<PAGE>   1
                                    FORM 10-K

                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

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

                   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

      For the transition period from               to
                                     -------------    -------------

                         Commission file number 0-25936

                               USDATA CORPORATION
                               ------------------
             (Exact name of registrant as specified in its charter)

            Delaware                                     75-2405152
(State or other jurisdiction of                      (I.R.S. Employer
 incorporation or organization)                     Identification No.)

                           2435 N. Central Expressway
          Richardson, Texas                                 75080
(Address of principal executive offices)                  (Zip Code)

        Registrant's telephone number, including area code (972) 680-9700

           Securities registered pursuant to Section 12(b) of the Act:

<TABLE>
<CAPTION>
Title of each class                            Name of each exchange on
                                                       which registered
<S>                                            <C>
None                                                    Not applicable
---------                                               --------------
</TABLE>

           Securities registered pursuant to Section 12(g) of the Act:

                     Common Stock, par value $.01 per share
                     --------------------------------------
                                (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 (20 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 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. [ ]

    The aggregate market value of voting and non-voting common equity held by
   non-affiliates of the registrant as of February 27, 1998, was approximately
     $54,724,120 based on the sale price of the Common Stock on February 27,
       1998, of $4.9375 as reported by the NASDAQ National Market System.

  As of February 27, 1998, the registrant had outstanding 11,083,366 shares of
                  its Common Stock, par value $.01 per share.

                       DOCUMENTS INCORPORATED BY REFERENCE

  Portions of the Proxy Statement for the Annual Meeting of Stockholders to be
     held on June 1, 1998 are incorporated herein by reference in Part III,
                            Items 10, 11, 12 and 13.



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<PAGE>   2

                               USDATA CORPORATION
                                    FORM 10-K
                      FOR THE YEAR ENDED DECEMBER 31, 1997

ITEM 1.   BUSINESS

GENERAL

         USDATA Corporation (the "Company") is a global supplier of real-time
manufacturing application software and development tools, and related consulting
services. The Company's products and services help automate manufacturing and
process control applications. Its real-time data management capabilities enable
customers to reduce operating costs, shorten cycle times, improve product
quality and increase productivity. The Company's products are noted for
high-performance, ease-of-use and support of enterprise computing environments.
The Company's customers are in a wide variety of industries, including chemical,
oil and gas, food, beverage, automotive, aerospace, telecom, electronics,
transportation and other industries.

         The Company produces automation software tools that enable an
organization's information systems to supervise, monitor and control
manufacturing and other automated processes and to interface with management
information systems (the "Software Operations"). The Company's family of
software products, marketed under the name FactoryLink ECS(R), provides a
powerful set of software tools designed for users who are technically competent
but who may not be experienced software programmers.

         The Company has announced its intention to dispose of its system
integration and hardware servicing business (the "Systems Operations"). This
business has historically been engaged in the design and turnkey implementation
of integrated third-party data collection systems that allow remote, real-time
data collection using a variety of automatic identification ("Auto ID")
techniques. The Company has employed various technologies in its Systems
Operations, including supervisory and network management software, to add value
to the hardware components of its turnkey solutions. In addition the Company has
provided maintenance support and spare parts for the hardware components of its
turnkey solutions.

         As a result of the decision to dispose of the Systems Operations, the
Company's revenues and operating expenses for the years presented herein reflect
only the Software Operations with the net results of the Systems Operations
reported as a single line item entitled income from discontinued operations.

         During the year ended December 31, 1997, the Company's Software
Operations generated $ 22.4 million of net sales.

SOFTWARE OPERATIONS

Overview

         In its Software Operations, the Company develops, markets and supports
software products for customers requiring enterprise-wide, open systems
solutions for supervising, monitoring and controlling data intensive
manufacturing or other automated processes. The Company's software products
enable customers to develop real-time client/server computer applications that
provide interactive, dynamic and graphical interfaces to a manufacturing or
other automated process. These applications gather, analyze and display
information about an automated manufacturing process, typically drawn from
complex operating sources or from multiple sites throughout an enterprise, and
enable the user to interact with and control plant-wide



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<PAGE>   3

processes. The real-time information provided by the Company's products enables
customers to reduce operating costs, improve product quality and increase
overall throughput and productivity.

         The Company's core software product, FactoryLink ECS, is a family of
object oriented application components used to develop custom supervisory
control and data acquisition ("SCADA") and human machine interfaces ("HMI") for
the supervision and control of a broad range of automated processes. FactoryLink
communicates with automation equipment, such as programmable logic controllers
("PLCs"), and provides supervisory and control functions such as monitoring,
data gathering, data trending, statistical process control, alarming and
reporting of real-time and historical data as well as interactive, dynamic color
graphics. The following are several of the distinguishing features of
FactoryLink:

         Open Architecture - FactoryLink ECS's proprietary open systems
architecture enables customers to develop their own applications for specific
manufacturing and process automation tasks independent of operating systems or
network protocols;

         Multiple User Architecture - Running under Microsoft NT, FactoryLink
ECS seamlessly supports multiple interactive concurrent users on the same
server, all having independent control capabilities, which reduces the number of
network servers required;

         Superior Speed and Performance - FactoryLink is capable of processing
in real-time, up to 2,000,000 discrete pieces of data, or "tags," a feature that
supports complex systems;

         Relational Database Management System Interfaces - FactoryLink ECS
supports the most widely used relational databases and permits simultaneous
access to multiple databases from a single source;

         Object Oriented Programming - FactoryLink's proprietary reusable
compound objects, called PowerObjects which encapsulate Visual Basic and allow
users to condense multiple, complex instructions into a single action and
thereby to increase the user' s productivity; and

         Scalability and Ease of Use - FactoryLink ECS has virtually unlimited
scalability and provides easy to use functionality in an open type environment.

Background and Market Demand

         As companies increasingly automate their manufacturing facilities and
seek to drive costs out of their business, they have become more aware of the
importance of accurate and timely data capture on the factory floor and its use
in decision-making throughout the manufacturing enterprise. Manufacturers
require cost-effective systems to connect the islands of information that have
characterized manufacturing automation throughout the 1980s and early 1990s. In
today' s market, because of rapidly advancing technologies, the proliferation of
new products, consolidation and globalization of industries and the increasing
need for higher productivity and quality, customers are relying on application
software vendors to provide open, flexible solutions that can easily accommodate
and manage these challenges.

         The Company believes that the FactoryLink ECS software package with its
real-time, open systems architecture, multi-platform and strong relational
database interface capabilities is well positioned at the supervisory control
level of the automation software market. The proliferation of PLCs continues to
increase the need to collect, analyze and utilize business information on a
real-time basis to optimize various business processes. At the same time, with
developing enterprise-wide information systems connecting divisions or other
business units that develop information systems autonomously, businesses are
increasingly confronted by the need to accommodate disparate operating systems
or to undertake their wholesale replacement with



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<PAGE>   4

the attendant costs and conversion risks. As corporations using disparate
operating systems and technologies re-engineer their businesses, reduce staff
and strive to improve cycle time characteristics, while handling ever-increasing
volumes of information, the requirement for high performance, real-time, open
architecture software becomes increasingly important.

         The worldwide market for real-time industrial automation software
products that could be served by the Company is estimated to have been $334
million in 1997, and is estimated to grow approximately 13% annually according
to studies by Automation Research Corporation.


Products

         The Company's core software products are its FactoryLink ECS family of
application software development tools. FactoryLink utilizes an open systems
architecture made possible by the Company's patented "Open Software Bus," an
innovative architecture for real-time application software. The Open Software
Bus is comprised of interchangeable FactoryLink ECS modules and a real-time
database through which all modules link and communicate. Because the modules are
independent of hardware and software standards, the customer's application is
also insulated from changes in these underlying standards and from changes in
hardware and network operating environments. ECS Lite provides scaled down
systems on the Windows platforms designed to support smaller MMI and OEM
applications.

During the second quarter of 1997, the Company introduced WebClient, which
provides the ability to view and control any FactoryLink ECS server running
Microsoft Windows NT using a simple Web browser. WebClient is written as an
Active X control and can be inserted into any compatible Active X enabled
application. This product allows users to access and control FactoryLink servers
across an Intranet or the Internet.

         The FactoryLink ECS software enables a customer to:

o    Create easy to use, real-time supervisory control applications that provide
     dynamic graphical representations of manufacturing and other automated
     processes;

o    Design, test and build an automation application without computer
     programming knowledge through the use of an interactive graphical
     interface, pull-down menus, mouse-driven, point-and-click commands and
     fill-in-the-blank configuration tables;

o    Develop automation applications that are portable and scaleable from
     low-end to high-end systems;

o    Deploy completed applications easily and economically throughout an
     enterprise that may use different types of computer hardware and operating
     systems;

o    Provide an upgrade path by allowing easy modification of applications in
     response to customers' changing business needs; and

o    Maintain completed applications in an efficient and cost effective manner.

         FactoryLink ECS's architecture permits the user to pick and choose the
exact functionality required for a particular application. It allows the user to
design high performance, real-time systems capable of handling large amounts of
data. Techniques for exception processing, message compression and high-speed
data transfer achieve optimal functionality under this architectural
arrangement.



                                       4
<PAGE>   5

         In addition, FactoryLink ECS's open systems architecture enables
customers to use without modification the same FactoryLink ECS application on a
wide variety of major computer platforms, operating systems, graphical user
interfaces (GUI), relational database management systems (RDBMS), networking
protocols, proprietary control equipment interface standards and other
underlying hardware and software. FactoryLink ECS runs on Microsoft's Windows
NT, Windows 95, IBM's OS/2(R), and various versions of UNIX platforms such as
IBM's AIX(TM), Hewlett-Packard's HP-UX(TM), Sun Solaris and DEC UNIX.

         In late 1997 the Company began beta-testing its latest real-time
application server product, FactoryLink ECS 6.5 for Microsoft Windows NT and
Windows 95. This product provides a number of enhancements and was released for
general distribution in February 1998. Over the past several years, Windows NT
and Windows 95 have emerged as the dominant operating systems used for
FactoryLink ECS, and in 1997 over 80% of all FactoryLink ECS shipments were for
these operating system environments. As a result, the Company has made a
decision to focus nearly all future product development on products intended for
these operating systems.

         FactoryLink ECS 6.5 provides Year 2000 compliance, as will all future
USDATA product releases. The Company has a long heritage in the industrial
automation software business and intends to release Year 2000 compliant versions
on all FactoryLink platforms including DOS, UNIX and OS/2. To provide the
Company's customers with a convenient means to obtain information regarding Year
2000 compliance of its products, the Company maintains a Web site
(www.usdata.com) with the latest information regarding Year 2000 compliance for
its products, including a statement of what it means when a product is
designated as Year 2000 compliant.

Marketing, Sales and Distribution

         The Company's sales and support organization includes channel
management personnel and a corporate telemarketing group for lead generation, as
well as authorized value-added resellers, systems integrators, original
equipment manufacturers, independent software vendors and distributors worldwide
that acquire licenses for the Company's products at a discount for remarketing
and may provide training and consulting services to end-users. The Company's
sales and support organization is therefore able to combine its internal
resources with the resources, expertise and customer base of qualified
third-party integrators, remarketers and distributors.

         The Company's internal sales and marketing organization for its
Software Operations consists of 74 persons as of December 31, 1997 and is based
in Richardson, Texas. The Company has field sales locations in 9 other cities in
the United States and in Belgium, England, Denmark, Germany, France, Italy and
Singapore.

         Historically, the Company has sought to promote cooperative sales
efforts and to minimize channel conflicts through a geographical team approach
and a compensation system that rewards sales personnel for total sales generated
by all channels in their respective territories. During the latter part of 1997,
the Company adopted a sales and marketing strategy directed at specific vertical
industry groups. At the same time, the Company has de-emphasized its direct
sales activities and is increasing its efforts in developing and enhancing its
relationships with key distributors and VAR's capable of providing the level of
support and expertise required in the real-time manufacturing and process
control application within the vertical industry groups. The Company believes
that working through key partners at the distribution level will enhance its
ability to provide products and services best suited for its targeted customers.

         Through all of its sales channels, the Company seeks to attract
potential customers with a solutions approach of meeting their strategic,
enterprise-wide needs of supervising, monitoring and controlling their
manufacturing and automated processes. The Company deploys a sales staff




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<PAGE>   6

which can be consultative regarding enterprise wide applications and integration
services when specific integration or process jobs are being discussed.

         In support of its sales efforts, the Company conducts comprehensive
marketing programs that include direct mail, public relations, advertising,
seminars, trade shows and ongoing customer communications programs. The Company
sponsors user groups and user product direction committees as a source of
feedback about its customers' needs. The Company also seeks to stimulate
interest in its products and to keep its customers informed of advances in
application development technology through demonstrations, promotional seminars,
publications, technical notes and newsletters.

Customer Service

         The Company believes a high level of customer service and technical
support is critical to customer satisfaction, especially since many of the
Company's customers use FactoryLink to develop complex, large-scale applications
on which the success of their organizations may depend. The Company has
established, and intends to continue to enhance and expand, an integrated,
highly-skilled customer service and technical support organization and a
worldwide base of authorized third-party trainers and consultants.

         In addition to field sales and technical support, the Company provides
telephone customer service support staffed by experienced personnel who are
available to answer customers' technical questions. Annual software support
agreements are available to customers in various forms. Many value-added
resellers and systems integrators that sell the Company's products also offer
post-sale customer support. The Company also sponsors a software forum on the
CompuServe on-line information service.

         The Company provides customer support for its products on the Web,
allowing users access to the latest software fixes, FAQ's (frequently asked
questions), detailed examples and most importantly, on-line trouble
shooting/problem submission. The Company also maintains a FactoryLink Certified
Integrator Program. Members of this program have specific vertical market and
industry expertise, established relationships with prominent hardware and
software vendors and a track record of quality products and successful
application implementations.

         The Company offers comprehensive training classes to customers and
third-party remarketers. Training classes are offered through in-house training
facilities in Richardson, Texas and in Brussels, Belgium and through its
authorized training partners throughout the world. The training curriculum is a
comprehensive program of application development training in a hands-on
lab-based training environment. The Company can also provide on-site training
when required by customers.

Customers

         Since the introduction of the FactoryLink software product in 1986, the
Company has licensed more than 26,000 copies of the product worldwide for use in
the chemical, oil and gas, food, beverage, public utility, pharmaceutical, pulp
and paper, automotive, aerospace, electronics, telecommunications, water
treatment, transportation and numerous other industries. Established customers
include Anheuser-Busch Companies, Inc., Ford Motor Company, Goodyear Tire &
Rubber Company, Hewlett-Packard Company, Michelin Tire Corporation and Nestle
Food Company. In the year ended December 31, 1997, no single end-user of the
Company's products accounted for greater than 10% of total net sales.

         Sales to foreign software clients (primarily in Europe) continue to be
a significant source of revenue for the Company. For the year ended December 31,
1997, the Company realized net



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<PAGE>   7

sales from its international operations of $9.9 million (44% of net sales), as
compared with $12.0 million for the comparable 12 month period (50% of net
sales). Virtually all of these international sales were of the Company's
FactoryLink software products. During 1997 the Company released an international
version of FactoryLink ECS 6.0.3, which introduced double-byte functionality
supporting the complex character sets of the Japanese, Chinese and Korean
languages. Additionally, the Company released French and German language
development and run-time versions of FactoryLink ECS. See also Note 9 to Notes
to Consolidated Financial Statements for additional information on export sales.

         The Company has maintained a long-term partner relationship Schneider
Automation. Schneider and its predecessors have been purchasing a private label
and OEM version of FactoryLink from the Company since 1989 and, for the year
ended December 31, 1997 and 1996 accounted for $2.8 million and $1.3 million or
13% and 5%, respectively, of total net sales.

Product Innovation and Development

         The Company's current product development efforts are focused on
maintaining the competitiveness of its current products, including development
of future releases, improvements in the ease of use of its products and creation
of new application modules and development tools. The independence of its
products from underlying hardware platforms, GUIs, RDBMSs, networks and other
technologies and standards gives the Company the flexibility to evaluate a wide
range of new opportunities to expand the current scope of its products. The
Company believes that its future success is substantially dependent on its
product innovation and development efforts, and periodic and timely upgrades to
its software. The Company's utilizes both internal staff and contract
engineering organizations to meet its product development requirements. The
Company's internal product development staff currently consists of approximately
16 employees.

         During the years ended December 31, 1997 and 1996, product development
expenses related to the Company's Software Operations were approximately $ 3.6
million and $ 4.6 million, respectively. In the years ended December 31, 1997
and 1996, the Company expended 16%, and 19%, respectively, of its total net
sales on product development. The Company anticipates that it will continue to
commit substantial resources to product development in the future. See Note 1 to
the Notes to Consolidated Financial Statements for additional information on how
the Company accounts for such costs.

Competition

         The software markets in which the Company participates are intensely
competitive and are subject to rapid changes in technology and frequent
introductions of new computer platforms and software standards. As a result, the
Company must continue to enhance its current products and to develop new
products in a timely fashion to maintain and improve its position in this
industry. The Company competes generally on the basis of product features and
functions, product architecture, the ability to run on a variety of computer
platforms and operating systems, technical support and other related services,
ease of product integration with third party applications software, price and
performance.

         The Company competes with a number of software suppliers, including
Intellution, owned by Emerson Electric, GEF Automation, owned by FEF-Fuanuc,
Rockwell Software, owned by Rockwell Automation and Wonderware Corporation
(which has been publicly owned but in February 1998 announced their agreement to
be acquired by Siebe plc, a UK based company), as well as large PLC and DCS
manufacturers that provide similar software along with their hardware products.
Additionally, certain businesses develop these types of systems internally. Many
of the Company's existing and potential competitors have longer operating
histories and significantly greater financial, technical, sales, marketing and
other resources than the Company. Certain of



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these organizations may also have greater name recognition and a larger
installed product base than the Company. The Company's competitors could
introduce products in the future with more features and lower prices than the
Company's product offerings. These organizations could also bundle existing or
new products with other products or systems to compete with the Company. As the
market for industrial automation and process control software products develops,
a number of companies with significantly greater resources than the Company
could attempt to increase their presence in this market by acquiring or forming
strategic alliances with competitors of the Company.

SYSTEMS OPERATIONS

         The Company's Systems Operations markets, supports and services
third-party Auto ID and data collection equipment. Auto ID is essentially the
entry of data into computers without the need for manual keyboard entry. Bar
coding is the predominant automatic identification technology. The equipment
includes bar code printers, scanners, data terminals and related data collection
devices to improve the speed and accuracy with which businesses capture data for
computer input. Systems Operations also consults with customers on the options
available to meet the customers' specific needs, provides technical advice on
specialized applications and designs, assembles and installs complete systems
on-site and provides related repair and maintenance services. Where appropriate,
the Company combines its own proprietary or other third party vendor software
products with associated Auto ID equipment to provide a turnkey solution to its
customers.

Effective December 31, 1997, the Company adopted a formal plan to dispose of its
Systems Operations and expects to complete the disposal during the first half of
1998. See Note 4 of Notes to Consolidated Financial Statements for additional
information.

BACKLOG

         In its Software Operations, the Company typically ships software
products within a short period of time after acceptance of purchase orders.
Accordingly, the Company typically does not have a material backlog of unfilled
orders for its software products, and revenues in any quarter are substantially
dependent on orders booked in the quarter. Any significant weakening in customer
demand would therefore have an almost immediate adverse impact on the Company's
operating results and on the Company's ability to maintain profitability.

INTELLECTUAL PROPERTY

         The Company holds a patent in the United States covering control
systems that employ the features embodied in its FactoryLink product. The
Company has registered its "USDATA" and "FactoryLink" trademarks with the U.S.
Patent and Trademark office, as well as in several foreign countries.

         The Company regards its software as proprietary and attempts to protect
it with a combination of patent, copyright, trademark and trade secret law,
license agreements, nondisclosure and other contractual provisions and technical
measures. The Company requires employees to sign an agreement not to disclose
trade secrets and other proprietary information.

         The Company's software products are licensed to end customers under a
perpetual non-transferable, nonexclusive license that stipulates which modules
can be used and how many concurrent controllers may use them. The Company relies
primarily on "shrink wrap" licenses for the protection of its FactoryLink
product line. A shrink wrap license agreement is a printed license agreement
included with the packaged software that sets forth the terms and conditions
under



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which the purchaser can use the product and binds the purchaser by its
acceptance and purchase of the software to such terms and conditions. In
addition, in some instances the Company licenses its products under agreements
that give licensees limited access to the source code of the Company's products.

         The Company believes that existing intellectual property laws and other
protective measures afford only limited practical protection for the Company's
software. Furthermore, the laws of some foreign countries do not protect the
Company's proprietary rights to the same extent as do the laws of the United
States. Shrink-wrap licenses typically are not signed by the licensee and
therefore may be unenforceable under the laws of certain jurisdictions.
Accordingly, despite precautions taken by the Company, it may be possible for
unauthorized third parties to copy or reverse-engineer certain portions of the
Company's products or to obtain and use information that the Company regards as
proprietary.

         While the Company's competitive position could be threatened by its
inability to protect its proprietary information, the Company believes that,
because of the rapid pace of innovation within its industry, factors such as the
technological and creative skills of the Company's personnel are more important
to establishing and maintaining a technology leadership position within the
industry than are the various legal protections available for its technology.

         As the number of software products in the industry increases and the
functionality of these products further overlaps, the Company believes that
software programs could increasingly become the subject of infringement claims.
Although the Company's products have never been the subject of an infringement
claim, there can be no assurance that third parties will not assert infringement
claims against the Company in the future or that any such assertion will not
result in costly litigation or require the Company to obtain a license to use
the intellectual property rights of such parties. In addition, there can be no
assurance that such a license would be available on reasonable terms or at all.

EMPLOYEES

         As of December 31, 1997, the Company had approximately 156 full-time
employees. None of the Company's employees is subject to a collective bargaining
agreement, and the Company has not experienced any work stoppage. The Company
believes that its relations with its employees are good.

EXECUTIVE OFFICERS OF THE REGISTRANT

         The executive officers of the Company are elected annually by the Board
of Directors and hold office until their successors are elected and qualified.
The following persons were executive officers of the Company at March 31, 1997:

<TABLE>
<CAPTION>
Name                                Age     Position
-------------------------------------------------------------------------------------------------
<S>                                 <C>     <C>
Robert A. Merry                     48      President and Chief Executive Officer
Robert L. Drury                     51      Vice President, Chief Financial Officer and Treasurer
</TABLE>

       Robert A. Merry - Mr. Merry joined the Company in July of 1997 as
President and Chief Executive Officer. From 1992 through 1997, Mr. Merry served
as President, Process Manufacturing SBU of EDS Corporation. Prior to his service
at EDS, Mr. Merry served as Vice President, Sales and Marketing for DTM
Corporation, from 1991 to 1992 and as Vice President, North American Operations
for Execucom Systems Corporation from 1985 to 1991.



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<PAGE>   10

         Robert L. Drury, - Mr. Drury joined the Company in December 1997 as
Vice President and Chief Financial Officer. He was subsequently elected
Treasurer and Secretary of the Company in February of 1998. From December 1992
until he joined the Company, Mr. Drury was Chief Financial Officer, Vice
President of Finance and Treasurer for Interphase Corporation in Dallas, Texas.
From 1988 to 1992, Mr. Drury was Chief Financial Officer at Ben Hogan Company in
Fort Worth, Texas. From 1983 to 1988, Mr. Drury was Corporate Controller at
Recognition Equipment, Inc. in Dallas, TX.




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<PAGE>   11

ITEM 2.           PROPERTIES

         The Company leases approximately 50,000 square feet of office space and
7,600 square feet of warehouse and depot repair space in Richardson, Texas. The
lease agreement with respect to the office space expires in 2000, and the lease
agreement with respect to the warehouse space expires in 1998. The Company
leases additional office space in major cities in the United States and in
Europe. The Company considers its leased real property adequate for its current
and reasonably foreseeable needs. The Company believes that suitable additional
or alternative space will be available as needed to accommodate the expansion of
corporate operations and additional sales offices.

ITEM 3.           LEGAL PROCEEDINGS

         The Company is involved in various legal actions incidental to the
normal conduct of its business. The Company does not believe that the ultimate
resolution of these actions will have a material adverse effect on the Company.


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

         None.


                                     PART II

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

         The Company's common stock, par value $.01 per share (the "Common
Stock"), has been listed on the Nasdaq National Market since June 16, 1995,
under the symbol "USDC". The following table sets forth, on a per share basis
for the periods shown, the range of high and low closing prices of the Company's
Common Stock compiled from published sources:

<TABLE>
<CAPTION>
                                                      High              Low
                                                      ----              ---
<S>                                                   <C>              <C>
         1997:
         Fourth Quarter                               5.31             3.88
         Third Quarter                                6.00             3.33
         Second Quarter                               6.00             3.00
         First Quarter                                9.00             3.63

         1996:
         Fourth Quarter                              11.50             5.50
         Third Quarter                               19.00             9.50
         Second Quarter                              24.75            17.00
         First Quarter                               18.50            14.50
</TABLE>

         As of December 31, 1997, there were approximately 2,600 beneficial
holders of record of the Company's Common Stock (which amounts do not include
the number of stockholders whose shares are held of record by brokerage houses
or clearing agencies but include each such brokerage house or clearing agency as
one stockholder).



                                       11
<PAGE>   12

DIVIDEND POLICY

         To date, the Company has not paid any cash dividends on its Common
Stock. The Company currently intends to retain future earnings for use in its
business and, therefore, does not anticipate paying any cash dividends in the
foreseeable future. Future dividends, if any, will depend on, among other
things, the Company's results of operations, capital requirements, restrictions
in loan agreements and financial condition and on such other factors as the
Company's Board of Directors may, in its discretion, consider relevant.

ITEM 6.           SELECTED FINANCIAL DATA

         The following table presents selected financial information relating to
the financial condition and results of operations of the Company and should be
read in conjunction with the financial statements and notes included herein.

<TABLE>
<CAPTION>
                                                                                               Ten Month
                                                                                              Fiscal Year
                                                                                                 Ended
                                                               Years Ended December 31,         December     Year Ended
                                                        ------------------------------------       31,       February 28,
                                                          1997          1996           1995        1994         1994
                                                        ------------------------------------  ---------------------------
<S>                                                     <C>           <C>           <C>          <C>          <C>
STATEMENT OF OPERATIONS DATA
(in thousands, except per share data)

Net sales                                               $ 22,381      $ 23,885      $ 24,407     $ 18,019     $ 18,240

Income (loss) from continuing operations                  (3,907)       (2,650)          760        1,337        1,519

Net income (loss)                                       $ (3,690)     $ (1,056)     $  1,626     $  2,689     $  3,204

Income (loss) per share from continuing operations:
   Basic                                                $  (0.35)     $  (0.24)     $   0.08     $   0.13     $   0.15
   Diluted                                              $  (0.35)     $  (0.24)     $   0.08     $   0.12     $   0.13

BALANCE SHEET DATA
(in thousands)

Total assets                                            $ 19,254      $ 21,717      $ 21,116     $  9,087     $ 12,609

Long term debt, including current portion                     --            --            --        4,000           --

Stockholder' equity                                     $ 13,873      $ 16,648      $ 17,331     $  2,024     $  9,856
</TABLE>

Effective March 1, 1994, the Company changed its fiscal year-end from February
28 to December 31.


                                       12
<PAGE>   13

Effective December 31, 1997, the Company's board of directors approved a plan to
discontinue its Systems Operations. All financial data presented has been
restated to reflect the discontinuance of these operations.

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


OVERVIEW


USDATA Corporation (the "Company") is a global supplier of real-time
manufacturing application software and development tools, and related consulting
services. The Company's products and services help automate manufacturing and
process control applications. Its real-time data management capabilities enable
customers to reduce operating costs, shorten cycle times, improve product
quality and increase productivity. Specifically, the Company produces automation
software tools, marketed under the name FactoryLink(R), that enable an
organization's information systems to supervise, monitor and control
manufacturing and other automated processes and to interface with corporate
information systems (the "Software Operations").

The Company currently derives all of its net sales from the Software Operations.
The Software Operations' net sales are generated substantially from licenses of
the FactoryLink family of products and also from related integration services,
training classes, technical support and service agreements. These support and
services agreements are generally one-year, renewable contracts entitling a
customer to certain software upgrades and technical support. Support and service
revenue represented 11.0%, 9.5% and 7.0% of Software Operations' net sales
during the years ended December 31, 1997, 1996, and 1995, respectively.

During 1997, the Company released several significant new products, including
the international release of FactoryLink ECS 6.0.3, which introduced double-byte
functionality supporting the complex character sets of the Japanese, Chinese and
Korean languages. Additionally, the Company released French and German language
development and run-time versions of FactoryLink ECS. The Company also announced
the worldwide release of FactoryLink ECS WebClient, which provides the ability
to view and control any FactoryLink ECS server running Microsoft Windows NT
using a simple Web browser. In the latter part of 1997 the Company was in beta
test with FactoryLink ECS 6.5 for Microsoft Windows NT and Windows 95. This
real-time information platform supports powerful client access environments and
technologies and provides full Year 2000 compliance. This product was
subsequently released for general distribution in February 1998.

During the year, the Company has also restructured its European operations and
hired a new managing director based in the United Kingdom. Also, effective July
30, 1997, the Company announced the appointment of Robert A. Merry as its new
president and chief executive officer. In addition, in early December 1997, the
Company announced the appointment of Robert L. Drury as vice president finance
and chief financial officer. The Company is currently implementing a new
strategic plan focused on leveraging its industry leading real-time software
product capabilities and expanding its software products to include related MES
(Management Execution Systems) capabilities. Under the new strategy, the Company
will focus its efforts toward specific industry vertical markets the Company
believes will offer the greatest revenue and profit growth potential.

The Company has historically employed multiple channels of distribution which
combined the Company's direct sales and support resources with qualified
third-party remarketers. As part of its new strategic plan, the Company will
channel its sales efforts through selected distributors and



                                       13
<PAGE>   14

VARs capable of providing the level of support and expertise required in the
real-time manufacturing and process control application market. The Company
currently has nine sales locations in the United States. The Company also sells
internationally through seven field locations and a network of distributors and
value added-resellers. Export sales are a significant element of the Company's
activities and, in the year ended December 31, 1997, 1996 and 1995, represented
44%, 50% and 46%, respectively, of total net sales.

In early 1998, the Company disclosed its intention to dispose of its system
integration and hardware servicing business (the "Systems Operations"). This
business has historically been engaged in the sale of automatic identification
(Auto ID) equipment, distributed management software and related integration
services that allow remote, real-time data collection using a variety of
automatic identification techniques. The System Operations' net sales are
generated from sales of third-party automated data collection equipment,
distributed management software and related repair, installation and integration
services. As a result of this decision, the Company's revenues and operating
expenses for the years presented herein reflect only the Software Operations
with the net results of the Systems Operations reported on its statements of
operations as a single line item entitled income from discontinued systems
operations. The Company does not currently anticipate it will incur either a
loss on disposal or from operations until the time of disposal of the Systems
Operations and has not therefore accrued for any such loss as of December 31,
1997.

RISKS AND UNCERTAINTIES

Except for the historical information contained herein, the matters discussed
are forward-looking statements that involve risks and uncertainties. Potential
risks and uncertainties include, but are not limited to, the following:

Rapid Technological Change - The market for computer software in general is
characterized by rapid changes in computer hardware and software technology and
is highly competitive. The Company's future success will depend upon its ability
to enhance its current products and to develop and introduce new products that
keep pace with technological developments, respond to evolving end-user
requirements and achieve market acceptance. There can be no assurance that the
Company will be successful in developing new products or product enhancements on
a timely basis or in a manner that satisfies customers' needs or achieves market
acceptance.

Dependence on Principal Product Families - The Company currently derives
substantially all of its Software Operations' net sales from licenses of the
Company's FactoryLink ECS family of products and related support services. While
the Company plans on broadening its product families, it expects that
FactoryLink ECS products will continue to account for a substantial portion of
its Software Operations' net sales.

Intense Competition - Some of the Company's current and potential competitors
have longer operating histories and significantly greater financial, sales,
marketing, technical and other competitive resources than the Company. In
addition, some of the Company's competitors have been or could be acquired by
larger, stronger companies, thus increasing their competitive resources. There
can be no assurance that such competitors will not be better positioned to adapt
more quickly than the Company to new technologies and changes in customer
requirements or to devote greater resources that the Company to the promotion
and sales of products. The Company's competitors may also increase their efforts
to gain and retain market share through competitive pricing.

Timing of Sales - The Software Operations of the Company have historically
operated with little backlog because software products are shipped as orders are
received. A significant portion of the Company's operating expenses is
relatively fixed in nature and planned expenditures are



                                       14
<PAGE>   15

based primarily on sales forecasts. If net sales do not meet the Company's
expectations in any given quarter, operating results may be adversely affected.
In addition, the loss of a significant customer, the addition of a new large
customer, or changes in seasonal patterns of capital spending by customers of
the Company would affect the Company's financial results.

Dependence on Key Personnel - The Company believes its future success depends to
a significant extent upon the efforts and abilities of its senior management,
certain members of which have only recently joined the Company, as well as its
ability to attract, retain and motivate highly skilled employees, contractors
and other senior personnel. In particular, the marketplace for skilled,
technical employees and contractors in the Company's business is extremely
competitive. Although the Company expects to be able to attract and retain
sufficient numbers of highly skilled employees and contractors for the
foreseeable future, there can be no assurance that the Company will be able to
do so.


RESULTS OF OPERATIONS

The following table sets forth for the periods indicated selected statements of
operations data as a percentage of net sales:

<TABLE>
<CAPTION>
                                                          Years Ended December 31,
                                                      --------------------------------
                                                      1997          1996          1995
                                                      ----          ----          ----
<S>                                                   <C>           <C>           <C>
Net sales                                             100.0%        100.0%        100.0%
Cost of sales                                          12.5           7.9           4.2
                                                    -------       -------       -------
Gross profit                                           87.5          92.1          95.8
Operating expenses
    Selling                                            72.6          75.9          57.5
    Product development                                16.0          19.2          19.5
    General and administrative                         26.7          15.9          14.6
                                                    -------       -------       -------
 Total operating expenses                             115.3         111.0          91.6
                                                    -------       -------       -------
Income (loss) from operations                         (27.8)        (18.9)          4.2
Interest income                                         1.4           1.9           0.6
                                                    -------       -------       -------
Income (loss) before income taxes
    from continuing operations                        (26.4)        (17.0)          4.8
Income tax (provision) benefit                          9.0           5.9          (1.7)
                                                    -------       -------       -------
Income (loss) from
    continuing operations                             (17.4)        (11.1)          3.1
Income from discontinued systems
    operations                                          1.0           6.7           3.5
                                                    -------       -------       -------

Net income (loss)                                     (16.4)%        (4.4)%         6.6%
                                                    =======       =======       =======
</TABLE>

COMPARISON OF TWELVE MONTHS ENDED DECEMBER 31, 1997 AND 1996

Net sales for 1997 were $22.4 million, a decrease of $1.5 million or 6.3%
compared to 1996. During 1997, the Company continued to experience growth in its
products for the Microsoft Windows NT and Windows 95 platforms while products
for Unix and other operating systems platforms declined compared to 1996. The
net result of this product mix shift was lower average selling prices for the
Company's products which adversely affected overall revenues in 1997. Product
sales for the Windows NT and Windows 95 markets represented approximately 80%
and 60% of software product sales for 1997 and 1996, respectively. North
American sales increased by 5% while International sales declined 18% in 1997
compared to 1996. International sales declined primarily related to the
Company's European operations, particularly in the United



                                       15
<PAGE>   16

Kingdom, Belgium and Germany. International sales were 44% and 50% of total
sales, for 1997 and 1996, respectively.

Gross profit declined from 92.1% in 1996 to 87.5% in 1997. This decline was
partially the result of increased amortization of capitalized software
development costs. In addition, while the cost of producing and distributing
software generally does not vary due to any specific operating system, gross
profit margins were adversely affected by the declining average selling prices
of the Company's products as discussed above.

During 1997, the Company effected an operating expense reduction program
including the elimination of certain nonessential positions. As a result of this
program, selling expenses as a percent of sales decreased from 75.9% in 1996 to
72.6% in 1997 or $1.9 million.

Product development expenses (exclusive of capitalized software development
costs), which consisted primarily of labor costs, decreased $1.0 million or 22%
in 1997 compared to 1996. Actual product development expenditures, including
capitalized software development costs of $2.2 million in 1997 and $.9 million
in 1996, increased $.3 million or 5% in 1997 compared to 1996. The increase in
absolute dollars is primarily due to the development efforts on FactoryLink ECS,
for both the Windows NT and Windows 95 platforms, as well as the development of
the double-byte functionality supporting the Japanese, Chinese and Korean
languages.

General and administrative expenses increased $2.2 million or 58% in 1997
compared to 1996. As a percent of sales, general and administrative expenses
increased to 26.7% in 1997 versus 15.9% in 1996. The increase over 1996 was
primarily attributable to increased provisions for bad debt expense,
organizational restructuring expenses, and higher information technology
expenses.

The Company experienced a loss from continuing operations of $3.9 million in
1997 versus a loss of $2.7 million in 1996. The increase in the loss from
continuing operations was primarily generated by a decline of $2.4 million in
gross profit due to lower overall net sales and decreased gross profit margins,
partially offset by reduced operating expenses.

Income from discontinued operations declined from $1.6 million in 1996 to $.2
million in 1997. The reduction in profitability was primarily driven by lower
revenues partially offset by lower operating expenses.


COMPARISON OF TWELVE MONTHS ENDED DECEMBER 31, 1996 AND 1995

Net sales for 1996 were $23.9 million, a decrease of $.5 million or 2.1%
compared to 1995. The overall decline in software revenues from 1995 to 1996 was
caused by the introduction and customer evaluation of FactoryLink ECS. In the
latter part of the first quarter of 1996, the Company began marketing
FactoryLink ECS (FLECS) for PC platforms and released the product on UNIX and
Sun platforms in the fourth quarter of 1996. During the second and third
quarters of 1996, the Company experienced significant declines in software
revenue while sales personnel and the distribution network were trained on the
new product. Current and potential customers delayed new purchases of older
versions while evaluating the new product.

Gross profit declined from 95.8% in 1995 to 92.1% in 1996. Products sold for the
Microsoft Windows NT and Windows 95 markets generally have lower average prices
than those for other (primarily UNIX based) operating systems, while the cost of
producing and distributing software generally does not vary due to the operating
system. During 1996, products sold for the Windows NT and Windows 95 markets
represented a greater percentage of total net sales than in 1995.



                                       16
<PAGE>   17

Selling expenses as percent of sales increased to 75.9% in 1996 from 57.5% in
1995 or $4.1 million. Higher costs were incurred to increase the awareness of
the Company's products including the promotion of FactoryLink ECS in
anticipation of increased sales. These expenditures included advertising,
international and domestic trade shows, demonstration CD's, sales collateral
material, seminars and travel and training expenses for new sales people.

Product development expenses (exclusive of capitalized software development
costs), which consist primarily of labor costs, decreased $.2 million or 4% in
1996 compared to 1995. Actual product development expenditures, including
capitalized software development costs of $884 in 1996 and $524 in 1995,
increased $.2 million or 3% in 1996 compared to 1995. The increase in absolute
dollars is primarily due to the development efforts on FactoryLink ECS, in both
the PC and UNIX platforms as well as the translation of FLECS into French and
German languages.

General and administrative costs increased $.2 million or 6% in 1996 compared to
1995. As a percent of sales, general and administrative increased to 15.9% in
1996 versus 14.6% in 1995. The increase over 1995 is primarily attributable to
higher travel, compensation and professional fees. The increase as a percent of
sales is due to the increased expenses noted above and lower than anticipated
net sales.

The Company experienced a loss from continuing operations of $2.7 million in
1996 versus income of $.8 million in 1995. The loss was primarily generated by
$1.4 million lower gross profit due to lower overall net sales and decreased
gross margins, and $4.1 million higher selling expenses.

Income from discontinued operations increased from $.9 million in 1995 to $1.6
million in 1996. The increase in profitability was primarily due to decreased
selling expenses partially offset by lower gross profits due to decreased sales.


LIQUIDITY AND CAPITAL RESOURCES

For the year ended December 31, 1997, operating activities provided $1.6 million
of cash, an increase of $3.2 million from 1995. This increase reflected improved
collections of accounts receivable and receipt of an income tax refund of $1.1
million. During 1997, the Company invested $1.3 million in capital equipment,
primarily computers, and $2.2 million in capitalized software development costs.

The Company had a $5.0 million revolving line of credit which expired in June
1997. The Company did not have any borrowings under the facility during 1997.

Prior to its initial public offering of common stock in 1995, the Company had
financed its operations through a combination of cash flow from operations, bank
lines of credit and private equity financing. In the third quarter of 1995, the
Company received $13.6 million of net proceeds from an initial public offering
of 2,926,180 shares of its common stock. The Company used a portion of the
proceeds for repayment of notes payable and for capital expenditures,
principally for computer equipment. The Company anticipates that capital
expenditures will be approximately $.4 million in 1998. During the year ended
December 31, 1997, the Company continued to invest in software development
projects, resulting in $2.2 million of software capitalization.

The Company currently anticipates that its available cash, together with cash
generated from operations, will be sufficient to satisfy its operating cash
needs in 1998. The Company is in the process of establishing a new credit
facility which could be used to fund operating and capital requirements should
the business expand more rapidly than expected. The Company is also in the
process of selling the Systems Operations and believes such sale will generate



                                       17
<PAGE>   18



additional cash available for use in the business. In addition, the Company
could consider seeking additional public or private debt or equity financing to
fund future growth opportunities or acquisitions.

IMPACT OF YEAR 2000 ISSUE

The Company is currently addressing the Year 2000 issue, which results from the
fact that many computer programs were previously written using two digits rather
than four to define the applicable year. Programs written in this way may
recognize a date ending in "00" as the year 1900 rather than the year 2000. This
could result in a system failure or miscalculations causing disruptions of
operations. The Company has conducted an assessment of its computer information
systems and believes that it will not need to incur any material expense to
correct its systems which are not Year 2000 compliant on a timely basis. The
Company is in the business of providing software products and believes that
current versions of its products either are Year 2000 compliant or will be
revised to be compliant in 1998. The total cost and time which will be incurred
by the Company in its Year 2000 effort and the potential liabilities which may
be incurred due to the Year 2000 issue cannot presently be determined. There can
be no assurance that all necessary work will be completed in time, or that such
costs and liabilities will not materially adversely impact the Company. The
Company is presently addressing the Year 2000 issue with respect to its
customers and is unable to predict the impact (if any) on the Company's business
or financial condition as a result of its customers becoming Year 2000
compliant.

RECENT ACCOUNTING PRONOUNCEMENTS

During 1997, the Financial Accounting Standards Board ("FASB") issued
pronouncements relating to the presentation and disclosure of information
related to comprehensive income (SFAS 130) and segment data (SFAS 131). In 1998,
the FASB issued a pronouncement relating to the disclosure of information about
pensions and other postretirement benefits (SFAS 132). The Company is required
to adopt the provisions of these pronouncements, if applicable, for the year
ending December 31, 1998. The Company does not anticipate the adoption of the
pronouncements will have an impact on the Company's financial position and
results of operations but may change the presentation of certain of the
Company's financial statements and related notes and data thereto.

Also in 1997, the Accounting Standards Executive Committee of the American
Institute of Certified Public Accountants issued a Statement of Position (SOP)
on software revenue recognition (SOP 97-2) that supersedes SOP 91-1. SOP 97-2 is
effective for transactions entered in fiscal years beginning after December 15,
1997. The adoption of SOP 97-2 is not expected to have a material effect on the
Company's financial position or results of operations.



                                       18
<PAGE>   19

ITEM 8.           FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

         The consolidated financial statements and supplementary data of the
Company begins on page F-1 of this report. Such information is hereby
incorporated by reference into this Item 8.


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

         None

                                    PART III

ITEM 10.          DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

         The information called for by Item 10, Directors and Executive Officers
of the Registrant (except for the information regarding executive officers
called for by Item 401 of Regulation S-K which is included in Part I in
accordance with General Instruction G(3)), is hereby incorporated by reference
to the Registrant's definitive Proxy Statement for its Annual Meeting of
Stockholders presently scheduled to be held in May 1998, which shall be filed
with the Securities and Exchange Commission within 120 days of the end of the
Registrant's last fiscal year.


ITEM 11.          EXECUTIVE COMPENSATION

         The information concerning executive compensation and transactions with
management is set forth in the Proxy Statement, which information is
incorporated herein by reference.


ITEM 12.          SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
                  MANAGEMENT

         The information concerning security ownership of certain beneficial
owners and management is set forth in the Proxy Statement, which information is
incorporated herein by reference.

ITEM 13.          CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS

         The information concerning relationships and related transactions is
set forth in the Proxy Statement, which information is incorporated herein by
reference.



                                       19
<PAGE>   20

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

(a) (1)  FINANCIAL STATEMENTS

<TABLE>
<S>                                                                                     <C>
         Report of Independent Accountants for the Years Ended
                  December 31, 1997, 1996 and 1995                                      F-1

         Consolidated Balance Sheets as of
                  December 31,1997 and 1996                                             F-2

         Consolidated Statements of Operations for the Years Ended
                  December 31, 1997, 1996 and 1995                                      F-3

         Consolidated Statements of Cash Flows for the Years Ended
                  December 31, 1997, 1996 and 1995                                      F-4

         Consolidated Statements of Stockholders' Equity for the Years Ended
                  December 31, 1997, 1996 and 1995                                      F-5

         Notes to Consolidated Financial Statements                                     F-6

(a) (2)  FINANCIAL STATEMENT SCHEDULES

         Schedule II - Valuation and Qualifying Accounts                                F-17
</TABLE>

              All other schedules for which provision is made in the applicable
         accounting regulations of the Securities and Exchange Commission are
         not required under the related instructions or are inapplicable and,
         therefore, have been omitted.

(b)      REPORTS ON FORM 8-K

              No reports on Form 8-K have been filed during the last quarter of
         the period covered by this report.


(c)      EXHIBITS

<TABLE>
<CAPTION>
         Exhibit No.       Description
         -----------       -----------
<S>                        <C>
             3.1           Certificate of Incorporation of the Company.*

             3.2           By-laws of the Company.*

             4.1           Specimen stock certificate representing the Common Stock.***

            10.1           1982 Incentive Stock Option Plan.*

            10.2           1992 Incentive and Nonstatutory Option Plan.*

            10.3           1994 Equity Compensation Plan, as amended.*

            10.4           Office Lease Agreement dated as of June 1992, by and between
                           Carter - Crowley Properties, Inc. and the Company.*

            10.5           Full Service Distributor Agreement, dated as of June 1, 1991, by and
                           between the Company and Printronix, Inc.*

            10.6           Employment Agreement, dated as of November 8,
                           1994, between the Company and Bob B. Midyett, Jr.*
</TABLE>


                                       20
<PAGE>   21

<TABLE>
<S>                        <C>
            10.7           Promissory Note, dated February 20, 1995, by William G. Moore, Jr. to
                           the Company.*

            10.8           Administrative Services Agreement between Safeguard Scientifics,
                           Inc. and the Company.***

            10.9           First Amendment to Office Lease Agreement, dated as of June 1992 by and between Carter-Crowley
                           Properties, Inc. And the Company.#

            11.1           Statement regarding computation of earnings per share.#

            21.1           Subsidiaries of the Registrant.*

            23.1           Consent of Price Waterhouse LLP.#

            24.1           Power of Attorney (included on signature page).

            27.1           Financial data schedule.  (EDGAR version only)

            27.2           Restated financial data schedules for the Years ended December 31, 1996 and 1995.  (EDGAR
                           version only)

            27.3           Restated financial data schedules for the interim periods ended March 31, June 30, and
                           September 30, 1997.  (EDGAR version only)

            27.4           Restated financial data schedules for the interim periods ended March 31, June 30, and
                           September 30, 1996.  (EDGAR version only)
</TABLE>

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

#        Filed herewith

*        Filed on April 12, 1995 as an exhibit to the Company's Registration
         Statement on Form S-1 (File No. 33-91124) and incorporated by reference
         herein.

**       Filed on June 1, 1995 and an exhibit to Amendment No. 1 to the
         Company's Registration Statement on Form S-1 (File No. 33-91124) and
         incorporated by reference herein.

***      Filed on June 15, 1995 and an exhibit to Amendment No. 2 to the
         Company's Registration Statement on Form S-1 (File No. 33-91124) and
         incorporated by reference herein.





                                       21
<PAGE>   22

                       REPORT OF INDEPENDENT ACCOUNTANTS



To the Board of Directors and Stockholders
  of USDATA Corporation

In our opinion, the financial statements listed in the index appearing under
Item 14(a)(1) and (2) on pages 20 and 21 present fairly, in all material
respects, the financial position of USDATA Corporation and its subsidiaries
(the Company) at December 31, 1997 and 1996, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1997, in conformity with generally accepted accounting principles.
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 of these financial statements in
accordance with generally accepted auditing standards which require that we
plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for the opinion expressed above.




PRICE WATERHOUSE LLP

Dallas, Texas
February 11, 1998




                                      F-1
<PAGE>   23


                       USDATA CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
                                                                 DECEMBER 31,
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)               1997          1996
=====================================================================================
<S>                                                        <C>           <C>
ASSETS
Current assets:
  Cash and cash equivalents                                $  5,204      $  6,398
  Accounts receivable, net of allowance for doubtful
     accounts of $1,158 and $424, respectively                4,573         6,853
  Income tax receivable                                          --         1,050
  Deferred income taxes                                       2,345         1,101
  Other current assets                                          436           428
-------------------------------------------------------------------------------------
            Total current assets                             12,558 -      15,830
-------------------------------------------------------------------------------------
Property and equipment, net                                   2,416         2,480
Capitalized computer software development costs,
  net of accumulated amortization of $2,161
  and $759, respectively                                      1,938         1,180
Other assets                                                     90            92
Net assets of discontinued operations                         2,252         2,135
-------------------------------------------------------------------------------------
            Total assets                                   $ 19,254      $ 21,717
=====================================================================================

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
  Accounts payable                                         $    952      $  1,433
  Deferred revenue                                            1,257         1,566
  Accrued compensation and benefits                             955           613
  Other accrued liabilities                                   1,488           948
-------------------------------------------------------------------------------------
            Total current liabilities                         4,652         4,560
-------------------------------------------------------------------------------------
Deferred income taxes                                           729           509
-------------------------------------------------------------------------------------
            Total liabilities                                 5,381         5,069
-------------------------------------------------------------------------------------

Commitments and contingencies                                    --            --
Stockholders' equity:
  Preferred stock, $.01 par value, 2,200,000 shares
     authorized; none issued or outstanding                      --            --
  Common stock, $.01 par value, 22,000,000 shares
    authorized; 14,343,550  issued in 1997 and 1996             143           143
  Additional paid-in capital                                 16,365        16,282
  Subscription receivable from officer                           --        (1,095)
  Retained earnings                                           8,919        12,609
  Treasury stock at cost, 3,321,894 shares in 1997
     and 3,288,021 shares in 1996                           (11,554)      (11,291)
-------------------------------------------------------------------------------------
            Total stockholders' equity                       13,873        16,648
-------------------------------------------------------------------------------------
            Total liabilities and stockholders' equity     $ 19,254      $ 21,717
=====================================================================================
</TABLE>


The accompanying notes are an integral part of the
consolidated financial statements.



                                      F-2
<PAGE>   24

                       USDATA CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
                                                                         YEAR ENDED DECEMBER 31,
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)                      1997          1996          1995
=========================================================================================================
<S>                                                              <C>           <C>           <C>
Net sales                                                        $ 22,381      $ 23,885      $ 24,407

Cost of sales                                                       2,793         1,898         1,037

---------------------------------------------------------------------------------------------------------
Gross profit                                                       19,588        21,987        23,370
---------------------------------------------------------------------------------------------------------

Operating expenses:
    Selling                                                        16,258        18,121        14,027
    Product development                                             3,574         4,590         4,770
    General and administrative                                      5,985         3,789         3,560
---------------------------------------------------------------------------------------------------------
Total operating expenses                                           25,817        26,500        22,357
---------------------------------------------------------------------------------------------------------

Income (loss) from operations                                      (6,229)       (4,513)        1,013

Interest income                                                       310           448           158
---------------------------------------------------------------------------------------------------------

Income (loss) from continuing operations before income taxes       (5,919)       (4,065)        1,171
Income tax (provision) benefit                                      2,012         1,415          (411)

---------------------------------------------------------------------------------------------------------
Income (loss) from continuing operations                           (3,907)       (2,650)          760

Income from discontinued Systems Operations
(net of income taxes of $112, $858 and $466, respectively)            217         1,594           866

---------------------------------------------------------------------------------------------------------
Net income (loss)                                                $ (3,690)     $ (1,056)     $  1,626
=========================================================================================================

Earnings per share:
    Basic:
       Income (loss) from continuing operations                  $  (0.35)     $  (0.24)     $   0.08
       Income from discontinued operations                           0.02          0.14          0.10
---------------------------------------------------------------------------------------------------------
       Net income (loss)                                         $  (0.33)     $  (0.10)     $   0.18
=========================================================================================================
    Diluted:
       Income (loss) from continuing operations                  $  (0.35)     $  (0.24)     $   0.08
       Income from discontinued operations                           0.02          0.14          0.08
---------------------------------------------------------------------------------------------------------
       Net income (loss)                                         $  (0.33)     $  (0.10)     $   0.16
=========================================================================================================
    Weighted average shares outstanding:
       Basic                                                       11,066        11,014         9,010
       Diluted                                                     11,066        11,014        10,354
=========================================================================================================
</TABLE>

The accompanying notes are an integral part of the
consolidated financial statements.




                                      F-3
<PAGE>   25
                       USDATA CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
                                                                            YEAR ENDED DECEMBER 31,
(IN THOUSANDS)                                                          1997          1996          1995
==============================================================================================================
<S>                                                                  <C>           <C>           <C>
Cash flows from operating activities:
Net income (loss)                                                    $ (3,690)     $ (1,056)     $  1,626
--------------------------------------------------------------------------------------------------------------
   Adjustments to reconcile net income
   (loss) to cash flow from operating activities:
      Depreciation and amortization                                     2,633         1,318         1,003
      Changes in assets and liabilities:
             Accounts receivable                                        2,280        (2,046)         (785)
             Income tax receivable                                      1,050        (1,050)           --
             Deferred income taxes                                     (1,023)         (325)          215
             Accounts payable and accrued liabilities                      72           939           613
             Deferred revenue                                            (309)          453           307
             Accrued compensation and benefits                            342          (442)          359
             Accrued income taxes                                          --            --          (508)
             Other - net                                                  268             5          (251)
--------------------------------------------------------------------------------------------------------------
             Net cash provided by (used in) operating activities        1,623        (2,204)        2,579
--------------------------------------------------------------------------------------------------------------
Cash flows from investing activities:
      Capital expenditures                                             (1,263)       (1,574)       (1,220)
      Related party note receivable                                        --         7,040        (7,040)
      Capitalized software development costs                           (2,160)         (884)         (524)
--------------------------------------------------------------------------------------------------------------
             Net cash provided by (used in) investing activities       (3,423)        4,582        (8,784)
--------------------------------------------------------------------------------------------------------------
Cash flows from financing activities:
      Payments on long-term debt                                           --                      (4,000)
      Proceeds from issuance of common shares                             779           447        13,743
      Payments on capital lease obligations                               (56)          (63)          (75)
--------------------------------------------------------------------------------------------------------------
             Net cash provided by financing activities                    723           384         9,668
--------------------------------------------------------------------------------------------------------------
Cash flows from discontinued operations                                  (117)        2,132        (2,898)
Net increase (decrease) in cash and cash equivalents                   (1,194)        4,894           565
Cash and cash equivalents, beginning of period                          6,398         1,504           939
--------------------------------------------------------------------------------------------------------------
Cash and cash equivalents, end of period                             $  5,204      $  6,398      $  1,504
==============================================================================================================
Supplemental disclosures of cash flow information:
      Cash paid during the period for:
             Interest                                                $     --      $     --      $    187
             Income taxes                                            $     25      $  1,147      $  1,400
==============================================================================================================
</TABLE>

The accompanying notes are an integral part of the
consolidated financial statements.



                                      F-4
<PAGE>   26

                       USDATA CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

<TABLE>
<CAPTION>
                                      Common Stock     Additional    Subscription                 Treasury Stock         Total
                                      ------------       Paid-in       Receivable   Retained      --------------     Stockholders'
(in thousands)                      Shares     Amount    Capital      from Officer  Earnings      Shares   Amount        Equity
==================================================================================================================================
<S>                                <C>         <C>        <C>         <C>          <C>         <C>        <C>           <C>
Balance, at
  December 31, 1994                 11,045     $ 110      $ 1,637                  $ 12,039      (3,450)  $ (11,762)     $ 2,024
     Exercise of stock options          98         1          172                                                            173
     Issuance of common
       stock, net                    2,926        29       13,541                                                         13,570
     Restricted stock grant            274         3          956          (959)
     Interest on subscription
       receivable from officer                                              (62)                                             (62)
     Net income                                                                       1,626                                1,626
----------------------------------------------------------------------------------------------------------------------------------

Balance, at
  December 31, 1995                 14,343       143       16,306        (1,021)     13,665      (3,450)    (11,762)      17,331
     Exercise of stock options                                (24)                                  162         471          447
     Interest on subscription
       receivable from officer                                              (74)                                             (74)
     Net loss                                                                        (1,056)                              (1,056)
----------------------------------------------------------------------------------------------------------------------------------

Balance, at
  December 31, 1996                 14,343       143       16,282        (1,095)     12,609      (3,288)    (11,291)      16,648
     Exercise of stock options                                 83                                   240         696          779
    Termination of subscription
       receivable from officer                                            1,095                    (274)       (959)         136
     Net loss                                                                        (3,690)                              (3,690)
----------------------------------------------------------------------------------------------------------------------------------

 Balance, at
   December 31, 1997                14,343     $ 143     $ 16,365                   $ 8,919      (3,322)  $ (11,554)    $ 13,873
==================================================================================================================================
</TABLE>

The accompanying notes are an integral part of the consolidated financial
statements.

                                      F-5
<PAGE>   27

                               USDATA CORPORATION

                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
                     (IN THOUSANDS, EXCEPT PER SHARE DATA)

1.   DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

DESCRIPTION OF BUSINESS

     USDATA Corporation (the "Company") is a global supplier of real-time
manufacturing application software and development tools, and related consulting
services. The Company's products and services help automate manufacturing and
process control applications. Its real-time data management capabilities enable
customers to reduce operating costs, shorten cycle times, improve product
quality and increase productivity. Specifically, the Company produces automation
software tools, marketed under the name FactoryLink(R), that enable an
organization's information systems to supervise, monitor and control
manufacturing and other automated processes and to interface with corporate
information systems. The Company has field sales locations throughout the United
States, as well as Internationally, including Europe, the Far East, Middle East
and Latin America.

RECLASSIFICATIONS AND BASIS OF PRESENTATION

     Certain prior year balances have been reclassified to conform to 1997
presentation. Specifically, the Company has adopted a formal plan to sell its
Systems Operations and accordingly all prior year balances been restated to
reflect the discontinuance of this segment. (See Note 4).

USE OF ESTIMATES

     The consolidated financial statements are prepared in accordance with
generally accepted accounting principles which in certain cases require the use
of estimates made by the Company's management. Actual results may differ from
those estimates.

PRINCIPALS OF CONSOLIDATION

     The consolidated financial statements include the accounts of the Company
and its wholly-owned subsidiaries. All intercompany accounts and transactions
have been eliminated.

REVENUE RECOGNITION

    Revenue from the licensing of software products is recognized upon execution
of a contract and delivery of documentation or system software. Revenue from
software support maintenance agreements is recognized ratably over the contract
term, generally not exceeding one year. Sales return rights are provided to
certain customers, under specified conditions. Sales are presented net of
estimated returns, which historically have not been significant.

     Included in total net sales for the year ended December 31, 1997, 1996, and
1995 are software service revenues of approximately $2.5 million, $2.3 million
and $1.7 million, respectively. Unearned revenue under these service contracts
is included in current liabilities as deferred revenue.

CASH EQUIVALENTS

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

PROPERTY AND EQUIPMENT

     Property and equipment are stated at cost. Maintenance and repairs are
charged to expense as incurred, and the costs of additions and betterments are
capitalized. Depreciation is provided in amounts which amortize costs over the
estimated useful lives of the related assets, generally three to five years
utilizing the straight-line method. Leasehold improvements are amortized over
the terms of the respective leases or estimated useful lives of the
improvements, whichever is shorter.



                                      F-6
<PAGE>   28

                               USDATA CORPORATION

                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
                     (IN THOUSANDS, EXCEPT PER SHARE DATA)


CAPITALIZED SOFTWARE

     The Company capitalizes software development costs in accordance with the
Statement of Financial Accounting Standards ("SFAS") No. 86. Software
development costs incurred prior to establishing technological feasibility are
charged to operations and included in product development costs. Software
development costs incurred after establishing technological feasibility, and
purchased software costs, are capitalized and amortized on a product-by-product
basis when the product is available for general release to customers. Annual
amortization, charged to cost of sales, is the greater of the amount computed
using the ratio that current gross revenues for a product bear to the total of
current and anticipated future gross revenues for that product, or the
straight-line method over the remaining estimated economic life of the product.
The total computer software development costs capitalized for the years ended
1997, 1996 and 1995 were $2,160, $884 and $524, respectively. The total costs
amortized and charged to operations for the years ended 1997, 1996 and 1995 were
$1,401, $175 and $155 respectively.

STOCK-BASED COMPENSATION

     In 1996, the Company adopted SFAS No. 123, "Accounting for Stock-Based
Compensation", which gives companies the option to adopt the fair value method
for expense recognition of employee stock options and other stock-based awards
or to continue to account for such items using the intrinsic value method as
outlined under Accounting Principles Board Opinion No. 25, "Accounting for Stock
Issued to Employees" ("APB 25"), with pro forma disclosures of net income as if
the fair value method had been applied. The Company has elected to continue to
apply APB 25 for stock options and other stock based awards and has disclosed
pro forma net income (loss) as if the fair value method had been applied.

INCOME TAXES

     The Company follows SFAS No. 109, "Accounting for Income Taxes", which
requires an asset and liability approach that results in the recognition of
deferred tax liabilities and assets for the expected future tax consequences of
temporary differences between the carrying amounts and the tax basis of assets
and liabilities.

ADVERTISING COSTS

     The Company's policy for advertising costs is to expense such costs as
incurred. Advertising expenses for fiscal 1997, 1996 and 1995, were $435, $2,801
and $2,414, respectively.

FINANCIAL INSTRUMENTS

     The carrying amounts of the Company's financial instruments reflected in
the consolidated balance sheet at December 31, 1997 approximate their respective
fair values.

EARNINGS PER SHARE

     In February 1997, SFAS No. 128, "Earnings per Share", was issued. SFAS 128
specifies the computation, presentation and disclosure requirements for earnings
per share (EPS) for entities with publicly held common stock or potential common
stock. SFAS 128 simplifies the standards for computing EPS previously found in
Accounting Principles Board Opinion No. 15, "Earnings per Share" and makes them
comparable to international EPS standards. It replaces the presentation of
primary EPS with a presentation of basic EPS. It also requires dual presentation
of basic and diluted EPS on the face of the statement of operations for all
entities with complex capital structures and requires a reconciliation of the
numerator and denominator of the basic EPS



                                      F-7
<PAGE>   29

                               USDATA CORPORATION

                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
                     (IN THOUSANDS, EXCEPT PER SHARE DATA)


computation to the numerator and denominator of the diluted EPS computation.
SFAS 128 is effective for financial statements issued for periods ending after
December 15, 1997, including interim periods. SFAS 128 requires restatement of
all prior-period EPS data presented.

RECENT ACCOUNTING PRONOUNCEMENTS

During 1997, the Financial Accounting Standards Board ("FASB") issued
pronouncements relating to the presentation and disclosure of information
related to comprehensive income (SFAS 130) and segment data (SFAS 131). In 1998,
the FASB issued a pronouncement relating to the disclosure of information about
pensions and other postretirement benefits (SFAS 132). The Company is required
to adopt the provisions of these pronouncements, if applicable, for the year
ending December 31, 1998. The Company does not anticipate the adoption of the
pronouncements will have an impact on the Company's financial position and
results of operations but may change the presentation of certain of the
Company's financial statements and related notes and data thereto.

Also in 1997, the Accounting Standards Executive Committee of the American
Institute of Certified Public Accountants issued a Statement of Position (SOP)
on software revenue recognition (SOP 97-2) that supersedes SOP 91-1. SOP 97-2 is
effective for transactions entered in fiscal years beginning after December 15,
1997. The adoption of SOP 97-2 is not expected to have a material effect on the
Company's financial position or results of operations.

2.   PROPERTY AND EQUIPMENT

     The components of property and equipment at December 31, 1997 and 1996 were
as follows:

<TABLE>
<CAPTION>
                                                      1997           1996
=============================================================================
<S>                                               <C>             <C>
Equipment                                         $   6,854       $  6,069
Furniture and fixtures                                  414            379
Leasehold improvements                                  148            135
Vehicles                                                241            308
Assets under capital leases                             185            185
-----------------------------------------------------------------------------
                                                      7,842          7,076
 Accumulated depreciation
    and amortization                                 (5,426)        (4,596)
-----------------------------------------------------------------------------
Net property and equipment                        $   2,416       $  2,480
-----------------------------------------------------------------------------
</TABLE>

3.   INCOME TAXES

     The components of income (loss) before income taxes and including
discontinued operations for the years ended December 31, 1997 and 1996 and 1995
included the following:

<TABLE>
<CAPTION>
                                                     1997          1996          1995
===========================================================================================
<S>                                               <C>           <C>             <C>
United States                                     $  (5,591)    $    (568)      $  2,847
Foreign                                                   1        (1,045)          (344)
-------------------------------------------------------------------------------------------
                                                  $  (5,590)    $  (1,613)      $  2,503
===========================================================================================
</TABLE>


                                      F-8
<PAGE>   30

                               USDATA CORPORATION

                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
                     (IN THOUSANDS, EXCEPT PER SHARE DATA)


The components of income tax (expense) benefit for the years ended December 31,
1997, 1996 and 1995 are:

<TABLE>
<CAPTION>
                                                       1997           1996          1995
=============================================================================================
<S>                                                 <C>            <C>         <C>
Current:
  Federal                                           $   801        $    10     $    (615)
  State                                                                (40)          (36)
  Foreign                                                              (11)          (11)
---------------------------------------------------------------------------------------------
                                                        801            (41)         (662)
---------------------------------------------------------------------------------------------
Deferred:
  Federal                                             1,099            523          (172)
  State                                                                 75           (43)
---------------------------------------------------------------------------------------------
                                                      1,099            598          (215)
---------------------------------------------------------------------------------------------
  Income tax (provision) benefit                    $ 1,900        $   557     $    (877)
=============================================================================================
</TABLE>


     The following is a reconciliation of the effective tax rate to the federal
statutory income tax rate for continuing and discontinued operations as of
December 31, 1997, 1996 and 1995:

<TABLE>
<CAPTION>
                                                              1997         1996        1995
====================================================================================================
<S>                                                     <C>          <C>          <C>
Income tax (expense) benefit at federal
 statutory rate                                         $      1,900 $        548 $        (851)
Research and development
 credit                                                                                      18
State taxes, net of federal
 benefit                                                                       22           (67)
Tax exempt interest                                                                           8
Other                                                                         (13)           15
----------------------------------------------------------------------------------------------------
Income tax (provision) benefit                          $      1,900 $        557 $        (877)
====================================================================================================
</TABLE>




                                      F-9
<PAGE>   31

                               USDATA CORPORATION

                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
                     (IN THOUSANDS, EXCEPT PER SHARE DATA)

      The components of the net deferred tax asset at December 31, 1997 and 1996
were as follows:

<TABLE>
<CAPTION>
                                                                               1997           1996
=========================================================================================================
<S>                                                                      <C>               <C>
Deferred taxes from continuing operations:
   Deferred tax asset:
      Net operating loss                                                 $        1,801    $       873
      Allowance for doubtful accounts                                               394            161
      Accrued benefits                                                              104             --
      Other                                                                          46             67
---------------------------------------------------------------------------------------------------------
                                                                         $        2,345    $     1,101
=========================================================================================================
   Deferred tax liability:
      Depreciation                                                                   70             69
      Capitalized software                                                          659            440
---------------------------------------------------------------------------------------------------------
                                                                         $          729    $       509
=========================================================================================================
Deferred taxes from discontinued operations:
   Deferred tax asset:
      Inventory reserves                                                 $          238    $       212
      Other                                                                           4
      Allowance for doubtful accounts                                                85             62
---------------------------------------------------------------------------------------------------------
                                                                         $          327    $       274
=========================================================================================================
   Deferred tax liability:
      Depreciation                                                       $           25    $         1
=========================================================================================================
</TABLE>

     At December 31, 1997 and 1996, the Company had net operating loss
carryovers of approximately $5,297 and $2,568, respectively. The 1996 net
operating loss was carried back to a previous year and generated a refund of
approximately $800. The Company has the ability to carryback the 1997 net
operating loss to previous years; if not carried back it will begin to expire in
the year 2012. The Company had foreign income before income taxes of $1 for the
year ended December 31, 1997 which was offset by foreign net operating losses
generated in the years ended December 31, 1996 and 1995.

4.   DISCONTINUED OPERATIONS

     Effective December 31, 1997, the Company adopted a formal plan to sell its
Systems Operations. The Company expects to sell its Systems Operations during
the first half of 1998 and does not anticipate incurring a loss on disposal. The
financial assets of the Systems Operations to be sold consist primarily of
accounts receivable, inventories and property and equipment. The statements of
operations for the years ended December 31, 1997, 1996 and 1995 have been
restated to reflect the discontinuance of this segment. Net sales related to the
Systems Operations were $12,910, $17,838, and $19,960 for the years ended
December 31, 1997, 1996 and 1995, respectively.



                                      F-10
<PAGE>   32

                               USDATA CORPORATION

                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
                     (IN THOUSANDS, EXCEPT PER SHARE DATA)


    Assets and liabilities of the Systems Operations to be disposed of consisted
of the following at December 31, 1997 and 1996:

<TABLE>
<CAPTION>
                                                                                              1997         1996
=================================================================================================================
<S>                                                                                         <C>          <C>
Accounts receivable, net of allowance of $250 and $181, respectively                        $ 1,923      $ 3,235
Inventories                                                                                     636        1,053
Property and Equipment, net                                                                     862          684
Other assets                                                                                    145          225
Deferred income taxes                                                                           327          274
-----------------------------------------------------------------------------------------------------------------
     Total assets                                                                             3,893        5,471
-----------------------------------------------------------------------------------------------------------------
Accounts payable                                                                                457        2,083
Deferred revenue                                                                              1,145        1,183
Accrued compensation                                                                             14           69
Deferred income taxes                                                                            25            1
-----------------------------------------------------------------------------------------------------------------
     Total liabilities                                                                        1,641        3,336
-----------------------------------------------------------------------------------------------------------------
          Net assets of discontinued operations                                             $ 2,252      $ 2,135
=================================================================================================================
</TABLE>

5.   STOCKHOLDERS' EQUITY

INITIAL PUBLIC OFFERING

     On July 31, 1995, the Company completed an initial public offering to sell
2,926,180 shares of the Company's common stock at $5.00 a share. The Company
received approximately $13.6 million after deducting expenses from the sale and
utilized a portion of the proceeds to repay $2.7 million under its bank term
loan.

PREFERRED STOCK

     The board of directors is authorized, subject to certain limitations and
without stockholder approval, to issue up to an aggregate 2,200,000 shares in
one or more series of preferred stock and to fix the rights and preferences of
the shares of each series. No shares of preferred stock have been issued.

RESTRICTED STOCK GRANT

     In February 1995, 273,910 shares of the Company's common stock were
purchased by an officer in the form of a restricted stock grant. The purchase
was funded by a $959 full recourse promissory note payable to the Company with
interest at 7.75% and payable in February 2003 or within 30 days of termination
of employment. The note was secured by Company stock. Effective June 30, 1997,
the Company agreed to cancel the outstanding subscription receivable due from
the officer in exchange for the shares of restricted common stock. As a result
of this transaction, 273,910 shares of common stock were put into treasury, the
subscription receivable was eliminated and $136 of interest income, previously
recognized, was written off to general and administrative expense.

EQUITY COMPENSATION PLANS

     In 1994, the Company adopted the 1994 Equity Compensation Plan (the 1994
Plan), which provides for stock options to be granted to employees, independent
contractors and directors. The 1994 Plan provides for the issuance of up to
1,500,000 shares of common stock pursuant to



                                      F-11
<PAGE>   33

                               USDATA CORPORATION

                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
                     (IN THOUSANDS, EXCEPT PER SHARE DATA)

the grant of incentive stock options (ISO), non-qualified stock options (NSO),
stock appreciation rights (SARs) and restricted stock awards. Options issued
under the 1994 Plan vest over a four-year period and are exercisable up to eight
years from the date of grant at a price per share equal to the fair market value
of the underlying stock on the date of grant. The 1994 Plan also authorizes an
automatic grant of options to purchase 15,000 shares of common stock to certain
eligible directors upon initial election to the board of directors and a further
grant of options to purchase 3,000 shares of common stock following the
completion of each two-year period of service. Options granted to directors have
an eight-year term and vest over four years. At December 31, 1997, there were
440 shares available for future grant under the 1994 Plan.

     The Company applies APB Opinion No. 25 and related Interpretations in
accounting for its stock option grants under these plans, which are described
above. Accordingly, no compensation cost has been recognized for its stock
option plans. If compensation cost for the Company's stock option plans had been
determined based on the fair market value of the options at the grant dates for
awards under those plans consistent with the method provided by SFAS 123, the
Company's net income (loss) and related per share amounts would have been
reflected by the following pro forma amounts for the years ended December 31,
1997, 1996 and 1995:

<TABLE>
<CAPTION>
                                                                              1997            1996             1995
======================================================================================================================
<S>                                                                        <C>              <C>               <C>
Net income (loss)                                As reported               $ (3,690)        $ (1,056)         $ 1,626
                                                 Pro forma                   (3,908)          (1,220)           1,392

Basic net income (loss) per share                As reported                  (0.33)           (0.10)            0.18
                                                 Pro forma                    (0.35)           (0.11)            0.15

Diluted net income (loss) per share              As reported                  (0.33)           (0.10)            0.16
                                                 Pro forma                 $  (0.35)        $  (0.11)         $  0.14
======================================================================================================================
</TABLE>

     The per share weighted-average value of stock options issued by the Company
during 1997, 1996 and 1995 was $2.70, $6.93 and $1.24, respectively, on the date
of grant. The following assumptions were used by the Company to determine the
fair value of stock options granted using the Black Scholes option-pricing
model:

<TABLE>
<CAPTION>
                                                                         1997             1996             1995
======================================================================================================================
<S>                                                                  <C>              <C>              <C>
Dividend yield                                                            0                0                0
Expected volatility                                                      64%              60%           0% to 60%
Risk-free rate of return                                             5.9% to 6.5%     5.8% to 6.5%     5.4% to 7.1%
Expected life                                                          5 years          5 years          5 years
======================================================================================================================
</TABLE>

     The Pro forma net income (loss) reflects only options granted in 1997, 1996
and 1995. Therefore, the full impact of calculating compensation cost for stock
options under SFAS 123 is not reflected in the pro forma net income amounts
presented above because compensation cost is reflected over the options' vesting
period.



                                      F-12
<PAGE>   34

                               USDATA CORPORATION

                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
                     (IN THOUSANDS, EXCEPT PER SHARE DATA)

Option activity under the Company's Plans is summarized below:

<TABLE>
<CAPTION>
                                                     1997                  1996                 1995
===============================================================================================================
                                                   Weighted              Weighted             Weighted
                                                   Average                Average             Average
                                                   Exercise              Exercise             Exercise
                                            -------------------------------------------------------------------
                                             Shares        Price    Shares      Price     Shares      Price
---------------------------------------------------------------------------------------------------------------
<S>                                          <C>            <C>     <C>        <C>           <C>      <C>
Outstanding at beginning of period           1,129          $4.82   1,220      $ 3.76        316      $ 2.30
Options granted                                800           4.38     216       12.11      1,050        4.04
Options exercised, expired and canceled       (696)          5.12    (307)       5.74       (146)       2.57
---------------------------------------------------------------------------------------------------------------

Outstanding at end of period                 1,233          $4.37   1,129      $ 4.82      1,220      $ 3.76
---------------------------------------------------------------------------------------------------------------

Options exercisable at year-end                316                    339                    259
Shares available for future grant              440                    10                      81
===============================================================================================================
</TABLE>

     The following summarizes information about the Company's stock options
outstanding at December 31, 1997:

<TABLE>
<CAPTION>
                                                     Options Outstanding                   Options Exercisable
                                      ===============================================  =================================
                                                        Weighted Avg.
                                                          Remaining       Weighted                         Weighted
                                        Number        Contractual Life  Avg. Exercise     Number        Avg. Exercise
Range of Exercise Prices             Outstanding          (in years)        Price       Exercisable          Price
========================================================================================================================
<S>                                       <C>                <C>           <C>               <C>            <C>
$2.50    -  $ 3.02                        46                 3.9           $ 2.99            46             $ 2.99
$3.50    -  $ 4.00                       790                 6.9             3.72           208               3.52
$4.44    -  $23.50                       397                 7.0             5.82            62               7.02
                                 -----------                                        -----------
                                       1,233                 6.8           $ 4.37           316             $ 4.13
                                 ===========                                        ===========
</TABLE>

6.   LINE OF CREDIT

     In June 1997, the Company's previous $5 million revolving credit facility
expired. The Company did not have any borrowings under this facility during
1997.

7.   RETIREMENT PLAN

     The Company maintains a discretionary defined contribution plan (401(k)
Plan) covering substantially all employees. During the years ended December 31,
1997, 1996 and 1995, the Company made contributions of approximately $142, $128
and $113, respectively, to this plan.

8.   RELATED PARTY TRANSACTIONS

     Safeguard Scientifics, Inc. (Safeguard) owns approximately 23% of the
Company's outstanding common stock. Effective January 1, 1995, the Company and
Safeguard entered into an administrative service agreement whereby Safeguard
provides the Company with business and organizational strategy, legal and
investment management, and merchant and investment banking services. The
agreement provides for the payment of an administrative service fee of $30 per
month. The initial agreement expired on December 31, 1995, and is renewed
annually on a year to year basis. General and administrative expense on the
consolidated statement of operations



                                      F-13
<PAGE>   35

                               USDATA CORPORATION

                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
                     (IN THOUSANDS, EXCEPT PER SHARE DATA)

includes $360 of such administrative service fees for the year ended December
31, 1997, 1996 and 1995. Additionally, during 1997, the Company paid $50 to
Safeguard for consulting services not covered by this agreement.

     The manager of the Company's European operations is also the managing
director of the Company's largest distributor in the United Kingdom. Effective
February 1996, the Company entered into a distribution agreement with this
distributor to which, in general, the Company sells products at discounts from
list price representative of discounts given to similar distributors.
Consolidated net sales includes $536, and $1,074, to this distributor for the
years ended December 31, 1997, and 1996, respectively. The Company has also
entered into a shared facility arrangement, in which, certain office space and
equipment are shared between the distributor and Company's European
Headquarters. Additionally, the distributor charges the Company for certain
technical support and marketing advisory services.

     In August 1995, the Company and Safeguard entered into an agreement whereby
the Company loaned to Safeguard a portion of its excess cash from the proceeds
of its initial public offering. The loan was fully repaid on March 8, 1996.
During the years ended December 31, 1996 and 1995, the Company earned $43 and
$196, respectively, of interest income from this unsecured lending arrangement.

9.   EXPORT SALES

     Included in the consolidated statements of operations are export sales
aggregating $9,851, $11,958 and $11,346 for the years ended December 31, 1997,
1996 and 1995, respectively. These sales were made primarily in Europe and, to a
lesser extent, Canada, Latin America and Asia.

10.  COMMITMENTS AND CONTINGENCIES

LEASES

     The Company leases office space, equipment and automobiles under
non-cancelable capital and operating lease agreements which expire at various
dates through the year 2002. Certain capital leases contain bargain purchase
options which may be exercised at the end of the lease term. Assets recorded
under capital leases, primarily equipment, were $185 at December 31, 1997 and
1996 and the related accumulated amortization was $177 and $118 at December 31,
1997 and 1996, respectively. Amortization of capital lease assets of $59, $68
and $52 was included in depreciation expense for the years ended December 31,
1997, 1996 and 1995, respectively. Minimum future payments under capital lease
obligations are not significant.

     Future minimum lease payments at December 31, 1997 under operating leases
were as follows:

<TABLE>
<S>                                                                       <C>
1998                                                                      $ 925
1999                                                                        848
2000                                                                        834
2001                                                                         57
2002                                                                         57
Thereafter                                                                   32
--------------------------------------------------------------------------------
Total minimum lease commitments                                         $ 2,753
================================================================================
</TABLE>

     Total rent expense charged to earnings was approximately $1,349, $1,159 and
$1,354 during the years ended December 31, 1997, 1996 and 1995, respectively.


                                      F-14
<PAGE>   36

                               USDATA CORPORATION

                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
                     (IN THOUSANDS, EXCEPT PER SHARE DATA)

OTHER

     The Company has other contingent liabilities resulting from litigation,
claims and commitments incident to the ordinary course of business. Management
believes that the ultimate resolution of such contingencies will not have a
materially adverse effect on the financial position or results of operations of
the Company.

11.  QUARTERLY FINANCIAL INFORMATION (UNAUDITED)

<TABLE>
<CAPTION>
                                                              First        Second         Third        Fourth
1997                                                         Quarter       Quarter       Quarter       Quarter
==================================================================================================================
<S>                                                         <C>           <C>           <C>           <C>
Net sales                                                   $  5,917      $  5,508      $  4,844      $  6,112
------------------------------------------------------------------------------------------------------------------
Gross profit                                                   5,384         5,005         4,334         4,865
------------------------------------------------------------------------------------------------------------------
Loss from continuing operations                                 (878)         (679)       (1,391)         (959)
Income from discontinued operations                               41            77            53            46
------------------------------------------------------------------------------------------------------------------
   Net Loss                                                 $   (837)     $   (602)     $ (1,338)     $   (913)
==================================================================================================================

Earnings per share (Basic and Diluted):
     Loss from continuing operations                        $  (0.08)     $  (0.06)     $  (0.13)     $  (0.09)
     Income from discontinued operations                          --          0.01          0.01          0.01
------------------------------------------------------------------------------------------------------------------
       Net Loss                                             $  (0.08)     $  (0.05)     $  (0.12)     $  (0.08)
==================================================================================================================
Weighted average shares outstanding (Basic and Diluted)       11,085        11,380        10,852        10,950


Stock prices (in dollars)
   High                                                     $   9.00      $   6.00      $   6.00      $   5.31
   Low                                                      $   3.63      $   3.00      $   3.33      $   3.88
==================================================================================================================
</TABLE>

<TABLE>
<CAPTION>
                                                   First       Second         Third        Fourth
1996                                              Quarter      Quarter       Quarter      Quarter
========================================================================================================
<S>                                              <C>          <C>           <C>           <C>
Net sales                                        $  6,912     $  5,351      $  4,807      $  6,815
--------------------------------------------------------------------------------------------------------
Gross profit                                        6,519        4,987         4,250         6,231
--------------------------------------------------------------------------------------------------------
Income (loss) from continuing operations               84         (541)       (1,757)         (436)
Income from discontinued operations                   291          610           170           523
--------------------------------------------------------------------------------------------------------
   Net income (loss)                             $    375     $     69      $ (1,587)     $     87
========================================================================================================

Earnings per share (Basic and Diluted):
    Income (loss) from continuing operations     $   0.01     $  (0.05)     $  (0.16)     $  (0.04)
    Income from discontinued operations              0.02         0.06          0.02          0.05
--------------------------------------------------------------------------------------------------------
      Net income (loss)                          $   0.03     $   0.01      $  (0.14)     $   0.01
========================================================================================================
Weighted average shares outstanding:
     Basic                                         10,961       11,024        11,037        11,044
     Diluted                                       12,424       11,024        11,037        11,044


Stock prices (in dollars)
   High                                          $  18.50     $  24.75      $  19.00      $  11.50
   Low                                           $  14.50     $  17.00      $   9.50      $   5.50
========================================================================================================
</TABLE>




                                      F-15
<PAGE>   37

                               USDATA CORPORATION

                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
                     (IN THOUSANDS, EXCEPT PER SHARE DATA)

     Earnings per share calculations for each period are based on the weighted
average number of shares outstanding in each period; therefore, the sum of the
earnings per share amounts for the quarters does not necessarily equal the
year-to-date earnings per share.

     Effective December 31, 1997, the Company discontinued its Systems
operations and, accordingly, all quarterly financial data has been restated.



                                      F-16
<PAGE>   38

                       USDATA Corporation and Subsidiaries
                 Schedule II - Valuation and Qualifying Accounts
              For the Years Ended December 31, 1997, 1996 and 1995

<TABLE>
<CAPTION>
                                            Balance at   Charged to
                                           beginning of    expense       Deductions      Balance at
                Description                   year                                       end of year
-------------------------------------------------------------------------------------------------------
<S>                                       <C>            <C>            <C>             <C>
             December 31, 1995
      Allowance for doubtful accounts     $  196,000     $  195,000     $ (118,000)     $  273,000

             December 31, 1996
      Allowance for doubtful accounts        273,000        163,000        (12,000)        424,000

             December 31, 1997
      Allowance for doubtful accounts     $  424,000     $  951,000     $ (217,000)     $1,158,000
</TABLE>





                                      F-17
<PAGE>   39

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, in the City of
Richardson, State of Texas, on the 31st day of March, 1997.

                                         USDATA Corporation
                                         By: /s/ Robert A. Merry
                                            ------------------------------
                                         Robert A. Merry
                                         President and
                                         Chief Executive Officer

                        POWER OF ATTORNEY AND SIGNATURES

         We, the undersigned officers and directors of USDATA Corporation,
hereby severally constitute and appoint Robert A. Merry and Robert L. Drury, and
each of them singly, our true and lawful attorneys, with full power to them and
each of them singly, to sign for us in our names in the capacities indicated
below, amendments to this report, and generally to do all things in our names
and on our behalf in such capacities to enable USDATA Corporation to comply with
the provisions of the Securities Exchange Act of 1934, as amended, and all
requirements of the Securities and Exchange Commission.

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

Signature

/s/ Arthur R. Spector
----------------------    Chairman of the Board                 March 31, 1997
Arthur R. Spector

/s/ Robert A. Merry
----------------------    President and Chief Executive         March 31, 1997
Robert A. Merry           Officer (Principal Executive Officer)

/s/ Robert L. Drury
----------------------    Vice President and Chief Financial    March 31. 1997
Robert L. Drury           Officer, Treasurer and Secretary
                          (Principal Financial and Accounting
                          Officer)

/s/ Gary J. Anderson, M.D.
----------------------    Director                              March 31, 1997
Gary J. Anderson, M.D.

/s/ James W. Dixon
----------------------    Director                              March 31, 1997
James W. Dixon

/s/ Max D. Hopper
----------------------    Director                              March 31, 1997
Max D. Hopper

/s/ Jerry L. Johnson
----------------------    Director                              March 31, 1997
Jerry L. Johnson

/s/ Jack L. Messman
----------------------    Director                              March 31, 1997
Jack L. Messman


<PAGE>   40

                                 EXHIBIT INDEX

(c)      EXHIBITS

<TABLE>
<CAPTION>
         Exhibit No.       Description
         -----------       -----------
<S>                        <C>
             3.1           Certificate of Incorporation of the Company.*

             3.2           By-laws of the Company.*

             4.1           Specimen stock certificate representing the Common Stock.***

            10.1           1982 Incentive Stock Option Plan.*

            10.2           1992 Incentive and Nonstatutory Option Plan.*

            10.3           1994 Equity Compensation Plan, as amended.*

            10.4           Office Lease Agreement dated as of June 1992, by and between
                           Carter - Crowley Properties, Inc. and the Company.*

            10.5           Full Service Distributor Agreement, dated as of June 1, 1991, by and
                           between the Company and Printronix, Inc.*

            10.6           Employment Agreement, dated as of November 8,
                           1994, between the Company and Bob B. Midyett, Jr.*
</TABLE>



<PAGE>   41

<TABLE>
<S>                        <C>
            10.7           Promissory Note, dated February 20, 1995, by William G. Moore, Jr. to
                           the Company.*

            10.8           Administrative Services Agreement between Safeguard Scientifics,
                           Inc. and the Company.***

            10.9           First Amendment to Office Lease Agreement, dated as of June 1992 by and between Carter-Crowley
                           Properties, Inc. And the Company.#

            11.1           Statement regarding computation of earnings per share.#

            21.1           Subsidiaries of the Registrant.*

            23.1           Consent of Price Waterhouse LLP.#

            24.1           Power of Attorney (included on signature page).

            27.1           Financial data schedule.  (EDGAR version only)#

            27.2           Restated financial data schedules for the Years ended December 31, 1996 and 1995.  (EDGAR
                           version only)#

            27.3           Restated financial data schedules for the interim periods ended March 31, June 30, and
                           September 30, 1996.  (EDGAR version only)#

            27.4           Restated financial data schedules for the interim periods ended March 31, June 30, and
                           September 30, 1995.  (EDGAR version only)#
</TABLE>

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

#        Filed herewith

*        Filed on April 12, 1995 as an exhibit to the Company's Registration
         Statement on Form S-1 (File No. 33-91124) and incorporated by reference
         herein.

**       Filed on June 1, 1995 and an exhibit to Amendment No. 1 to the
         Company's Registration Statement on Form S-1 (File No. 33-91124) and
         incorporated by reference herein.

***      Filed on June 15, 1995 and an exhibit to Amendment No. 2 to the
         Company's Registration Statement on Form S-1 (File No. 33-91124) and
         incorporated by reference herein.