engineer from
1987 to 1990. Prior to joining the Company, Mr. Geiger held the position of
Design Engineer at E-Systems, Inc. from 1985 to 1987.

     ERIC H. GORE  has served the Company as Vice President - Strategic Business
Development since February 1994.  Mr. Gore previously held positions with the
Company as Director of Strategic Business Development from 1992 to 1994, Area
Sales Manager from 1989 to 1992 and Regional Sales Manager from 1984 to 1989. 
Prior to joining the Company, Mr. Gore served Texas Instruments Incorporated as
Marketing Manager - Eastern United States from 1982 to 1983 and Product
Marketing Representative from 1979 to 1982.  

     GARRY L. HEMPHILL  has served the  Company as Vice President - Operations
since 1987 and previously served as its Manager of Operations from 1984 to 1987.
Prior to joining the Company, Mr. Hemphill held the position of Supervisor of
Military Products at Honeywell Optoelectronics from 1979 to 1983.

     JOSEPH V. HOWARD  has served the Company as Vice President - North American
Sales since October 1996.  Mr. Howard previously held positions with the Company
as Vice President - Federal Systems from 1994 to 1996, Manager of the Federal
Systems Group from 1991 to 1994 and National Accounts Manager from 1988 to 1991.
Prior to joining the Company, Mr. Howard held the position of Account
Representative for May-Craft Information Systems from 1986 to 1988. 

     JERRY W. PATE  has served the Company as Vice President - Chief Engineer
since February 1992 and previously served as its Vice President from 1987 to
February 1992 and Director of Engineering from 1983 to 1987. Prior to joining
the Company, Mr. Pate served as an independent consultant for Honeywell
Optoelectronics and Siemens AG from 1980 to 1983.

     MICHAEL L. PAXTON  has served the Company as Vice President and Secretary
of the Company since June 1995 and previously served as its Controller of
Finance and Accounting from 1987 to 1995 and Accounting Manager from 1986 to
1987. Prior to joining the Company, Mr. Paxton held the position of Staff
Accountant for Clifford E. Wall, Certified Public Accountant, from 1984 to 1986.

     STEVE D. THOMPSON has served the Company as Vice President  - Software
Engineering since July 1997.  Mr. Thompson previously held positions with the
Company as Lead Software Engineer in 1996 and Software Engineer from 1989 to
1995.  Prior to joining the Company, Mr. Thompson held the position of Software
Engineer at E-Systems, Inc. from 1985 to 1989. 


                                         16

<PAGE>

     JOE W. TUCKER, JR.  has served the Company as  Vice President -
International Sales since June 1996 and previously served as its Vice President
- North American Sales from 1992 to 1996.  Prior to joining the Company, Mr.
Tucker held the positions of Vice President - U. S. Operations of Datapoint,
Inc. from 1990 to 1992; Vice President and General Manager of United Detector
Technology, a division of ILC, Inc., from 1988 to 1990; Worldwide Marketing and
Sales Director from 1986 to 1988 and various sales management positions from
1980 to 1986 at Honeywell Optoelectronics; and various marketing and sales
management positions at Texas Instruments Incorporated from 1969 to 1980.

     D. KEITH WILLETTE  has served the Company as Vice President - Chief
Technologist since July 1997. Mr. Willette previously held positions with the
Company as Vice President - Software Engineering from 1992 to 1997, Director of
Software Engineering from 1991 to 1992 and Software Engineer from 1990 to 1991.
Prior to joining the Company, Mr. Willette held the positions of Lead Software
Engineer from 1989 to 1990 and Software Engineer from 1988 to 1989 at Harris
Adacom Corporation, and Senior Software Engineer at Ascom Timeplex, Inc. from
1987 to 1988.

     TIMOTHY E. WOODS  has served the Company as Vice President - Customer
Technical Services since February 1992 and previously held positions with the
Company as Manager of Technical Support and Product Support Engineer from 1990
to 1991.  Prior to joining the Company, Mr. Woods held the position of Systems
Design Engineer at Jaycor Technical Services, Incorporated from 1987 to 1990.

     KANDIS L. TATE THOMPSON  has served the Company as Controller of Finance
and Accounting since June 1995 and previously held positions as Accounting
Manager for the Company from 1991 to June 1995 and Staff Accountant from 1989 to
1991.  Prior to joining the Company, Ms. Thompson held the position of Staff
Accountant for Armstrong and Associates, Certified Public Accountants, from 1988
to 1989.  Ms. Thompson has been a Certified Public Accountant since 1990.

     DONNA J. COMBS  has served as Assistant Secretary of the Company since 1994
and previously served as its Secretary from 1987 to 1994.  Ms. Combs has held
the position of Director of Administration since joining the Company in 1984.

     Neither the Company nor any of its subsidiaries has employment agreements
with any of its executives. 

     All executive officers of the Company are elected annually by the Board of
Directors and serve at the discretion of the Board.  G. Ward Paxton is the
father of Michael L. Paxton. There are no other family relationships between any
director or executive officer and any other such person.

ODS 401(k) SAVINGS PLAN

     The Company has adopted the ODS 401(k) Savings Plan, as amended, (the
"Savings Plan"), which is intended to comply with Sections 401(a) and 401(k) of
the Internal Revenue Code, as amended (the "Code"), and the applicable
provisions of the Employee Retirement Income Security Act of 1974, as amended. 
Amounts contributed to the Savings Plan are held under a trust intended to be
exempt from income tax pursuant to Section 501(a) of the Code.  All employees of
the Company (except nonresident aliens who receive no earned income from the
Company within the United States) who have completed three months of service are
eligible to participate in the Savings Plan.  Participating employees may make
pre-tax contributions to their accounts of not less than 1% nor more than 19% of
their compensation each year, subject to certain maximum limits imposed by law
($9,500 in 1997).  In its discretion, the Company may make (i) annual matching
contributions to the accounts of participating employees not to exceed 4% of
their annual base compensation and (ii) annual employer contributions. The
accounts of participating employees are 100% vested immediately as to salary
reduction amounts contributed to the Savings Plan and vest at the rate of 20%
per year of service as to all other benefits, with all rights being 100% vested
under the Savings Plan after five years of service or upon death, disability or
normal retirement.


                                         17

<PAGE>

1997 EMPLOYEE STOCK PURCHASE PLAN 

     The Company has adopted the 1997 Employee Stock Purchase Plan of ODS
Networks, Inc. (the Purchase Plan), which is intended to comply with Section
423(b) of the Code. The Purchase Plan reserves and otherwise provides for the
grant of options to purchase a maximum of 500,000 shares of the Company's Common
Stock, subject to certain adjustments to reflect changes in the Company's
capitalization such as stock splits, stock dividends and similar events. The
Purchase Plan is implemented by an offering during each six-month period ending
January 31 and July 31, respectively, and is administered by the Compensation
Committee of the Board of Directors.  Employees who have worked for the Company
or a subsidiary of the Company for at least 90 days before the beginning of an
offering period are eligible to participate in the Purchase Plan if they are
customarily employed by the Company or a subsidiary of the Company, as defined
in the Purchase Plan.

     The Purchase Plan permits eligible employees to purchase Common Stock
through payroll deductions, which may not exceed 10% of an employee's
compensation.  Each participating employee is granted at the start of a period
an option to purchase shares of Common Stock exercisable at the end of the
period.  The number of shares subject to an option is that number of full shares
that can be purchased with the total amount of payroll deductions for such
employee during the period at the exercise price equal to 85% of the lower of
(i) the closing selling price of Common Stock on the first day of the purchase
period or (ii) the closing selling price on the last day of the purchase period.
Not more than 60,000 shares, plus any unissued shares available from prior
offerings under the Purchase Plan, may be issued each purchase period.

     No participating employee may be granted an option under the Purchase Plan
if such employee, immediately after the option is granted, would own, directly
or indirectly, stock (including the stock to be acquired upon exercise of the
option) representing 5% or more of the total combined voting power of all
classes of capital stock of the Company.  No participating employee may be
granted an option under the Purchase Plan that would permit the purchase of
shares of Common Stock at a rate exceeding $25,000 of fair market value of stock
(determined at the time the option is granted) for each calendar year in which
the option is outstanding.  No participating employee may purchase more than 250
shares per purchase period.

ITEM 11.   EXECUTIVE COMPENSATION.

     The information set forth under the caption "Executive Compensation"
contained in the Company's definitive Proxy Statement filed in connection with
the 1998 Annual Meeting of Stockholders is incorporated herein by reference.

ITEM 12.   SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.

     The information set forth under the caption "Security Ownership of Certain
Beneficial Owners and Management" contained in the Company's definitive Proxy
Statement filed in connection with the 1998 Annual Meeting of Stockholders is
incorporated herein by reference.

ITEM 13.   CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

     The information set forth under the caption "Certain Transactions"
contained in the Company's definitive Proxy Statement filed in connection with
the 1998 Annual Meeting of Stockholders is incorporated herein by reference.


                                         18

<PAGE>

                                      PART IV

ITEM 14.  EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.

                                                                   PAGE IN 1997 
(a)1.     CONSOLIDATED FINANCIAL STATEMENTS.                      ANNUAL REPORT*
                                                                  --------------

          Report of Independent Auditors . . . . . . . . . . . . . . .   21

          Consolidated Balance Sheets
            at December 31, 1997 and 1996. . . . . . . . . . . . . . .   22
          
          Consolidated Statements of Income
            for the years ended December 31, 1997, 1996 and 1995 . . .   23

          Consolidated Statements of Stockholders' Equity
            for the years ended December 31, 1997, 1996 and 1995 . . .   24
          
          Consolidated Statements of Cash Flows
            for the years ended December 31, 1997, 1996 and 1995 . . .   25

          Notes to Consolidated Financial Statements . . . . . . . . .   26-33 

           * Pages 21-33 referenced above of the 1997 Annual Report 
             are incorporated herein by reference, and appear in 
             Exhibit 13, herein.


   2.     FINANCIAL STATEMENT SCHEDULES.                               PAGE NO.
                                                                       --------

          Schedule II - Valuation and Qualifying Accounts  . . . . . .   S-l

          All other schedules are omitted because they are either not required
or not applicable or the required information is shown in the Consolidated
Financial Statements or Notes thereto.

(b)       REPORTS ON FORM 8-K.

          There were no reports on Form 8-K filed during the fourth quarter of
1997.

(c)       EXHIBITS.

          The following Exhibits are filed herewith pursuant to Item 601 of
Regulation S-K or are incorporated herein by reference to previous filings as
noted:

     EXHIBIT
     NUMBER                       DESCRIPTION OF EXHIBIT
     ------                       ----------------------

      3.1(1)   . . . .   Certificate of Incorporation of the Registrant.
      3.2(1)   . . . .   Bylaws of the Registrant.
      4.1(2)   . . . .   Specimen of Common Stock Certificate.
     10.1(3)   . . . .   Lease Agreement, dated September 12, 1989, between
                         G.D.A.F. Associates and the Registrant for the
                         Registrant's headquarters and executive office
                         building.
     10.2(3)   . . . .   1983 Incentive Stock Option Plan of ODS Networks, Inc.
                         (formerly Optical Data Systems, Inc.), as amended.
     10.3(3)   . . . .   1987 Incentive Stock Option Plan of ODS Networks, Inc.
                         (formerly Optical Data Systems, Inc.), as amended.
     10.4(3)   . . . .   Copy of Stock Option granted to Robert Anderson.


                                         19

<PAGE>

     10.5(3)   . . . .   Form of Indemnification Agreement.
     10.6(7)   . . . .   Amended and Restated ODS 401(k) Savings Plan, effective
                         April 1, 1997.
     10.7(7)   . . . .   Amendment to the ODS 401(K) Savings Plan, effective
                         November 1, 1997.
     10.8(4)   . . . .   1995 Stock Option Plan of ODS Networks, Inc. (formerly
                         Optical Data Systems, Inc.)
     10.9(4)   . . . .   1995 Non-Employee Directors Stock Option Plan of ODS
                         Networks, Inc. (formerly Optical Data Systems, Inc.)
     10.10(7)  . . . .   Third Amended and Restated Revolving Credit Loan
                         Agreement, dated December 31, 1997, between NationsBank
                         of Texas, N.A. (formerly, NCNB Texas National Bank) and
                         the Registrant.
     10.11(5)  . . . .   Supplemental Lease Agreement, dated March 7, 1995,
                         between G.D.A.F. Associates, subsequently assigned to
                         CIIF Associates II Limited Partnership, Landlord, and
                         the Registrant, as Tenant, relative to the Registrant's
                         headquarters and executive office building.
     10.12(6)  . . . .   1997 Employee Stock Purchase Plan of ODS Networks, Inc.
                         (formerly Optical Data Systems, Inc.)
     13(7)     . . . .   Annual Report to Stockholders of the Registrant for the
                         fiscal year ended December 31, 1997, to the extent
                         specified in Parts II, III and IV hereof.
     21(7)     . . . .   Subsidiaries of the Registrant.
     23(7)     . . . .   Consent of Independent Auditors. 
     27(7)     . . . .   Financial Data Schedule. 

------------------------------

(1)       Filed as an Exhibit in the Registrant's Current Report on Form 8-K
          dated November 6, 1995 (Date of Earliest Event Reported:  October 31,
          1995; Commission File No. 0-20191), which Exhibit is incorporated
          herein by reference.
(2)       Filed as an Exhibit in the Registrant's Current Report on Form 8-K
          dated May 7, 1997 (Date of Earliest Event Reported:  April 24, 1997;
          Commission File No. 0-20191), which Exhibit is incorporated herein by
          reference.
(3)       Filed as an Exhibit in the Registrant's Registration Statement on Form
          S-1, as amended (File No. 33-6899) which was declared effective on May
          21, 1992, by the Securities and Exchange Commission, which Exhibit is
          incorporated herein by reference.
(4)       Filed as an Exhibit to the Registrant's definitive Proxy Statement in
          connection with the solicitation of proxies for its 1995 Annual
          Meeting of Stockholders (File No. 0-20191), which Exhibit is
          incorporated herein by reference.
(5)       Filed as an Exhibit in the Registrant's Annual Report on Form 10-K,
          for the fiscal year ended December 31, 1995 (File No. 0-20191), which
          Exhibit is incorporated herein by reference.
(6)       Filed as an Exhibit in the Registrant's definitive Proxy Statement
          filed in connection with the solicitation of proxies for its 1997
          Annual Meeting of Stockholders (File No. 0-20191), which Exhibit is
          incorporated herein by reference.
(7)       Filed herewith.

                                         20

<PAGE>

                                     SIGNATURES

     Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.

Dated:   March 6, 1998             ODS NETWORKS, INC. 
                                   (Registrant)

                                   By:     /s/ G. Ward Paxton
                                      ------------------------------------------
                                               G. Ward Paxton
                                        Chairman of the Board of Directors,
                                        President and Chief Executive Officer
                                        (Principal Executive Officer)


Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated.


<TABLE>
<CAPTION>
<S>                               <C>                                         <C>
        SIGNATURE                                 TITLE                            DATE     
        ---------                                 -----                            ----     

 /s/ G. Ward Paxton                Chairman of the Board of Directors,        March  6, 1998
----------------------------       President and Chief Executive Officer
     G. Ward Paxton                   (Principal Executive Officer)


 /s/ Timothy W. Kinnear         Vice President and Chief Financial Officer    March  6, 1998
----------------------------           (Principal Financial Officer)
     Timothy W. Kinnear


 /s/ Kandis Tate Thompson          Controller - Finance and Accounting        March  6, 1998
----------------------------         (Principal Accounting Officer)
     Kandis Tate Thompson


 /s/ T. Joe Head                           Senior Vice President              March  6, 1998
----------------------------                  and Director
     T. Joe Head


 /s/ Robert Anderson                            Director                      March  6, 1998
----------------------------
     Robert Anderson


 /s/ J. Fred Bucy                                Director                     March  6, 1998
----------------------------
     J. Fred Bucy


 /s/ Donald M. Johnston                          Director                     March  6, 1998
----------------------------
     Donald M. Johnston

</TABLE>

                                         21

<PAGE>

                                                                     SCHEDULE II

                                 ODS NETWORKS, INC.

                         VALUATION AND QUALIFYING ACCOUNTS
                                   (IN THOUSANDS)

<TABLE>
<CAPTION>

                                  Balance at   Charged to                 Balance
                                   Beginning    Costs and                at End of
     Description                   of Period    Expenses    Deductions     Period
     -----------                  ----------   ----------   ----------   ---------
<S>                               <C>          <C>          <C>          <C>
Year ended December 31, 1995:

Deducted from asset accounts:
  Allowance for Doubtful Accounts
    and Returns                      $   356      $   382      $   121**   $   617
  Inventory Obsolescence Reserve     $   306      $ 1,989      $ 1,664*    $   631


Year ended December 31, 1996:

Deducted from asset accounts:
  Allowance for Doubtful Accounts
    and Returns                      $   617      $   227      $    22**   $   822
  Inventory Obsolescence Reserve     $   631      $ 2,421      $ 1,067*    $ 1,985


Year ended December 31, 1997:

Deducted from asset accounts:
  Allowance for Doubtful Accounts
    and Returns                      $   822      $    86      $   150**   $   758
  Inventory Obsolescence Reserve     $ 1,985      $ 7,693      $ 7,484*    $ 2,194
</TABLE>


--------------------------------------------------------------------------------


*    Obsolete inventory written off.
**   Uncollectible accounts written off.


                                        S-1

<PAGE>

<TABLE>
<CAPTION>

                                 INDEX TO EXHIBITS

EXHIBIT
NUMBER      DESCRIPTION OF EXHIBIT
------      ----------------------
<S>         <C>                    
3.1(1)      Certificate of Incorporation of the Registrant.
3.2(1)      Bylaws of the Registrant.
4.1(2)      Specimen of Common Stock Certificate.
10.1(3)     Lease Agreement, dated September 12, 1989, between G.D.A.F.
            Associates and the Registrant for the Registrant's headquarters and
            executive office building.
10.2(3)     1983 Incentive Stock Option Plan of ODS Networks, Inc. (formerly
            Optical Data Systems, Inc.), as amended.
10.3(3)     1987 Incentive Stock Option Plan of ODS Networks, Inc. (formerly
            Optical Data Systems, Inc.), as amended.
10.4(3)     Copy of Stock Option granted to Robert Anderson.
10.5(3)     Form of Indemnification Agreement.
10.6(7)     Amended and Restated ODS 401(k) Savings Plan, effective April 1,
            1997.
10.7(7)     Amendment to the ODS 401(K) Savings Plan, effective November 1,
            1997.
10.8(4)     1995 Stock Option Plan of ODS Networks, Inc. (formerly Optical Data
            Systems, Inc.)
10.9(4)     1995 Non-Employee Directors Stock Option Plan of ODS Networks, Inc.
            (formerly Optical Data Systems, Inc.)
10.10(7)    Third Amended and Restated Revolving Credit Loan Agreement, dated
            December 31, 1997, between NationsBank of Texas, N.A. (formerly,
            NCNB Texas National Bank) and the Registrant.
10.11(5)    Supplemental Lease Agreement, dated March 7, 1995, between G.D.A.F.
            Associates, subsequently assigned to CIIF Associates II Limited
            Partnership, Landlord, and the Registrant, as Tenant, relative to
            the Registrant's headquarters and executive office building.
10.12(6)    1997 Employee Stock Purchase Plan of ODS Networks, Inc. (formerly
            Optical Data Systems, Inc.).
13(7)       Annual Report to Stockholders of the Registrant for the fiscal year
            ended December 31, 1997, to the extent specified in Parts II, III
            and IV hereof.
21(7)       Subsidiaries of the Registrant.
23(7)       Consent of Independent Auditors. 
27(7)       Financial Data Schedule. 

-----------------------------------
</TABLE>

  (1)    Filed as an Exhibit in the Registrant's Current Report on Form 8-K
         dated November 6, 1995 (Date of Earliest Event Reported:  October
         31, 1995; Commission File No. 0-20191), which Exhibit is
         incorporated herein by reference.
  (2)    Filed as an Exhibit in the Registrant's Current Report on Form 8-K
         dated May 7, 1997 (Date of Earliest Event Reported:  April 24, 1997;
         Commission File No. 0-20191), which Exhibit is incorporated herin by
         reference.
  (3)    Filed as an Exhibit in the Registrant's Registration Statement on
         Form S-1, as amended (File No. 33-6899) which was declared effective
         on May 21, 1992, by the Securities and Exchange Commission, which
         Exhibit is incorporated herein by reference.
  (4)    Filed as an Exhibit to the Registrant's definitive Proxy Statement
         in connection with the solicitation of proxies for its 1995 Annual
         Meeting of Stockholders (File No. 0-20191), which Exhibit is
         incorporated herein by reference.
  (5)    Filed as an Exhibit in the Registrant's Annual Report on Form 10-K,
         for the fiscal year ended December 31, 1995 (File No. 0-20191),
         which Exhibit is incorporated herein by reference.
  (6)    Filed as an Exhibit in the Registrant's definitive Proxy Statement
         filed in connection with the solicitation of proxies for its 1997
         Annual Meeting of Stockholders (File No. 0-20191), which Exhibit is
         incorporated herein by reference. 
  (7)    Filed herewith.