<PAGE>   1


                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                    FORM 10-K


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

                   For the fiscal year ended December 31, 1999
                                             -----------------

                         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, TX                 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: None


           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 (2) has been subject to such
            filing requirements for the past 90 days. Yes [X] No [ ]

 Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
  of Regulation S-K is not contained herein, and will not be contained, to the
       best of 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 March 24, 2000, was approximately
  $79,264,395 based on the sale price of the Common Stock on March 24, 2000, of
            $14.50 as reported by the NASDAQ National Market System.

 As of March 24, 2000, the registrant had outstanding 13,164,629 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 May 18, 2000 are incorporated herein by
                 reference in Part III, Items 10, 11, 12 and 13.


<PAGE>   2



PART I.

ITEM 1.  BUSINESS

GENERAL

       USDATA Corporation (the "Company"), is a global supplier of
component-based production software that is designed to help customers reduce
operating costs, shorten cycle times and improve product quality in their
manufacturing operations. The Company's software enables manufacturers to access
more accurate and timely information - whether they are on the plant-floor, in
the office, or around the globe. The Company's solutions span a wide range of
manufacturing processes, from monitoring equipment to tracking product flow, and
are designed to integrate seamlessly with customers' existing manufacturing and
business software. This combination of product breadth and ease of integration
is intended to provide a total plant solution that defines new levels of
manufacturing performance and gives customers a distinct competitive advantage.
Now in its 25th year, the Company has a strong global presence with more than
45,000 installs located in more than 60 countries throughout the world, 19
offices worldwide and a global network of distribution and support partners.

         The Company is committed to solving customer problems and increasing
productivity in the manufacturing and production environments through
technological innovation. 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, telecommunications, electronics,
transportation and other industries.

         The Company's family of software products, marketed under the names of
FactoryLink, Xfactory, Connector, Analysis and Smart Manager provide a powerful
set of software tools and applications designed for users who are technically
competent but who may not be experienced software programmers.

         In the latter part of 1999 the Company formed its new eMake division
which is focused on the "make" or production area of the manufacturing supply
chain. Through the eMake division, the Company intends to provide a suite of
Internet applications that will include a real-time production portal with
secure, online shop-floor visibility and an eBusiness trading market designed
specifically for manufacturers. The eMake division includes the operations of
Smart Shop Software Inc., an enterprise business solution subsidiary of the
Company with integrated accounting to shop floor processes for make-to-order
small and medium size manufacturers marketed as Smart Manager. The Smart Shop
Software unit includes the assets of Smart Shop Software, Inc. (Idaho), which
were acquired by the Company in mid-1999.

PRODUCTS AND SERVICES

OVERVIEW

         The Company develops, markets and supports component-based software
products for customers requiring enterprise-wide, open systems solutions for the
manufacturing and production markets. These software products provide customers
real-time component-based computer applications that provide interactive,
dynamic and graphical interfaces to manufacturing and production operations.
These applications collect, consolidate and communicate 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 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 flagship software product, FactoryLink(R), is a
manufacturing process solution 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 is
a real-time application server product that enables manufacturers to connect to
plant floor devices, consolidate and process data and communicate the data to
decision-makers throughout the manufacturing enterprise. FactoryLink gives
manufacturers the accurate and timely production information they need to make
effective decisions throughout the enterprise. FactoryLink, as the plant server,
is the centerpiece of a real-time data distribution architecture.

         In mid-1998, the Company introduced Xfactory(R), a manufacturing
execution solution ("MES") product which incorporates Microsoft's newest
technologies and is built on Microsoft's Distributed Internet Applications
("DNA") architecture. Xfactory enables manufacturing plants to more easily and
quickly automate their production processes and is the first visual object
modeling MES.

         In 1999, the Company introduced two new products: USDATA Connector,
which enables connectivity to higher level business systems and USDATA Analysis,
which provides real-time access to and analysis of a customer's information.


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         In conjunction with the purchase of Smart Shop Software, Inc. in mid
1999, the Company acquired the Smart Manager software product with integrated
accounting to shop floor processes for make-to-order small and medium size
manufacturers.

BACKGROUND AND MARKET DEMAND

         Traditional Enterprise Resource Planning ("ERP") systems have
product-centric views of the manufacturing enterprise. These business systems
provide decision-makers with an excellent understanding of product attributes
including material costs, bill of materials, labor costs and other attributes.
However, these business systems generally have no concept of the target process
parameters for actually producing finished goods or the actual process
parameters and conditions that occurred to generate specific lots of finished
goods.

         Traditional process control systems have an excellent process-centric
view of manufacturing. They understand how things are made, target process
parameters and material movement. However, process control systems generally do
not have any concept of the actual product made - lot numbers, yield, quality
attributes, costing information, etc.

         To make effective and efficient production decisions, both types of
information - product and process - must be used. This integration raises a
fundamental issue of how to create communication between the disparate nature of
business and process control systems. The Company's products are designed to
integrate business and process control systems for any production focused
enterprise.

FACTORYLINK(R)

         FactoryLink allows customers to collect and monitor data from disparate
process control systems. FactoryLink acts as hub for real-time information that
may be used by various decision makers interested in the real-time status of the
production process. In 1999, a new version of FactoryLink was released that
enhances the product's already solid reputation for reliability, scalability and
flexibility.

         To simplify connecting to plant floor devices, the Company includes
support for OLE for Process Control ("OPC") in FactoryLink, making it an
interoperable server that can collect and distribute data throughout a
multi-vendor manufacturing environment. FactoryLink's extensive database
connectivity and interfaces to MES and ERP products allow it to function as the
automation system hub, much broader than just HMI. Customers can now leverage
their existing investments in various HMIs and build an integrated system,
thereby eliminating existing islands of automation.

         The FactoryLink 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'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.

         In 1998, the Company released Year 2000 ready versions on all major
FactoryLink platforms historically supported by the Company, including DOS,
UNIX, OS/2, Microsoft Windows, NT and Windows 95. To provide the Company's


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customers with a convenient means to obtain information regarding Year 2000
readiness of its products, the Company has maintained a web site
(www.usdata.com) with the latest information regarding Year 2000 readiness for
its products, including a statement of what it means when a product is
designated as Year 2000 ready. No significant Year 2000 related problems have
been reported with the Company's software products with the transition from 1999
into early 2000.

Xfactory(R)

         Xfactory is an MES product, which incorporates Microsoft's newest
technologies and is built on Microsoft's DNA architecture. Xfactory enables
manufacturing plants to more easily and quickly automate their production
processes and is the first visual object modeling MES. Xfactory bridges the gap
between the plant floor and ERP systems. The Company develops, markets and
supports Xfactory software products for customers requiring enterprise-wide,
open systems solutions for production management and leveraging business and
planning systems. The Xfactory software product enables customers to develop
versatile and flexible MES applications for production management, product
tracking, product scheduling, and genealogy tracking for manufacturing and
production processes. The information provided by the Company's products enables
customers to reduce operating costs, improve product quality and increase
overall throughput and productivity.

         In December 1999, the Company launched the latest release of Xfactory.
This latest release, Xfactory version 1.4, enables manufacturers of all sizes to
track and improve production processes "on the fly." Version 1.4 is intended to
deliver unparalleled performance and reliability for even the most demanding,
large-scale, production processes.

         Xfactory software enables a customer to:

     o   Utilize a fixed data base scheme, where the objects themselves are
         stored in the same database;

     o   Effectively convert the plant network into an intelligent event routing
         entity, allowing the customer to effortlessly send and receive local
         and remote event notifications;

     o   Maintain object-oriented programming that allows base objects to
         incorporate properties, events and methods, thereby easing the demands
         of large-scale software development and applying object modeling to the
         manufacturing plant itself;

     o   Utilize a three-tiered architecture that is intended to provide greater
         security, optimized client database connections, centralized
         management, thin clients and distributed processing for greater speed
         and throughput than is found in traditional single-tiered architectures
         (Xfactory clients reside on Tier 1, components in the Microsoft
         Transaction Server on Tier 2 and a client/server relational database on
         Tier 3); and

     o   To incorporate Xfactory functionality into environments such as Visual
         Basic, C/C++, Microsoft Office, Oracle Forms and SCADA packages, such
         as FactoryLink, because Xfactory is component based and Internet
         compatible.

USDATA CONNECTOR

         In the latter part of 1999 the Company introduced the USDATA Connector
product. USDATA Connector links the plant floor to the supply chain and
higher-level business systems. USDATA Connector is designed to enable disparate
systems throughout the enterprise to operate as one and, in conjunction with the
Company's production suite of software, to provide visibility to the status of
the customers order at any point in the manufacturing process. In this regard,
USDATA Connector assists manufacturers in achieving a real-time supply chain
allowing them to better meet changing customer needs and increasing market
demands.

USDATA ANALYSIS

         In late 1999 the Company also introduced its USDATA Analysis product.
USDATA Analysis turns production data into valuable information available from
any web browser. This product is the result of USDATA's intuitive production
modeling environment coupled with the capabilities of TopTier Software's
hyper-relational technology. USDATA Analysis provides integration of Xfactory
data with MySAP.com and Baan Data Navigator capabilities, allowing information
to be exported to Microsoft Excel or Access for further manipulation, or to be
saved in each user's USDATA Analysis desktop.


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EMAKE SERVICES AND SOLUTIONS


         The Company established the eMake division to enable eMake to become a
premier provider of Internet-based manufacturing software and services from the
plant-floor to the executive office, across the supply chain. The Company
anticipates that the eMake division will enable B2B real-time visibility,
production and commerce. The Company intends to develop and implement an eMake
suite of Internet applications that will deliver a real-time production portal
with secure, online shop floor visibility and an eBusiness trading market that
is designed specifically for manufacturers.


         The Company expects that its initial focus for the eMake division will
be the development and implementation of the eMake Small Manufacturing Edition
products, which is designed for smaller make-to-order manufacturers, typically
with annual revenues less than $50 million. The Company intends to use the
expertise of the Smart Shop Software unit as the core of this offering. The
Company also expects to focus the eMake division on the development and
implementation of the eMake Production Edition, which is intended to provide
solutions to larger manufacturers in the electronics assembly and automotive
industries. The Company currently anticipates that the eMake Production Edition
will be introduced in late 2000. The Company also intends to provide eMake
division customers with a variety of services and solutions, including Internet
supply chain connectivity, web browser interfacing, production system management
and material resource planning capabilities.


MARKETING, SALES AND DISTRIBUTION

         The Company's sales and support organization includes channel
management personnel, a corporate business development group for lead
generation, a technical resource group and a network of authorized worldwide
distributors that acquire licenses for the Company's products at a discount and
remarket and provide training, customer support and consulting services to
end-users. The Company's sales and support organization combines its internal
resources with the resources, expertise and customer base of qualified third
party distributors, remarketers and integrators. The Company's internal sales
and marketing organization consisted of 48 persons as of December 31, 1999 and
is based in Richardson, Texas. The Company has field sales locations in 19 other
cities in the United States and in Belgium, England, Denmark, Germany, France
and Italy.

         The Company goes to market via a network of distributors, referred to
as tier one partners ("TOPs"). As of December 31, 1999, approximately 40 such
TOPs delivered in excess of 90% of the Company's products to system integrators
and the ultimate end-users. This indirect strategy is critical to the Company's
success and future growth because each TOP functions as a virtual extension of
the Company's sales, service and support. Typically, the business model of TOPs
is primarily driven by industrial software revenues and related products. TOPs
generally have value-added products and services that are additive to the
Company's core products, and TOPs generally work cooperatively with a community
of local system integrators that actually perform project work for the end-user.

         In support of its channel 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 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 its products 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 channel service and technical support organization.

         The Company provides first level, localized support through its highly
qualified and experienced TOPs. Support engineers are networked utilizing a
single knowledge based system that is intended to enable quick and efficient
transfer of data, software corrections and up to date technical information. In
addition to frequent interaction between the Company's support personnel and the
TOPs engineers, the Company also conducts regular training sessions to enhance
the technical knowledge and working relationship in this support community.
Annual software support agreements are available to customers in various forms.

         The Company also provides customer support for its products via the
web, allowing users access to the latest software fixes, FAQ's (frequently asked
questions), detailed examples and on-line trouble shooting/problem submission.
The Company also maintains a FactoryLink Certified Integration Partner Program.
Members of this program have access to specific vertical market and industry
expertise and established relationships with prominent hardware and software.

         The Company offers comprehensive training classes to customers and
third-party remarketers. Training classes are offered through in-house training
facilities in Richardson, Texas, in facilities in Brussels, Belgium and through
its authorized training TOPs throughout the world. The training curriculum is a
comprehensive program of application development training in a hands-on,

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lab-based training environment. The Company is also able to 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 45,000 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 end users
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, 1999, no single end user of the
Company's products accounted for more than 10% of the Company's total revenues.

         Sales to foreign clients (primarily in Europe) continue to be a
significant source of revenue for the Company. For the year ended December 31,
1999, the Company realized revenues from its international operations of $13.7
million (51% of revenues), as compared with $12.9 million for the comparable 12
month period (56% of revenues) ended December 31, 1998. Most of the Company's
international revenues were derived from sales and services related to
FactoryLink software products. See also Note 11 to Notes to Consolidated
Financial Statements for additional information on export revenues.

         The Company has maintained a long-term partner relationship with
Schneider Automation. Schneider and its predecessors have been purchasing for
resale a private label, OEM version of FactoryLink from the Company since 1989
and accounted for $4.9 million and $4.1 million or 18% and 18%, respectively, of
total revenues for the years ended December 31, 1999 and 1998, respectively.

         The Company's eMake division, including the Smart Shop Software unit,
serves a broad base of customers. Over 12,000 client licenses of the Company's
Smart Shop Software unit product, Smart Manager, have been installed with
make-to-order manufacturers since the introduction of the product by Smart Shop
Software, Inc. (Idaho), the predecessor to the Smart Shop Software unit.

PRODUCT INNOVATION AND DEVELOPMENT

         The Company's product development efforts are focused on expanding the
Company's portfolio of software products as well as 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 as well as the development of new
products that enable manufacturing performance improvement. 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's development activities generally are driven by market requirements and
to the extent possible leverage known technologies and architectures.

          The Company's eMake division product development efforts primarily
have been focused on the new eMake solutions and services including preparation
for application service provider hosting, web-based marketing and fulfillment,
and product enhancements.

         During the years ended December 31, 1999 and 1998, the Company invested
approximately $5.4 million and $5.2 million, respectively, in product
development including $2.5 million of capitalized software development costs in
both 1999 and 1998. In the years ended December 31, 1999 and 1998, the Company
expended 11%, and 12%, respectively, of its total revenues on product
development, net of capitalized software. The Company anticipates that it will
continue to commit substantial resources to product development in the future.

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's FactoryLink product 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


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Wonderware Corporation, owned by Siebe plc, as well as large PLC and DCS
manufacturers that provide similar software along with their hardware products.

         The Company's Xfactory product competes with a number of software
suppliers, including GR Software, owned by Genrad Corporation, Consilium owned
by Applied Materials, Promis Systems owned by Brooks Automation, Camstar Systems
Inc., RWT Corporation, as well as smaller software companies that provide
similar software.

         The Company's Smart Manager product competes with a number of software
suppliers, including Visual Manufacturing, owned by Lilly Software, Made2Manage,
Job Boss Software and Epicor.

         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 these organizations
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. Any of these events could have a material adverse
effect on the Company's business, prospects, operations and financial condition.

BACKLOG

         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 patents in the United States covering control systems
that employ the features embodied in its FactoryLink product. The Company has
registered its "USDATA," "FactoryLink" and "Xfactory" 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 generally are licensed to end-users
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
products. A shrink wrap license agreement is a printed and/or electronic license
agreement included with the packaged software that sets forth the terms and
conditions under 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 not 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


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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, 1999, the Company had approximately 204 full-time
employees. None of the Company's employees are 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 December 31,
1999:

<TABLE>
<CAPTION>
Name                   Age     Position
----                   ---     --------
<S>                    <C>     <C>
Robert A. Merry        50      President and Chief Executive Officer
Robert L. Drury        53      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.

         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.

ITEM 2.     PROPERTIES

         The Company leases approximately 50,000 square feet of office space in
Richardson, Texas. The lease agreement for this office space was due to expire
in 2000. In February 2000, the Company amended the lease to extend the lease
term to 2010 and increase leased office space by approximately 30,000 square
feet in equal increments by mid-2000 and 2001. The Company leases additional
office space in other 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.


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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>
         1999:
         Fourth Quarter                               14.94             3.13
         Third Quarter                                 5.56             3.19
         Second Quarter                                4.13             2.13
         First Quarter                                 4.38             1.94

         1998:
         Fourth Quarter                                4.19             1.00
         Third Quarter                                 5.25             2.81
         Second Quarter                                7.50             4.75
         First Quarter                                 8.44             4.38
</TABLE>

         As of December 31, 1999, there were approximately 2,800 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).

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, at its discretion, consider relevant.


                                       9
<PAGE>   10


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 consolidated financial statements and notes
included herein.

<TABLE>
<CAPTION>
                                                                            Years Ended December 31,
                                                             --------------------------------------------------------
                                                               1999        1998        1997        1996        1995
                                                             --------    --------    --------    --------    --------
<S>                                                          <C>         <C>         <C>         <C>         <C>
STATEMENT OF OPERATIONS DATA
(in thousands, except per share data)

Revenues                                                     $ 27,045    $ 22,861    $ 22,381    $ 23,885    $ 24,407

Income (loss) from continuing operations                     $ (2,416)   $ (2,094)   $ (3,907)   $ (2,650)   $    760

Net income (loss) applicable to common stockholders          $ (2,583)   $ (3,813)   $ (3,690)   $ (1,056)   $  1,626

Income (loss) per common share from continuing operations:
   Basic and diluted                                         $  (0.22)   $  (0.19)   $  (0.35)   $  (0.24)   $   0.08

BALANCE SHEET DATA
(in thousands)

Total assets                                                 $ 26,867    $ 16,401    $ 19,254    $ 21,717    $ 21,116

Long term debt, including current portion                    $    450          --          --          --          --

Stockholders' equity                                         $ 14,087    $ 10,295    $ 13,873    $ 16,648    $ 17,331
</TABLE>


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

OVERVIEW

         USDATA Corporation (the "Company"), is a global supplier of
component-based production software that is designed to help customers reduce
operating costs, shorten cycle times and improve product quality in their
manufacturing operations. The Company's software enables manufacturers to access
more accurate and timely information - whether they are on the plant-floor, in
the office, or around the globe. The Company's solutions span a wide range of
manufacturing processes, from monitoring equipment to tracking product flow, and
are designed to integrate seamlessly with customers' existing manufacturing and
business software. This combination of product breadth and ease of integration
is intended to provide a total plant solution that defines new levels of
manufacturing performance and gives customers a distinct competitive advantage.
Now in its 25th year, the Company has a strong global presence with more than
45,000 installs located in more than 60 countries throughout the world, 19
offices worldwide and a global network of distribution and support partners.

         Revenues have been generated primarily from licenses of the Company's
FactoryLink, Xfactory and Smart Manager software and secondarily from technical
support and service agreements, training classes and product related services.
The support and service agreements are generally one-year, renewable contracts
entitling a customer to certain software upgrades and technical support. Support
and service revenue represented approximately 11%, 12% and 11% of revenues
during the years ended December 31, 1999, 1998, and 1997, respectively.


                                       10
<PAGE>   11


         Included in the FactoryLink family of products are versions 6.5 and
6.6, real-time information Windows NT and Windows 98/95 platforms, supporting
powerful client access environments and technologies and providing Year 2000
("Y2K") readiness. In addition, the Company offers FactoryLink WebClient, which
provides the ability to view and control any FactoryLink server running
Microsoft Windows NT using a simple web browser.

         Xfactory, which was introduced in mid-1998, is a manufacturing
execution software ("MES") product that incorporates Microsoft's newest
technologies and is built on Microsoft's Distributed Internet Applications
("DNA") architecture. Xfactory enables manufacturing plants to more easily and
quickly automate their production processes and is the first visual object
modeling MES. The Xfactory software product enables customers to develop
versatile and flexible MES applications for production management, product
tracking, product scheduling and genealogy tracking for manufacturing and
production processes.

         In December 1999, the Company released Xfactory version 1.4 which gives
manufacturers of all sizes the ability to track and improve production processes
"on the fly." Version 1.4 is intended to deliver unparalleled performance and
reliability for even the most demanding, large-scale, production processes.

         In August 1999, the Company acquired the business of Smart Shop
Software, Inc. (Idaho), ("Smart Shop") which provides business software for
make-to-order small and medium sized manufacturers (see Note 2 "Acquisitions"),
principally the Smart Manager software product.

         During 1999, the Company also announced the formation of its new eMake
division, which is focused on the "make" or production area of the manufacturing
supply chain. Through the eMake division, the Company intends to provide a suite
of Internet applications that will include integrated product solutions and
real-time visibility across the supply chain. The Company's strategy is to
leverage its extensive manufacturing knowledge through Internet applications to
help companies maximize their back office production and create the eMake portal
for front office visibility into the production operations of the supply chain.
Initial product availability is targeted for early to mid 2000 and the Company
anticipates that the division initially will focus on horizontal make-to-order
solutions for smaller manufacturers and industry solutions for larger-scale
automotive and electronics assembly. This division also includes the Smart Shop
Software products and operations.

         The Company focuses its sales efforts through selected distributors
capable of providing the level of support and expertise required in the
real-time manufacturing and process control application market. The Company
currently has seven channel support locations in the United States and six
internationally to support its sales efforts through its network of
distributors.

       Effective July 1, 1998, the Company sold its Auto ID hardware integration
and servicing business ("Systems Operations"). In conjunction therewith, during
the first quarter of 1998, the Company reported a loss of $1.25 million related
to the disposal thereof and $469 thousand related to operations through the date
of disposal.

FORWARD LOOKING STATEMENTS

         This document contains "forward-looking statements" within the meaning
of the Private Securities Litigation Reform Act of 1995 regarding revenues,
margins, operating expenses, earnings, growth rates and certain business trends
that are subject to risks and uncertainties that could cause actual results to
differ materially from the results described herein. Specifically, the ability
to grow product and service revenues may not continue and the Company may not be
successful in developing new products, product enhancements or services on a
timely basis or in a manner that satisfies customers needs or achieves market
acceptance. Other factors that could cause actual results to differ materially
are: competitive pricing and supply, short-term interest rate fluctuations,
general economic conditions, employee turnover, possible future litigation, the
impact of Y2K and the related uncertainties may have on future revenue and
earnings as well as the risks and uncertainties set forth from time to time in
the Company's other public reports and filings and public statements. Recipients
of this document are cautioned to consider these risks and uncertainties and to
not place undue reliance on these forward-looking statements. See "Business" in
Part I, Item 1 of this report for a discussion of other important factors that
could affect the validity of any such forward-looking statement.


                                       11
<PAGE>   12


RESULTS OF OPERATIONS

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

<TABLE>
<CAPTION>
                                                                     YEARS ENDED DECEMBER 31,
                                                             -------------------------------------
                                                               1999          1998           1997
                                                             ---------     ---------     ---------
<S>                                                          <C>           <C>           <C>
Revenues:
     Product license                                              85.0%         84.6%         77.6%
     Services                                                     15.0%         15.4%         22.4%
                                                             ---------     ---------     ---------
Total revenues                                                   100.0%        100.0%        100.0%
                                                             ---------     ---------     ---------
Operating expenses:
     Selling and product materials                                65.8%         72.5%         78.9%
     Product development                                          10.7%         11.7%         16.0%
     General and administrative                                   23.9%         26.1%         32.9%
     Non-cash compensation                                         2.4%           --            --
     Amortization of intangible assets                             2.2%           --            --
     Purchased in process research and development                 1.8%           --            --
                                                             ---------     ---------     ---------
Total operating expenses                                         106.8%        110.3%        127.8%
                                                             ---------     ---------     ---------

Loss from operations                                              (6.8)%       (10.3)%       (27.8)%
Other income, net                                                  0.4%          0.9%          1.4%
                                                             ---------     ---------     ---------

Loss from continuing operations before income taxes               (6.4)%        (9.4)%       (26.4)%
Income tax (provision) benefit                                    (2.6)%         0.3%          9.0%
                                                             ---------     ---------     ---------
Loss from continuing operations                                   (9.0)%        (9.1)%       (17.4)%
                                                             ---------     ---------     ---------

Discontinued operations:
     Income (loss) from discontinued operations                     --          (1.0)%         1.0%
     Loss on disposal of discontinued operations                    --          (6.6)%          --
                                                             ---------     ---------     ---------
Net loss                                                          (9.0)%       (16.7)%       (16.4)%
Dividends on preferred stock                                      (0.6)%          --            --
                                                             ---------     ---------     ---------
Net loss applicable to common stockholders                        (9.6)%       (16.7)%       (16.4)%
                                                             =========     =========     =========
</TABLE>


COMPARISON OF YEARS ENDED DECEMBER 31, 1999 AND 1998

         Total revenues for 1999 were $27.0 million, an increase of $4.2 million
or 18%, compared to 1998. The increase was primarily a result of a $2.8 million
increase in software licensing and support revenue related to the Company's
USDATA product division, which includes its FactoryLink and Xfactory product
lines, as well as $1.4 million of revenues from the Company's eMake product
division. North American and international revenues were 49% and 51%,
respectively, of total revenues during 1999. North American and international
revenues increased 34% and 6%, respectively, in 1999 compared to 1998.

         Selling and product materials expenses increased $1.2 million or 7% in
1999 compared to 1998. This increase is primarily a result of increased product
materials cost of $.3 million, a $.2 million increase in marketing expenses from
the Company's USDATA product division and a $.7 million increase in marketing
expenses from the Company's eMake product division. Selling and product
materials expenses as a percentage of revenues decreased to 65.8% for the year
ended December 31, 1999 from 72.5% for the same period in 1998.

         Product development expenses (net of capitalized software development
costs), which consisted primarily of labor costs, increased $.2 million in 1999
compared to 1998. The increase is attributable to eMake development expenses of
$.4 million and development efforts for the Xfactory product line, offset by a
decrease in contract engineering development activities related to the


                                       12
<PAGE>   13


FactoryLink product line. The Company capitalized $2.5 million of development
expenses in both 1999 and 1998, primarily related to the next major version of
the FactoryLink product.

         General and administrative expenses increased $.5 million or 8% for the
year ended December 31, 1999. This increase is primarily attributable to Smart
Shop's general and administrative expenses of $.4 million, which are included in
the eMake product division. General and administrative expenses as a percentage
of revenues decreased to 23.9% for the year ended December 31, 1999 from 26.1%
for the same period in 1998, as a significant portion of general and
administrative expenses are fixed in nature.

         In connection with the acquisition of Smart Shop, the Company recorded
$1.7 million in charges, including non-cash compensation of $659 thousand,
amortization of acquired intangible assets of $595 thousand and a charge of $476
thousand to write-off acquired in-process research and development.

         The Company experienced a loss from continuing operations of $2.4
million in 1999 versus a loss of $2.1 million in 1998. The increase in loss from
continuing operations was primarily the result of the acquisition related
charges of $1.7 million and eMake related costs associated with developing
technology, building the infrastructure, start-up and Smart Shop operating
expenses.

COMPARISON OF YEARS ENDED DECEMBER 31, 1998 AND 1997

         Total revenues for 1998 were $22.9 million, an increase of $.5 million
or 2% compared to 1997. During 1998, the Company's software licensing revenues
increased 11% compared to 1997 and overall unit shipments of software licenses
increased at an even greater rate, particularly in products for the Microsoft
Windows NT and Windows 95 platforms while products for Unix and other operating
systems platforms declined compared to the prior year. The net result of this
product mix shift was reflected in lower overall average selling prices (ASPs)
for the Company's products which partially offset the positive impact of
increased unit shipments. However, during the latter part of 1998 the Company's
ASPs began to stabilize as over 90% of all unit shipments were for Windows NT
and Windows 95 platforms in 1998 compared to 80% in 1997. Revenues from product
related consulting declined substantially from 1997 reflecting the Company's
decision to refer nearly all such activity to its channel distribution partners.
North American revenues decreased by 22% while international revenues increased
34% in 1998 compared to 1997. North American revenues and International revenues
were 44% and 56% of total revenues, respectively.

         Selling and product materials expenses as a percent of revenues was
72.5% in 1998. Selling and product materials expenses decreased $1.1 million in
1998 compared to 1997 due to decreased product materials costs of $1.4 million
as the result of replacement of printed product documentation with compact disk
(CD) based product documentation and decreased capitalized software development
amortization costs resulting from all such capitalized costs being fully
amortized except for development costs related to future unreleased products,
offset by an increase in marketing activities resulting from the Xfactory
product introduction, demonstration CD's, sales collateral material, as well as
seminars and travel related to training activities for the Company's channel
partners.

         Product development expenses (net of capitalized software development
cost), which consisted primarily of labor costs, decreased $.9 million or 25% in
1998 compared to 1997. Actual product development expenditures, including
capitalized software development costs of $2.5 million in 1998 and $2.2 million
in 1997, decreased $.3 million or 5.6% in 1998 compared to 1997. The development
of the double-byte functionality supporting the Japanese, Chinese and Korean
languages in 1997 was one of the primary factors in the higher level of spending
in 1997 compared to 1998.

         General and administrative costs decreased $1.4 million or 19% in 1998
compared to 1997. As a percent of revenues, general and administrative decreased
to 26.1% in 1998 versus 32.9% in 1997. The decrease from 1997 was primarily
attributable to decreased provisions for bad debt expenses and organizational
restructuring expenses.

         The Company experienced a loss from continuing operations of $2.1
million in 1998 versus a loss of $3.9 million in 1997. The decrease in the loss
from continuing operations was primarily generated by an increase of $1.9
million in gross profit due to improved gross profit margins in combination with
increased revenues and a decrease of $2.0 million in operating expenses,
partially offset by a significant reduction in the tax benefit resulting from
the Company's inability to utilize tax net operating loss carrybacks in 1998
compared to 1997.

         Discontinued operations incurred a loss of $1.7 million in 1998
resulting from the loss on disposal and the loss from operations until the date
of disposal compared to income of $.2 million in 1997. The loss on disposal and
from operations until the date of disposal in 1998 were both affected by
declining revenues compared to prior years.


                                       13
<PAGE>   14


LIQUIDITY AND CAPITAL RESOURCES

         The Company's operating activities provided $1.2 million of cash for
the year ended December 31, 1999 compared to $.4 million for the same period in
1998, primarily due to improved collections on accounts receivable. Cash used in
investing activities was $10.1 million for the year ended December 31, 1999
primarily due to the acquisition of Smart Shop for $6.4 million in cash, plus
transaction costs of $.2 million. In addition, the Company invested $1.0 million
in capital equipment, primarily computers and equipment, and $2.5 million in
capitalized software development costs. The Company received $10.0 million in
cash related to the issuance of 1,204,819 shares of its common stock for $5.0
million and 50,000 shares of its Series A preferred stock for $5.0 million.

         The Company's capital asset requirements are generally funded through
internally generated funds. The Company anticipates that capital equipment
expenditures will be approximately $1.1 million in 2000.

         Working capital was approximately $3.1 million at December 31, 1999,
compared with approximately $3.0 million at December 31. 1998.

         On February 8, 2000 and March 24, 2000, the Company received $2.5
million and $2.5 million, respectively, in financings from a wholly owned
subsidiary of Safeguard. The Company has not finalized the terms and provisions
of these financings.

         The Company's liquidity needs are expected to arise primarily from
funding continued development, enhancement and support of its current and new
software products, and the related selling and marketing expenses. The Company
is in the process of seeking additional public or private debt or equity
financing to fund future growth opportunities or acquisitions. No assurance can
be given, however, that such debt or equity financing will be available to the
Company on terms and conditions acceptable to the Company, if at all.

YEAR 2000 COMPLIANCE

       The Company has evaluated the Year 2000 ("Y2K") issue and adjusted all
known date-sensitive systems and equipment for Y2K compliance. The assessment,
remediation and testing phases of the Y2K project are complete. The Company has
not encountered any material problems in its critical systems or products
subsequent to December 31, 1999 related to the Y2K issue and has not encountered
any material problems with its third party vendors and suppliers. The Company
will continue to monitor new issues or concerns relative to Y2K.

       To date, the Company has not incurred any material costs of compliance
with Y2K for its internal IT and non-IT computer systems. For primarily
operational purposes, the Company had been upgrading PCs and individual
applications running thereon throughout 1999, 1998 and 1997. The Company's
internal resources performed virtually all of the Y2K readiness issues and the
Company plans to use its internal resources to address any issues that may yet
arise.

       Although the Company to date has not experienced any significant problems
associated with Y2K, the Company cannot be certain that unexpected Y2K
compliance problems of its products, computer systems or the systems of its
vendors, customers and service providers, will not occur. Any such problems
could have a material adverse affect on the Company's business, financial
condition or operating results.

RECENT ACCOUNTING PRONOUNCEMENTS

         In June 1998, the Financial Accounting Standards Board released
Statement No. 133, "Accounting for Derivative Instruments and Hedging
Activities" ("SFAS 133"), as amended by SFAS No. 137, which is effective for
fiscal years beginning after June 15, 2000. Earlier application for certain
provisions of this standard is permitted. SFAS 133 establishes accounting and
reporting standards for derivative instruments. The Statement requires that an
entity recognize all derivatives as either assets or liabilities in the
financial statements and measure those instruments at fair value, and it defines
the accounting for changes in the fair value of the derivatives depending on the
intended use of the derivative. SFAS 133 is not expected to have a material
impact on the Company's consolidated results of operations, financial position
or cash flows.


                                       14
<PAGE>   15


ITEM 7A.    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

         The Company's exposure to market risk associated with changes in
interest rates relates to its variable rate bank note payable of $276,000.
Interest rate risk is estimated as the potential impact on the Company's results
of operations or financial position due to a hypothetical change of 50 basis
points in quoted market prices. This hypothetical change would not have a
material effect on the Company's results of operations and financial position.

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

         On November 11, 1999, we dismissed PricewaterhouseCoopers LLP as our
independent accountants and engaged KPMG LLP as our independent accountants. We
have retained KPMG LLP for the current year ending December 31, 2000. Our Audit
Committee participated in and approved the decision to change independent
accountants. The reports of PricewaterhouseCoopers LLP on the financial
statements for the past two fiscal years contained no adverse opinion or
disclaimer of opinion and were not qualified or modified as to uncertainty,
audit scope or accounting principle. In connection with its audits for the two
most recent fiscal years and through November 11, 1999, we have had no
disagreements with PricewaterhouseCoopers LLP on any matter of accounting
principles or practices, financial statement disclosure, or auditing scope or
procedure, which disagreements if not resolved to the satisfaction of
PricewaterhouseCoopers LLP would have caused them to make reference thereto in
their report on the financial statements for such years. PricewaterhouseCoopers
LLP furnished us with a letter addressed to the Securities and Exchange
Commission stating that it agreed with the above statements. A copy of the
letter, dated November 15, 1999, is filed as Exhibit 16 to our Current Report on
Form 8-K, filed with the Securities and Exchange Commission on November 11,
1999.

         A representative of KPMG LLP is expected to be present at the annual
meeting and will have an opportunity at the meeting to make a statement if he or
she desires to do so, and will be available to respond to appropriate questions.

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
from the Registrant's definitive Proxy Statement for its Annual Meeting of
Stockholders presently scheduled to be held in May 2000, which shall be filed
with the Securities and Exchange Commission within 120 days of the end of the
Registrant's last fiscal year (the "Proxy Statement").

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.

                                       15
<PAGE>   16



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

(a) (1)  FINANCIAL STATEMENTS

<TABLE>
<S>                                                                                     <C>
         Independent Auditors' Report for the Year Ended
                  December 31, 1999                                                     F-1

         Report of Independent Accountants for the Years Ended
                  December 31, 1998 and 1997                                            F-2

         Consolidated Balance Sheets as of
                  December 31, 1999 and 1998                                            F-3

         Consolidated Statements of Operations and Comprehensive Income
                  for the Years Ended December 31, 1999, 1998 and 1997                  F-4

         Consolidated Statements of Stockholders' Equity for the Years Ended
                  December 31, 1999, 1998 and 1997                                      F-5

         Consolidated Statements of Cash Flows for the Years Ended
                  December 31, 1999, 1998 and 1997                                      F-6

         Notes to Consolidated Financial Statements                                     F-7

(a) (2)  FINANCIAL STATEMENT SCHEDULES

         Schedule II - Valuation and Qualifying Accounts                                F-19
</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

                  On October 20, 1999, the Company filed an Amended Current
         Report on Form 8-K to include financial information relating to a
         Current Report on Form 8-K on August 16, 1999.

                  On November 16, 1999, the Company filed a Current Report on
         Form 8-K to announce the Company's change in independent accountants.

(c)      EXHIBITS
         Exhibit No.       Description

             3.1           Certificate of Incorporation of the Company, as
                           amended.#
             3.2           By-laws of the Company.*
             4.1           Specimen stock certificate representing the Common
                           Stock.***
             4.2           Specimen stock certificate representing the Preferred
                           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.*
            10.8           Administrative Services Agreement between Safeguard
                           Scientifics, Inc. and the Company.***


                                       16
<PAGE>   17


          10.9             First Amendment to Office Lease Agreement, dated as
                           of June 1992 by and between Carter-Crowley
                           Properties, Inc. and the Company.****
          10.10            Stock Purchase Agreement, dated August 6, 1999, by
                           and between the Company and Safeguard Delaware, Inc.#
          10.11            Investors' Rights Agreement, dated August 6, 1999, by
                           and among the Company, Safeguard Delaware, Inc. and
                           Safeguard Scientifics, Inc.#
          11.1             Statement regarding computation of earnings per
                           share.#
          21.1             Subsidiaries of the Registrant.*
          23.1             Consent of KPMG LLP.#
          23.2             Consent of PricewaterhouseCoopers LLP.#
          24.1             Power of Attorney (included on signature page).
          27.1             Financial data schedule. (EDGAR version only).

------------
#        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 as 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 as 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.
****     Filed on March 31, 1998 as an exhibit to the Company's Annual Report on
         Form 10-K for the fiscal year ended December 31, 1997.


                                       17
<PAGE>   18


                          INDEPENDENT AUDITORS' REPORT


THE STOCKHOLDERS AND BOARD OF DIRECTORS OF
USDATA CORPORATION:

         We have audited the accompanying consolidated balance sheet of USDATA
Corporation and subsidiaries as of December 31, 1999, and the related
consolidated statements of operations and comprehensive loss, stockholders'
equity, and cash flows for the year then ended. In connection with our audit of
the consolidated financial statements, we also have audited the financial
statement schedule as listed in the accompanying index. The consolidated
financial statements and financial statement schedule are the responsibility of
the Company's management. Our responsibility is to express an opinion on the
consolidated financial statements and financial statement schedule based on our
audit.

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

         In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of USDATA
Corporation and subsidiaries as of December 31, 1999, and the results of their
operations and their cash flows for the year then ended in conformity with
generally accepted accounting principles. Also, in our opinion, the related
financial statement schedule, when considered in relation to the basic financial
statements taken as a whole, presents fairly, in all material respects, the
information set forth therein.



                                                   KPMG LLP


Dallas, Texas
February 12, 2000



                                      F-1
<PAGE>   19


                        REPORT OF INDEPENDENT ACCOUNTANTS


TO THE BOARD OF DIRECTORS AND STOCKHOLDERS OF USDATA CORPORATION

In our opinion, the consolidated balance sheet and the related consolidated
statements of operations and comprehensive income, of stockholders' equity and
of cash flows listed in the index appearing under Item 14 (a) (1) and (2) on
page 16 present fairly, in all material respects, the financial position of
USDATA Corporation and its subsidiaries (the "Company") at December 31, 1998 and
the results of their operations and their cash flows for each of the two years
in the period ended December 31, 1998, 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
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.


                                      PricewaterhouseCoopers LLP

Dallas, Texas
February 12, 1999


                                      F-2
<PAGE>   20

                       USDATA CORPORATION AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEETS
                 (In thousands, except share and per share data)

<TABLE>
<CAPTION>
                                                                                DECEMBER 31,
                                                                          ------------------------
                                                                             1999          1998
                                                                          ----------    ----------
<S>                                                                       <C>           <C>
ASSETS
Current assets:
  Cash and cash equivalents                                               $    2,962    $    1,980
  Accounts receivable, net of allowance for doubtful
     accounts of $453 and $1,150, respectively                                 6,626         6,095
  Deferred income taxes                                                           --           533
  Other current assets                                                           727           475
                                                                          ----------    ----------
             Total current assets                                             10,315         9,083
                                                                          ----------    ----------

Property and equipment, net                                                    2,162         1,825
Capitalized computer software development costs, net                           6,645         4,127
Software held for resale, net                                                  1,079         1,286
Cost in excess of fair value of tangible net assets purchased, net             4,742            --
Intangible and other assets                                                    1,924            80
                                                                          ----------    ----------
             Total assets                                                 $   26,867    $   16,401
                                                                          ==========    ==========

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
  Accounts payable                                                        $    1,746    $      755
  Deferred revenue                                                             2,170         2,005
  Accrued compensation and benefits                                            2,226         1,274
  Short-term and current portion of long-term debt                                62            --
  Other accrued liabilities                                                    1,021         2,072
                                                                          ----------    ----------
             Total current liabilities                                         7,225         6,106
                                                                          ----------    ----------
Long-term debt, less current portion                                             388            --
                                                                          ----------    ----------
             Total liabilities                                                 7,613         6,106
                                                                          ----------    ----------

Commitments and contingencies

Redeemable Convertible Preferred Stock, Series A, $.01 par value,
   with a redemption and liquidation value of $103 per share,
   100,000 shares authorized; 50,000 shares issued and outstanding             5,167            --

Stockholders' equity:
  Preferred stock, $.01 par value, 2,200,000 shares authorized;
     none issued                                                                  --            --
  Common stock, $.01 par value, 22,000,000 shares
    authorized; 15,625,951 issued in 1999 and 14,343,550
    issued in 1998                                                               156           143
  Additional paid-in capital                                                  21,952        16,534
  Deferred compensation                                                       (1,278)           --
  Retained earnings                                                            2,523         5,106
  Treasury stock at cost, 2,452,316 shares in 1999
     and 3,106,184 shares in 1998                                             (8,434)      (10,929)
Accumulated other comprehensive loss                                            (832)         (559)
                                                                          ----------    ----------
             Total stockholders' equity                                       14,087        10,295
                                                                          ----------    ----------
             Total liabilities and stockholders' equity                   $   26,867    $   16,401
                                                                          ==========    ==========
</TABLE>

See accompanying notes to consolidated financial statements.


                                      F-3
<PAGE>   21


                       USDATA CORPORATION AND SUBSIDIARIES
          CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
                      (In thousands, except per share data)

<TABLE>
<CAPTION>
                                                                             YEAR ENDED DECEMBER 31,
                                                                     --------------------------------------
                                                                        1999          1998          1997
                                                                     ----------    ----------    ----------
<S>                                                                  <C>           <C>           <C>
Revenues:
     Product license                                                 $   22,990    $   19,330    $   17,378
     Services                                                             4,055         3,531         5,003
                                                                     ----------    ----------    ----------
Total revenues                                                           27,045        22,861        22,381
                                                                     ----------    ----------    ----------
Operating expenses:
     Selling and product materials                                       17,784        16,574        17,664
     Product development                                                  2,901         2,684         3,574
     General and administrative                                           6,452         5,962         7,372
     Non-cash stock compensation                                            659            --            --
     Amortization of intangible assets                                      595            --            --
     Purchased in process research and development                          476            --            --
                                                                     ----------    ----------    ----------
Total operating expenses                                                 28,867        25,220        28,610
                                                                     ----------    ----------    ----------
Loss from operations                                                     (1,822)       (2,359)       (6,229)
Other income, net                                                           114           198           310
                                                                     ----------    ----------    ----------
Loss from continuing operations before income taxes                      (1,708)       (2,161)       (5,919)
Income tax (provision) benefit                                             (708)           67         2,012
                                                                     ----------    ----------    ----------
Loss from continuing operations                                          (2,416)       (2,094)       (3,907)
Discontinued operations:
     Income (loss) from discontinued operations
          (net of income taxes of $0, and $112, respectively)                --          (219)          217
     Loss on disposal of discontinued operations,
          including operating losses of $250                                 --        (1,500)           --
                                                                     ----------    ----------    ----------
Net loss                                                                 (2,416)       (3,813)       (3,690)
Dividends on preferred stock                                               (167)           --            --
                                                                     ----------    ----------    ----------
Net loss applicable to common stockholders                           $   (2,583)   $   (3,813)   $   (3,690)
                                                                     ==========    ==========    ==========
Other comprehensive loss:
     Foreign currency translation adjustment                               (273)         (559)           --
                                                                     ----------    ----------    ----------
Comprehensive loss                                                   $   (2,856)   $   (4,372)   $   (3,690)
                                                                     ==========    ==========    ==========
Earnings per common share:
     Basic and diluted
        Loss from continuing operations                              $    (0.22)   $    (0.19)   $    (0.35)
        Income (loss) from discontinued operations                           --         (0.15)         0.02
                                                                     ----------    ----------    ----------
        Net loss per common share                                    $    (0.22)   $    (0.34)   $    (0.33)
                                                                     ==========    ==========    ==========
     Weighted average shares outstanding:
        Basic and diluted                                                11,849        11,196        11,066
                                                                     ==========    ==========    ==========
</TABLE>

See accompanying notes to consolidated financial statements.


                                      F-4
<PAGE>   22


                       USDATA CORPORATION AND SUBSIDIARIES
                 CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
                                 (In thousands)



<TABLE>
<CAPTION>
                                           Common Stock       Additional  Subscription    Deferred                 Treasury Stock
                                       ---------------------   Paid-in     Receivable       Stock     Retained  -------------------
                                        Shares       Amount    Capital    from Officer  Compensation  Earnings   Shares     Amount
                                       ---------    --------  ----------  ------------  ------------  --------  --------   --------
<S>                                    <C>          <C>       <C>         <C>           <C>           <C>       <C>        <C>
Balance, at
  December 31, 1996                       14,343    $    143  $   16,282  $     (1,095) $         --  $ 12,609    (3,288)  $(11,291)
     Exercise of stock options                                        83                                             240        696
     Termination of subscription
       receivable from officer                                                   1,095                              (274)      (959)
     Net loss                                                                                           (3,690)
                                       ---------    --------  ----------  ------------  ------------  --------  --------   --------

Balance, at
  December 31, 1997                       14,343         143      16,365            --                   8,919    (3,322)   (11,554)
     Exercise of stock options                                       169                                             216        625
     Net loss                                                                                           (3,813)
      Foreign currency translation
         adjustment
                                       ---------    --------  ----------  ------------  ------------  --------  --------   --------
 Balance, at
   December 31, 1998                      14,343         143      16,534            --                   5,106    (3,106)   (10,929)
     Exercise of stock options                                        12                                              52        184
     Exercise of common stock warrants        78           1          77                                             (22)       (78)
     Issuance of common stock              1,205          12       5,173                                             668      2,545
     Deferred compensation                                                                    (1,278)
     Acquisition of common stock                                     156                                             (44)      (156)
     Net loss                                                                                           (2,416)
     Preferred stock dividends                                                                            (167)
     Foreign currency translation
        adjustment
                                       ---------    --------  ----------  ------------  ------------  --------  --------   --------
 Balance, at
   December 31, 1999                      15,626    $    156  $   21,952            --  $     (1,278) $  2,523    (2,452)  $ (8,434)
                                       =========    ========  ==========  ============  ============  ========  ========   ========

<CAPTION>
                                         Accumulated
                                            Other          Total
                                        Comprehensive  Stockholders'
                                            Loss           Equity
                                        -------------  -------------
<S>                                     <C>            <C>
Balance, at
  December 31, 1996                     $          --  $      16,648
     Exercise of stock options                                   779
     Termination of subscription
       receivable from officer                                   136
     Net loss                                                 (3,690)
                                        -------------  -------------

Balance, at
  December 31, 1997                                           13,873
     Exercise of stock options                                   794
     Net loss                                                 (3,813)
      Foreign currency translation
         adjustment                              (559)          (559)
                                        -------------  -------------
 Balance, at
   December 31, 1998                             (559)        10,295
     Exercise of stock options                                   196
     Exercise of common stock warrants                            --
     Issuance of common stock                                  7,730
     Deferred compensation                                    (1,278)
     Acquisition of common stock                                  --
     Net loss                                                 (2,416)
     Preferred stock dividends                                  (167)
     Foreign currency translation
        adjustment                              (273)          (273)
                                        -------------  -------------
 Balance, at
   December 31, 1999                    $        (832) $      14,087
                                        =============  =============
</TABLE>


See accompanying notes to the consolidated financial statements.



                                       F-5
<PAGE>   23


                       USDATA CORPORATION AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (In thousands)

<TABLE>
<CAPTION>
                                                                            YEAR ENDED DECEMBER 31,
                                                                  -----------------------------------------
                                                                     1999           1998           1997
                                                                  -----------    -----------    -----------
<S>                                                               <C>            <C>            <C>
Cash flows from operating activities:
Net loss                                                          $    (2,416)   $    (3,813)   $    (3,690)
   Adjustments to reconcile net loss
   to net cash provided by operating activities:
       Depreciation and amortization                                    1,687          1,448          2,633
       Non-cash compensation                                              659             --             --
       Purchased in process research and development                      476             --             --
       Loss on disposal                                                    --          1,719             --
       Changes in assets and liabilities net of working
          capital adjustments for acquisition:
              Accounts receivable                                          39         (1,522)         2,280
              Income tax receivable                                        --             --          1,050
              Deferred income taxes                                       533          1,083         (1,023)
              Other - net                                                (108)            74            268
              Accounts payable and accrued liabilities                    223            387             72
              Accrued compensation and benefits                           871            319            342
              Deferred revenue                                           (765)           748           (309)
                                                                  -----------    -----------    -----------
              Net cash provided by operating activities                 1,199            443          1,623
                                                                  -----------    -----------    -----------
Cash flows from investing activities:
       Capital expenditures                                            (1,047)          (536)        (1,263)
       Acquisition                                                     (6,560)            --             --
       Capitalized software development costs                          (2,518)        (2,549)        (2,160)
       Software held for resale                                            --         (1,345)            --
       Proceeds from sale of discontinued operation                        --            300             --
                                                                  -----------    -----------    -----------
              Net cash used in investing activities                   (10,125)        (4,130)        (3,423)
                                                                  -----------    -----------    -----------
Cash flows from financing activities:
       Proceeds from issuance of common shares                          5,196            794            779
       Proceeds from issuance of Series A preferred shares              5,000             --             --
       Payments on long-term debt and capital leases                      (15)            (5)           (56)
                                                                  -----------    -----------    -----------
              Net cash provided by financing activities                10,181            789            723
                                                                  -----------    -----------    -----------
Cash flows from discontinued operations                                    --            233           (117)
                                                                  -----------    -----------    -----------
Effect of exchange rate changes on cash                                  (273)          (559)            --
                                                                  -----------    -----------    -----------
Net increase (decrease) in cash and cash equivalents                      982         (3,224)        (1,194)
Cash and cash equivalents, beginning of period                          1,980          5,204          6,398
                                                                  -----------    -----------    -----------
Cash and cash equivalents, end of period                          $     2,962    $     1,980    $     5,204
                                                                  ===========    ===========    ===========
Supplemental disclosures of cash flow information:
       Cash paid during the period for:
              Interest                                            $        14    $        --    $        --
              Income taxes                                        $        --    $        16    $        25
                                                                  ===========    ===========    ===========
</TABLE>

See accompanying notes to the consolidated financial statements.


                                      F-6
<PAGE>   24


USDATA CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------

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

DESCRIPTION OF BUSINESS

          USDATA Corporation (the "Company") is a global supplier of
component-based production software that is designed to help customers reduce
operating costs, shorten cycle times and improve product quality in their
manufacturing operations. The Company's software enables manufacturers to access
more accurate and timely information - whether they are on the plant floor, in
the office, or around the globe. The Company's solutions span the full range of
manufacturing, from monitoring equipment to tracking product flow, and are
designed to integrate seamlessly with customers' existing manufacturing and
business software. This combination of product breadth and ease of integration
is intended to provide a total plant solution that defines new levels of
manufacturing performance and gives customers a distinct competitive advantage.
The Company provides this knowledge through software products and services and
delivers it through a community of business partners. The Company has channel
support locations throughout the United States and Europe. The Company's
distributors have sales locations throughout North and South America, Europe,
the Far East and the Middle East.

          The Company's family of software products, marketed under the names of
FactoryLink, Xfactory, Connector, Analysis and Smart Manager provide a powerful
set of software tools and applications designed for users who are technically
competent but who may not be experienced software programmers.


RECLASSIFICATIONS AND BASIS OF PRESENTATION

       Certain prior year balances have been reclassified to conform to the 1999
presentation.

USE OF ESTIMATES

       Management of the Company has made a number of estimates and assumptions
related to the reporting of assets and liabilities and the disclosure of
contingent assets and liabilities in preparation of these consolidated financial
statements in conformity with generally accepted accounting principles. Actual
results could differ from those estimates.

PRINCIPLES 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.

CASH EQUIVALENTS

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

PROPERTY AND EQUIPMENT

       Property and equipment are stated at original cost. Maintenance and
repairs are charged to expense as incurred, and the costs of additions and major
betterments and replacements 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 lesser of the term of the
respective leases or estimated useful life of the improvement.

CAPITALIZED SOFTWARE

       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 1999,
1998 and 1997 were $2.5 million, $2.5 million, and $2.2 million, respectively.
The total costs amortized and charged to operations for 1998 and 1997 were $.4
million and $1.4 million, respectively. No costs were amortized in 1999.


                                      F-7
<PAGE>   25



USDATA CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------

SOFTWARE HELD FOR RESALE

         In 1998, the Company purchased the underlying source code for a certain
software product, which is held for resale in the ordinary course of business.
The original purchase costs of such software were capitalized and are being
amortized utilizing the straight-line method over the estimated economic life of
three years. Total costs amortized and charged to cost of sales for 1999 and
1998 were $237 thousand and $59 thousand, respectively.

EXCESS OF COST OVER FAIR VALUE OF NET ASSETS OF BUSINESS ACQUIRED

         The excess of cost over fair value of net assets of business acquired
is being amortized on a straight-line basis over a period of 5 years.
Accumulated amortization was $427 thousand at December 31, 1999. The Company
continually evaluates the excess of cost over fair value of net assets of
businesses acquired for indications of impairment based on the forecasted
undiscounted cash flow from the related business activity. The amount of
goodwill impairment, if any, is measured based upon projected discounted future
operating cash flows using a discount rate reflecting the Company's average cost
of funds. The assessment of the recoverability of excess cost over fair value of
net assets of business acquired will be impacted if estimated future operating
cash flows are not achieved. The Company believes that no such impairment has
occurred and that no reduction in estimated useful lives is warranted.

INTANGIBLE AND OTHER ASSETS

         Intangible and other assets includes identifiable intangible assets
acquired, consisting of $1.7 million in developed technology, less accumulated
amortization of $147 thousand, and $251 thousand in assembled work force, less
$21 thousand in accumulated amortization, at December 31, 1999. These intangible
assets are amortized on a straight-line basis over the expected useful lives of
the assets of five years.

IMPAIRMENT OF LONG-LIVED ASSETS

       Long-lived assets and certain identifiable intangibles are reviewed for
impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. Recoverability of assets to
be held and used is measured by a comparison of the carrying amount of an asset
to future net cash flows expected to be generated by the asset. If such assets
are considered to be impaired, the impairment is measured by the amount by which
the carrying amount of the assets exceeds the fair value of the assets. Assets
to be disposed of are reported at the lower of the carrying amount or fair value
less cost to sell.

REVENUE RECOGNITION

         Revenue from the licensing of software products is generally recognized
when the following criteria have been met: (a) a written contract for the
license of software has been executed, (b) the Company has delivered the product
to the customer, (c) the license fee is fixed or determinable, and (d)
collectibility of the resulting receivable is deemed probable. 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. Revenues are presented net of
estimated returns, which historically have not been significant.

STOCK-BASED COMPENSATION

       In 1996, the Company adopted Statement of Financial Accounting Standards
("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 disclosure 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.

                                      F-8
<PAGE>   26


USDATA CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------

INCOME TAXES

       Income taxes are accounted for under the asset and liability method. This
method 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.

FINANCIAL INSTRUMENTS

       The carrying values of cash equivalents, accounts receivable and accounts
payable approximate fair value due to their short maturities. The carrying value
of the Company's bank note payable at December 31, 1999 approximates fair value
as this note payable bears interest at market rates.

NET LOSS PER SHARE OF COMMON STOCK

        Net loss per share of common stock is presented in accordance with the
provisions of SFAS No. 128, Earnings Per Share. Under SFAS No. 128, basic loss
per share excludes dilution for potentially dilutive securities and is computed
by dividing income or loss available to common stockholders by the weighted
average number of common shares outstanding during the period. Diluted
earnings(loss) per share reflects the potential dilution that could occur if
securities or other contracts to issue common stock were exercised or converted
into common stock. Potentially dilutive securities are excluded from the
computation of diluted earnings(loss) per share when their inclusion would be
antidilutive.

       Options to purchase 1.7 million, 1.2 million, and 1.2 million shares of
common stock for 1999, 1998 and 1997, respectively, and warrants to acquire 0.7
million, 0.8 million and 0.8 million shares of common stock for 1999, 1998 and
1997, respectively, were not included in the computation of diluted earnings per
share as their impact would be antidilutive.

FOREIGN CURRENCY TRANSLATION

         The Company translates the balance sheets of its foreign subsidiaries
using year-end exchange rates and translates statement of operations amounts
using the average exchange rates in effect during the year. The gains and losses
resulting from the change in exchange rates from year to year have been reported
separately as a component of accumulated other comprehensive income (loss) in
stockholders' equity. Gains and losses resulting from foreign currency
transactions are included in the statements of operations.

CONCENTRATION OF CREDIT RISK

         The Company licenses software and provides services to established
companies. The Company performs credit evaluations of its customers and
generally does not require collateral. The Company maintains reserves for
estimated credit losses. At December 31, 1999, the Company had two customers
with outstanding accounts receivable balances of approximately $1.3 million and
$1.7 million, respectively. In addition, these customers represented
approximately 18% and 6%, respectively, of the Company's revenues for 1999. At
December 31, 1998, the Company had one customer with an outstanding accounts
receivable balance of approximately $1.2 million. This customer represented
approximately 18% and 13% of the Company's revenues for 1998 and 1997,
respectively.

2.       ACQUISITION

         On August 6, 1999, the Company completed its acquisition of
substantially all of the assets and certain liabilities of Smart Shop Software,
Inc. ("Smart Shop") for $6.4 million in cash, plus transaction costs of $.2
million. This acquisition has been accounted for under the purchase method of
accounting. The excess purchase price over the estimated fair value of net
tangible assets has been allocated to various intangible assets, consisting of
developed technology of $1.8 million, assembled work force of $251 thousand and
goodwill of $5.2 million, all of which are being amortized to expense on a


                                      F-9
<PAGE>   27



USDATA CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
straight-line basis over 5 years. Accumulated amortization at December 31, 1999
was $147 thousand, $21 thousand and $427 thousand, respectively. In addition,
$476 thousand of the purchase price was allocated to in-process research and
development costs. In-process research and development relates to several of
Smart Shop's research and development projects at various stages of development
related to Smart Manager 7.0, on which version Smart Shop began development in
March 1999. The value assigned to in-process research and development was
determined based on management's estimates of the percentage of completion of
the underlying development efforts, resulting net cash flows from Smart Manager
7.0 and the discounting of such cash flows back to their present value. The
results of the acquired business have been included in the consolidated
financial statements since the date of acquisition of August 6, 1999.

         In connection with the acquisition, the Company also issued 500,000
shares of common stock to certain former shareholders of Smart Shop who became
employees of the Company. The shares of common stock are held in escrow as
collateral for performance under the purchase agreement and shall be released
from escrow to the shareholders in six tranches each six months following the
closing date of August 6, 1999. In connection with these shares, deferred stock
compensation of $1.9 million was recorded in stockholders' equity. The deferred
stock compensation is being recognized as compensation expense over 36 months,
as the restrictions lapse. The Company recorded a non-cash compensation charge
of $659 thousand for the period ended December 31, 1999 related to the initial
amortization of this compensation charge.

         The following unaudited pro forma information presents the results of
operations of the Company as if the acquisition had occurred on January 1, 1999
and on January 1, 1998 and excludes the write-off of acquired in-process
research and development.

<TABLE>
<CAPTION>
(in thousands, except per share amounts)            Year Ended December 31,
                                                    -----------------------
                                                      1999           1998
                                                    --------       --------
                                                          (unaudited)
<S>                                                 <C>            <C>
Revenues                                            $ 28,673       $ 25,255
Net loss applicable to common stock                 $ (3,901)      $ (7,544)
Net loss per share:
   Basic and diluted                                $  (0.33)      $  (0.61)
                                                    ========       ========
</TABLE>

3.    PROPERTY AND EQUIPMENT

         The components of property and equipment at December 31, 1999 and 1998
were as follows:


<TABLE>
<CAPTION>
(in thousands)                           1999        1998
                                       --------    --------
<S>                                    <C>         <C>
Equipment                              $  6,697    $  6,151
Software                                  1,154       1,115
Furniture and fixtures                      554         384
Leasehold improvements                       42         178
Vehicles                                     16         256
Assets under capital leases                  85         185
                                       --------    --------
                                          8,548       8,269
 Accumulated depreciation
    and amortization                     (6,386)     (6,444)
                                       --------    --------

Net property and equipment             $  2,162    $  1,825
                                       ========    ========
</TABLE>



                                      F-10
<PAGE>   28


USDATA CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------

4.    DEBT

         In conjunction with the acquisition described in Note 2, the Company,
through its wholly owned subsidiary, assumed a promissory note with a bank in
the amount of $297 thousand of which $276 thousand was outstanding at December
31, 1999. The note agreement requires monthly installments of $7 thousand
including interest at the bank prime rate plus 1.5% (10% at December 31, 1999).
The note is collateralized by all accounts receivable, inventory, general
intangibles, equipment and fixtures of the wholly-owned subsidiary. The
promissory note is guaranteed by the Company and the final payment of the
outstanding balance is due in August 2003. Interest paid in 1999 totaled $10
thousand.

         In connection with the Smart Shop acquisition, the Company assumed a
$174 thousand noninterest-bearing note payable to a former Smart Shop
shareholder. The note is due in its entirety on August 5, 2005.

5.    INCOME TAXES

         The components of loss before income taxes including discontinued
operations for the years ended December 31, 1999, 1998 and 1997 included the
following:

<TABLE>
<CAPTION>
(in thousands)                1999         1998         1997
                          ----------   ----------   ----------
<S>                       <C>          <C>          <C>
United States             $   (1,708)  $   (3,888)  $   (5,591)
Foreign                           --            8            1
                          ----------   ----------   ----------
                          $   (1,708)  $   (3,880)  $   (5,590)
                          ==========   ==========   ==========
</TABLE>


         The components of income tax benefit (expense) for the years ended
December 31, 1999, 1998 and 1997 are as follows:

<TABLE>
<CAPTION>
(in thousands)                           1999           1998           1997
                                      -----------    -----------    -----------
<S>                                   <C>            <C>            <C>
Current:
  Federal                             $        --    $     1,482    $       801
  State                                        --            174             --
  Foreign                                    (175)            --             --
                                      -----------    -----------    -----------
                                             (175)         1,656            801
                                      -----------    -----------    -----------
Deferred:
  Federal                                    (484)        (1,518)         1,099
  State                                       (49)           (71)
                                      -----------    -----------    -----------
                                             (533)        (1,589)         1,099
                                      -----------    -----------    -----------
  Income tax (expense) benefit        $      (708)   $        67    $     1,900
                                      ===========    ===========    ===========
</TABLE>


                                      F-11
<PAGE>   29


USDATA CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------


         Benefit (provision) for income taxes differed from the amounts computed
by applying the U.S. Federal statutory income tax rate of 34% to loss before
taxes as a result of the following for the years ended December 31, 1999, 1998
and 1997:

<TABLE>
<CAPTION>
(in thousands)                           1999          1998          1997
                                      ----------    ----------    ----------
<S>                                   <C>           <C>           <C>
Expected tax benefit                  $      581    $    1,316    $    1,900
Research and development
 credit                                       --           201            --
State taxes, net of federal
 benefit                                      --            68            --
Change in valuation allowance             (1,024)       (1,521)           --
Change in prior year estimate               (175)           --            --
Other                                        (90)            3            --
                                      ----------    ----------    ----------
Income tax (provision) benefit        $     (708)   $       67    $    1,900
                                      ==========    ==========    ==========
</TABLE>


The components of the net deferred tax asset at December 31, 1999 and 1998 were
as follows:



<TABLE>
<CAPTION>
(in thousands)                                      1999       1998
                                                  --------   --------
<S>                                               <C>        <C>
Deferred taxes from continuing operations:
   Deferred tax assets:
      Net operating loss                          $  4,160   $  2,698
      Allowance for doubtful accounts                  169        430
      Accrued benefits                                  40        153
      Credits                                          506        506
      Intangible assets                                321
      Compensation                                     247
      Other                                            137         65
      Valuation allowance                           (2,545)    (1,521)
                                                  --------   --------
                                                  $  3,035   $  2,331
                                                  ========   ========
   Deferred tax liabilities:
      Depreciation                                     308        253
      Capitalized software                           2,622      1,545
      Other                                            105         --
                                                  --------   --------
                                                  $  3,035   $  1,798
                                                  ========   ========
</TABLE>


         At December 31, 1999, the Company had net operating loss carryforwards
of approximately $11.1 million, which will expire beginning in 2018.

         In assessing the realizability of deferred tax assets, the Company
considers whether it is more likely than not that some portion or all of the
deferred tax assets will not be realized. The ultimate realization of deferred
tax assets depends on the generation of future taxable income during the periods
in which those temporary differences become deductible. The Company considers
the scheduled reversal of deferred tax liabilities, projected future taxable
income, and tax planning strategies in making this assessment. Based upon these
considerations, the Company has fully reserved all deferred tax assets to the
extent such assets exceed deferred tax liabilities.


                                      F-12
<PAGE>   30


USDATA CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------

6.     DISCONTINUED OPERATIONS


         Effective July 1, 1998, the Company sold its Auto ID hardware
integration and servicing business ("Systems Operations"). In conjunction
therewith, during the first quarter of 1998, the Company reported a loss of
$1.25 million related to the disposal thereof and $469 thousand related to
operations through the date of disposal. As a result of this action, the
Company's revenues and operating expenses for the periods presented herein
reflect only the Software Operations with the net results of the Systems
Operations reported on its statements of operations under the caption
"Discontinued Operations". Revenues related to the Systems Operations were $3.1
million and $12.9 million for the years ended December 31, 1998 and 1997,
respectively.

7.     STOCKHOLDERS' EQUITY AND REDEEMABLE CONVERTIBLE PREFERRED STOCK

PREFERRED STOCK

         The board of directors is authorized, subject to certain limitations
and without stockholder approval, to issue up to 2.2 million shares of preferred
stock in one or more series and to fix the rights and preferences of each
series. In 1999, the board of directors designated 100,000 shares of authorized
but unissued preferred stock as Series A convertible preferred stock.

REDEEMABLE CONVERTIBLE PREFERRED STOCK

         On August 6, 1999, the Company issued through a private placement
50,000 shares of the Company's Series A convertible Preferred Stock for $5.0
million to a wholly-owned subsidiary of Safeguard Scientifics, Inc.
("Safeguard"), the Company's primary shareholder. The Series A Preferred Stock
has a par value of $.01 per share and a liquidation preference of $100 per share
plus cumulative dividends and interest. The Company is obligated to redeem the
shares at $100 per share plus accumulated dividends and interest at any time
after December 31, 2002. Dividends on the Series A Preferred Stock are
cumulative and payable at a rate of $8.00 per share per annum and in preference
to any dividends on the Company's common stock. Cumulative dividends are
interest bearing. The preferred stock is convertible at any time into shares of
common stock of the Company or into shares of common stock of any majority owned
subsidiary of the Company, at the election of the holder at a conversion rate of
$4.65 per share of common stock. At December 31, 1999, the aggregate redemption
value was $5,167 thousand based on cumulative dividends and interest of $167
thousand.

WARRANTS TO PURCHASE COMMON STOCK

         In 1994, the Company issued warrants to Safeguard and a director of the
Company to purchase common stock of the Company. The warrants entitled Safeguard
and the director to purchase 698,238 and 77,582 shares, respectively, of common
stock of the Company at an exercise price of $3.02 per share. These warrants
expire in November 2001. In December 1999, the director exercised his warrant to
purchase 77,582 shares of the Company's common stock. Warrants to purchase
698,238 shares of common stock are outstanding at December 31, 1999.

8.   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 was amended in 1999 to
provide for the issuance of up to 2,500,000 shares of common stock pursuant to
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 generally 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 a eight-year term and vest over four years. At
December 31, 1999, there were 253,000 shares available for future grant under
the 1994 Plan.

         The Company applies APB Opinion No. 25 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


                                      F-13
<PAGE>   31


USDATA CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------


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
loss and related per share amounts would have been reflected by the following
pro forma amounts for the years ended December 31, 1999, 1998 and 1997:

<TABLE>
<CAPTION>
(in thousands)                                                     1999        1998        1997
                                                                 --------    --------    --------
<S>                                           <C>                <C>         <C>         <C>
Net loss applicable to common stockholders    As reported        $ (2,583)   $ (3,813)   $ (3,690)
                                              Pro forma            (3,405)     (4,536)     (3,908)

Basic and diluted net loss per share          As reported           (0.22)      (0.34)      (0.33)
                                              Pro forma             (0.29)      (0.40)      (0.35)
                                                                 ========    ========    ========
</TABLE>


       The pro forma net loss reflects only options granted since January 1,
1995. Compensation cost is reflected over the options' vesting period.

       The grant date per share weighted average value of stock options granted
by the Company during the years ended December 31, 1999, 1998 and 1997 was
$4.02, $3.07 and $2.70, respectively.

         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>
                                         1999             1998             1997
                                     -----------      -----------      ----------
<S>                                  <C>              <C>              <C>
Dividend yield                            0                0                0
Expected volatility                      95%              75%              64%
Risk-free rate of return             5.3% to 6.6%     4.4% to 5.8%     5.9% to 6.5%
Expected option life                   5 years          5 years          5 years
                                     ===========      ===========      ===========
</TABLE>


Option activity under the Company's Plans is summarized as follows:

<TABLE>
<CAPTION>
(in thousands, except share prices)                      1999                   1998                 1997
                                                 --------------------------------------------------------------------
                                                              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                  1,162    $     4.23      1,233  $   4.37     1,129    $     4.82
Options granted                                       573          3.57        404      4.72       800          4.38
Options exercised, expired and canceled               (83)         4.41       (475)     4.80      (696)         5.12
                                                 --------    ----------   --------  --------  --------    ----------
Outstanding at end of period                        1,652    $     4.02      1,162  $   4.23     1,233    $     4.37
                                                 --------    ----------   --------  --------  --------    ----------

Options exercisable at year-end                       504                      296                 316
Shares available for future grant                     253                      295                 440
</TABLE>


                                      F-14
<PAGE>   32


USDATA CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------

The following summarizes information about the Company's stock options
outstanding at December 31, 1999 (in thousands, except share prices):

<TABLE>
<CAPTION>
                                       Options Outstanding                            Options Exercisable
                       -----------------------------------------------------     ----------------------------
                                           Weighted Avg.
                                            Remaining
                         Number          Contractual Life      Weighted Avg.       Number       Weighted Avg.
 Range of Exercise     Outstanding          (in years)        Exercise Price     Exercisable   Exercise Price
-------------------    -----------       ----------------     --------------     -----------   --------------
<S>                    <C>               <C>                  <C>                <C>           <C>
$  2.50    -  $3.50            481             6.4                    $ 3.10             100           $ 3.50
$  3.63    -  $3.94            478             6.0                      3.87             196             3.85
$  4.00    -  $4.88            624             6.7                      4.49             174             4.46
$  5.00    -  $8.88             67             5.4                      6.34              34             5.99
$12.63    -  $13.56              2             7.9                     13.37               0               --
                       -----------                                               -----------
                             1,652             6.3                      4.02             504             4.14
                       ===========                                               ===========
</TABLE>

9.    RETIREMENT PLAN

         The Company maintains a discretionary defined contribution plan
covering substantially all employees. During the years ended December 31, 1999,
1998 and 1997, the Company made contributions of approximately $.1 million, $89
thousand and $.1 million, respectively, to this plan.

10.   RELATED PARTY TRANSACTIONS

         Safeguard Scientifics, Inc. "Safeguard" owns approximately 40% of the
Company's outstanding common stock, on a fully diluted basis. 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 thousand 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 statements of operations
includes $.4 million of such administrative service fees for the years ended
December 31, 1999, 1998 and 1997. Additionally, in 1999 the Company paid $48
thousand for legal fees and in 1998 the Company paid $75 thousand for consulting
services to Safeguard, which were 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 revenues includes $1.3 million, $1.1 million and $.5 million of
sales to this distributor for the years ended December 31, 1999, 1998 and 1997,
respectively. Accounts receivable from this customer were $291 thousand and $372
thousand at December 31, 1999 and 1998, respectively. The Company has also
entered into a shared facility arrangement, in which certain office space and
equipment are shared between the distributor and the Company's European
Headquarters.

         In August 1999, the Company issued through a private placement
1,204,819 shares of the Company's common stock for $5.0 million and 50,000
shares of the Company's Series A convertible preferred stock for $5.0 million to
a wholly owned subsidiary of Safeguard.



                                      F-15
<PAGE>   33



USDATA CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------

11.      EXPORT REVENUES

         Included in the consolidated statements of operations are export
revenues aggregating $15.1 million, $15.4 million and $9.6 million for the years
ended December 31, 1999, 1998 and 1997, respectively. These revenues were made
primarily in Europe and, to a lesser extent, Canada, Latin America and Asia.

12.   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 2010. Assets recorded under capital leases, primarily
equipment, were $85 thousand and $185 thousand at December 31, 1999 and 1998,
respectively and the related accumulated amortization was $56 thousand and $185
thousand at December 31, 1999 and 1998, respectively. Amortization of capital
lease assets of $12 thousand, $8 thousand, and $59 thousand was included in
depreciation expense for the years ended December 31, 1999, 1998 and 1997,
respectively. Future minimum payments under capital lease obligations are not
significant.

         Future minimum lease payments at December 31, 1999 under operating
leases were as follows (in thousands):

<TABLE>
<S>                                       <C>
2000                                      $  1,393
2001                                         2,032
2002                                         1,917
2003                                         1,828
2004                                         1,719
Thereafter                                   9,481
                                          --------
Total minimum lease commitments           $ 18,370
                                          ========
</TABLE>

         Total rent expense charged to earnings was approximately $1.2 million,
$1.0 million and $1.3 million during the years ended December 31, 1999, 1998 and
1997, respectively.

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.

13.    SEGMENT INFORMATION AND CONCENTRATION OF CREDIT RISK

           The Company defines its operations as operating segments based on two
distinct product divisions - the USDATA product division, which includes its
FactoryLink and Xfactory product lines, and the eMake product division, which
develops and distributes internet applications that deliver integrated
production solutions and real-time visibility across the supply chain and
includes the Company's recently acquired Smart Shop unit. The Company uses
revenues and income (loss) from continuing operations, which consists of
revenues less operating expenses, to measure segment operations.


                                      F-16
<PAGE>   34


USDATA CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------

         The following summarizes information related to the Company's segments.
All significant intersegment activity has been eliminated. Assets are the owned
or allocated assets used by each operating segment.

<TABLE>
<CAPTION>
                                               Year Ended December 31,
                                       --------------------------------------
(in thousands)                            1999          1998          1997
                                       ----------    ----------    ----------
<S>                                    <C>           <C>           <C>
Revenues:
     USDATA Division                   $   25,634    $   22,861    $   22,381
     eMake Division                         1,411            --            --
                                       ----------    ----------    ----------
                                       $   27,045    $   22,861    $   22,381
                                       ==========    ==========    ==========

Income (loss) from operations:
     USDATA Division                   $    3,361    $   (2,359)   $   (6,229)
     eMake Division                        (5,183)           --            --
                                       ----------    ----------    ----------
                                           (1,822)       (2,359)       (6,229)
Other income, net                             114           198           310
                                       ----------    ----------    ----------
Loss from continuing operations before
  income taxes                         $   (1,708)   $   (2,161)   $   (5,919)
                                       ==========    ==========    ==========

Depreciation and amortization:
     USDATA Division                   $    1,045    $    1,448    $    2,633
     eMake Division                           642            --            --
                                       ----------    ----------    ----------
                                       $    1,687    $    1,448    $    2,633
                                       ==========    ==========    ==========

Total assets:
     USDATA Division                   $   19,323    $   16,401    $   19,254
     eMake Division                         7,544            --            --
                                       ----------    ----------    ----------
                                       $   26,867    $   16,401    $   19,254
                                       ==========    ==========    ==========
</TABLE>

         The pertinent data relating to foreign operations is as follows:

<TABLE>
<CAPTION>
                                                Year Ended December 31,
                                       ------------------------------------
(in thousands)                            1999         1998         1997
                                       ----------   ----------   ----------
<S>                                    <C>          <C>          <C>
Revenues to external customers:
     North America                     $   13,335   $    9,926   $   12,750
     Europe                                12,193       11,550        8,356
     Others                                 1,517        1,385        1,275
                                       ----------   ----------   ----------
                                       $   27,045   $   22,861   $   22,381
                                       ==========   ==========   ==========

Total assets:
     North American                    $   25,914   $   15,660   $   17,850
     Europe                                   953          741        1,404
     Others                                    --           --           --
                                       ----------   ----------   ----------
                                       $   26,867   $   16,401   $   19,254
                                       ==========   ==========   ==========
</TABLE>


                                      F-17
<PAGE>   35


USDATA CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------


14.      SUBSEQUENT EVENTS

         On February 8, 2000, the Company received $2.5 million in financing
from a wholly owned subsidiary of Safeguard. The Company has not finalized the
terms and provisions of this financing.


15.       QUARTERLY FINANCIAL INFORMATION (UNAUDITED)

(in thousands, except share data)

<TABLE>
<CAPTION>
                                                                First       Second        Third         Fourth
1999                                                            Quarter     Quarter      Quarter        Quarter
                                                              ----------   ----------   ----------    ----------
<S>                                                           <C>          <C>          <C>           <C>
Revenues                                                      $    6,278   $    6,494   $    6,719    $    7,554
                                                              ----------   ----------   ----------    ----------
Income (loss) from continuing operations                             401          473         (854)       (2,436)
Dividends on preferred stock                                          --           --          (63)         (104)
                                                              ----------   ----------   ----------    ----------
   Net income (loss) applicable to common stockholders        $      401   $      473   $     (917)   $   (2,540)
                                                              ==========   ==========   ==========    ==========

Earnings (loss) per common share (Basic and Diluted)          $     0.04   $     0.04   $    (0.08)   $    (0.20)
                                                              ==========   ==========   ==========    ==========
Weighted average shares outstanding:
     Basic                                                        11,261       11,402       12,098        12,615
     Diluted                                                      11,327       11,511       12,098        12,615
                                                              ==========   ==========   ==========    ==========
</TABLE>


<TABLE>
<CAPTION>
                                                                First       Second        Third         Fourth
1998                                                            Quarter     Quarter      Quarter        Quarter
                                                              ----------   ----------   ----------    ----------
<S>                                                           <C>          <C>          <C>           <C>

Revenues                                                      $    5,640   $    5,806   $    4,890    $    6,525
                                                              ----------   ----------   ----------    ----------
Income (loss) from continuing operations                            (446)        (353)      (1,844)          549
Loss from discontinued operations                                 (1,719)          --           --            --
                                                              ----------   ----------   ----------    ----------
   Net income (loss)                                          $   (2,165)  $     (353)  $   (1,844)   $      549
                                                              ==========   ==========   ==========    ==========

Earnings (loss) per common share (Basic and Diluted):
    Income (loss) from continuing operations                  $    (0.04)  $    (0.03)  $    (0.16)   $     0.05
    Loss from discontinued operations                              (0.16)          --           --            --
                                                              ----------   ----------   ----------    ----------
       Net income (loss)                                      $    (0.20)  $    (0.03)  $    (0.16)   $     0.05
                                                              ==========   ==========   ==========    ==========

Weighted average shares outstanding (Basic and Diluted)           11,100       11,211       11,233        11,237
                                                              ==========   ==========   ==========    ==========
</TABLE>


         The amounts presented in the 1999 third quarter have been restated from
those amounts reported in the Company's 1999 Form 10-Q for the quarter ended
September 30, 1999 to reflect the inclusion of the Smart Shop operations from
the closing date of the acquisition, August 6, 1999. Amounts previously reported
included the Smart Shop operations as of the effective date of the acquisition,
July 1, 1999. The third quarter amounts have also been restated to give effect
to the amortization of goodwill and other identifiable intangibles over a
five-year useful life as opposed to the twenty-year amortization period
initially used.

         Earnings per share calculations 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.

                                      F-18

<PAGE>   36

                       USDATA Corporation and Subsidiaries
                 Schedule II - Valuation and Qualifying Accounts
              For the Years Ended December 31, 1999, 1998 and 1997


<TABLE>
<CAPTION>
                                        Balance at
                                       beginning of   Charged to    Accounts      Balance at end
Description                                year        expense     Written Off       of year
-----------                            ------------   ----------   -----------    --------------
<S>                                    <C>            <C>          <C>            <C>
December 31, 1999
Allowance for doubtful accounts        $  1,150,000   $   36,000   $  (733,000)   $      453,000

December 31, 1998
Allowance for doubtful accounts        $  1,158,000   $  252,000   $  (260,000)   $    1,150,000

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


                                      F-19
<PAGE>   37


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 29th day of March, 2000.

                                               USDATA Corporation
                                               By: /s/ ROBERT A. MERRY
                                                  --------------------------
                                               Robert A. Merry
                                               President, Chief Financial
                                               Officer and Director

                        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.

<TABLE>
<CAPTION>
Signature
<S>                                      <C>                                        <C>
/s/ ROBERT A. MERRY                      President, Chief Executive                 March 29, 2000
-------------------------------          Officer (Principal Executive Officer)
Robert A. Merry                          and Director

/s/ ROBERT L. DRURY                      Vice President and Chief Financial         March 29, 2000
-------------------------------          Officer, Treasurer and Secretary
Robert L. Drury                          (Principal Financial and Accounting
                                         Officer)

/s/ MARK D. HOPPER                       Chairman of the Board                      March 29, 2000
-------------------------------
Max D. Hopper

/s/ STEPHEN J. ANDRIOLE, PH.D.           Director                                   March 29, 2000
-------------------------------
Stephen J. Andriole, Ph.D.

/s/ JAMES W. DIXON                       Director                                   March 29, 2000
-------------------------------
James W. Dixon

/s/ JACK L. MESSMAN                      Director                                   March 29, 2000
-------------------------------
Jack L. Messman

/s/ ARTHUR R. SPECTOR                    Director                                   March 29, 2000
-------------------------------
Arthur R. Spector
</TABLE>


<PAGE>   38


                               INDEX TO EXHIBITS


<TABLE>
<CAPTION>
EXHIBIT
NUMBER          DESCRIPTION
-------         -----------
<S>             <C>
  3.1           Certificate of Incorporation of the Company, as amended.#
  3.2           By-laws of the Company.*
  4.1           Specimen stock certificate representing the Common Stock.***
  4.2           Specimen stock certificate representing the Preferred 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.*
 10.8           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.****
 10.10          Stock Purchase Agreement, dated August 6, 1999, by and between
                the Company and Safeguard Delaware, Inc.#
 10.11          Investors' Rights Agreement, dated August 6, 1999, by and among
                the Company, Safeguard Delaware, Inc. and Safeguard Scientifics,
                Inc.#
 11.1           Statement regarding computation of earnings per
                share.#
 21.1           Subsidiaries of the Registrant.*
 23.1           Consent of KPMG LLP.#
 23.2           Consent of PricewaterhouseCoopers LLP.#
 24.1           Power of Attorney (included on signature page).
 27.1           Financial data schedule. (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 as 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 as  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.
****     Filed on March 31, 1998 as an exhibit to the Company's Annual Report on
         Form 10-K for the fiscal year ended December 31, 1997.