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                                  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, 2001

                         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 15, 2002, was approximately
$3,790,760 based on the sale price of the Common Stock on March 15, 2002, of
$2.10 as reported by the NASDAQ National Market System.

         As of March 15, 2002, the registrant had outstanding 2,836,138 shares
of its Common Stock, par value $.01 per share.

                       DOCUMENTS INCORPORATED BY REFERENCE

         As stated in Part III of this annual report on Form 10-K, portions of
the following document are incorporated herein by reference: definitive proxy
statement to be filed within 120 days after the end of the fiscal year covered
by this annual report on Form 10-K.

         Unless the context indicates otherwise, the terms "USDATA," "the
Company," "we," "our," and "us" refer to USDATA Corporation.


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PART I.

ITEM 1. BUSINESS

GENERAL

         USDATA Corporation was founded in 1974 with headquarters in Richardson,
Texas. The Company is an independent, global supplier of industrial automation
software tools, applications and consulting services designed to provide
businesses with the knowledge and control needed to perfect the products they
produce and processes they manage.

         The Company uses its deep industry knowledge and domain expertise to
create software solutions for the industrial automation marketplace by supplying
a wide range of software products and services to customers in the
manufacturing, infrastructure and automation segments. The Company was
reincorporated in the state of Delaware in 1992.

       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 software solutions span a wide range of
manufacturing and automation 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. The Company's software solutions provide a powerful set
of software tools and applications designed for users who are technically
competent but who may not be experienced software programmers.

         The Company serves customers in a wide variety of industries including:
chemical, oil and gas, food, beverage, automotive, aerospace,
telecommunications, electronics, transportation and other industries. The
Company has a strong global presence with more than 70,000 units located in more
than 60 countries throughout the world.

         The Company serves 17 of the top 25 global manufacturers and many of
the world's largest companies including: Anheuser-Busch Companies, Inc., Ford
Motor Company, Goodyear Tire & Rubber Company, Hewlett-Packard Company, Michelin
Tire Corporation, Nestle SA, Alcatel, Mitsubishi, The City of Los Angeles,
United Parcel Service of America, Inc., Singapore Mass Rapid Transit, Credit
Suisse, TransCanada PipeLines Limited, Tacoma Power, Petroleos Mexicanos,
Schneider Automation, Inc. and ALSTOM.

         In the growing field of product tracking and manufacturing software
technologies, the Company has an expanding customer base that includes
Flextronics (formerly JIT Electronics Pte Ltd), Kingston Technology Company, DRS
Technologies, Micro Systems Engineering, Inc., Philips Assembly Centre Hungary
Ltd, Crossroads Systems, Inc., Tower Automotive, Inc., Magna International,
Inc., Filtronics Compound Semiconductors Ltd, DuPont Photomasks, Inc., Teksid
Aluminio de Mexico S.A. de C.V. and Simple Technology.

         Revenues are generated globally from the United States, Europe, Canada,
Latin America and Asia Pacific. The Company sells products and services to end
customers and systems integrators through distributors, OEM relationships and
direct sales. In addition, the Company has certified integration partners
("CIPs") worldwide ranging from global companies like ALSTOM to small systems
integrators who create additional customer solutions built on USDATA's products.

         The Company's core competencies in automation, shop floor, process
control, and production execution are value-added knowledge incorporated into
application software. The Company combines internal software product development
resources with partners and contractors in conjunction with a Rapid Application
Development methodology, leveraging the Company's standards for development,
open architecture and quality to produce successful software products. The
Company's product development team leverages these core competencies along with
their domain knowledge to produce powerful, easy to use application tools and
products for the industrial automation markets.

         In recent years, the Company has developed and implemented a product
development approach that leverages technology partnerships with companies such
as Microsoft, ALSTOM and Schneider Automation, Inc. This ability to manage and
develop software globally through partnerships has become a core competency that
extends the Company's product development reach beyond traditional operating
investment constraints to rapidly produce competitive and innovative software
products.

PRODUCTS AND SERVICES

OVERVIEW
         The Company develops, markets and supports component-based software
products for customers requiring enterprise-wide, open solutions for the
industrial automation markets. These software products provide customers
real-time


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computer applications that enable interactive, dynamic and graphical interfaces
to industrial operations. These applications collect, consolidate and
communicate information about an automated process, typically drawn from complex
operating sources or from multiple sites throughout an enterprise, and enable
the user to interact with and control critical processes. The real-time
information provided by the Company's products is intended to enable customers
to reduce operating costs, improve product quality and increase overall
throughput and productivity.

         The Company's software product, FactoryLink(R), is a process knowledge
and control 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(R) is a
horizontal application tool set used by systems integrators and end customers to
build automation and control applications for a wide variety of industrial
markets such as electronics assembly, semiconductor, automotive, building
automation, food and beverage, pharmaceuticals, metals, mining, cement, oil and
gas, electricity generation, transmission and distribution, transport and water
treatment.

         In mid-1998, the Company introduced Xfactory(R), a product knowledge
and control software product that enables customers to leverage their existing
business and planning systems with enterprise-wide, open systems solutions for
production management. In 2001, the Company introduced Xfactory(R) 2.0 enabling
production, execution and tracking for eManufacturing integration with business
and supply chain systems. The Company's solutions span a wide range of
manufacturing processes, from monitoring equipment to tracking product flow, and
are designed to integrate with customers' existing manufacturing and business
software.

         The target market for Xfactory(R) is production and visibility
management for build/configure to order discrete manufacturing. Systems
integrators, consultants and in-house information technology ("IT") specialists
use Xfactory(R) to support online business-to-business eCommerce by creating
applications for order status and change order management, visibility into
manufacturing, product tracking and genealogy, and collection and analysis for
product line development.

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 operational 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 natures
of business and process control systems. The Company's products are designed to
integrate business and process control systems into comprehensive decision
support, reporting and real-time operational systems.

PRODUCT LICENSE PRODUCTS - FACTORYLINK(R)

         FactoryLink(R) is a collection of software tools used to build a
variety of industrial SCADA/HMI applications. It allows customers to collect and
monitor data from disparate process control systems. FactoryLink(R) acts as hub
for real-time information that may be used by various decision makers interested
in the real-time status of an automated process. In 2001, the Company released
its latest version, FactoryLink(R) ++, which enhanced the core product with some
ease-of-use features and redundancy for seamless application fail over.

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

The FactoryLink(R) software enables a customer to:

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


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    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(R)'s patented architecture permits the user to pick and
choose the 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.

PRODUCT LICENSE PRODUCTS - XFACTORY(R)

         A key component of enabling a successful manufacturing strategy is the
use of software solutions that enable manufacturers to create, accumulate,
access, and share both product information and manufacturing process information
across the extended enterprise and plant-to-plant. The Company believes the
manufacturing industry will change its application infrastructure over the next
10 to 15 years as it moves from supporting a traditional business approach with
largely custom integration to collaborative supply chain manufacturing supported
by packaged software implementation. The Company also believes that
manufacturers will integrate the plant into the business process, specification,
costing, planning, manufacturing and delivery process. In addition to
traditional manufacturing investment to improve overall equipment efficiency and
equipment/operator ratio, and maximize plant assets, investments will also be
made to create faster time to market (volume), production visibility to the
supply chain and build to customer order.

         The Xfactory(R) software product enables customers to develop versatile
and flexible manufacturing applications for production management, product
tracking and genealogy tracking for supply chain manufacturing and production
processes. The information provided by the Company's products enables customers
to reduce operating costs, improve product quality and increase overall supply
chain throughput and productivity.

SERVICES

         The Company offers selected services to complement the capabilities of
the distribution and integration channel.

         Xcelerate Consulting - This offering is designed to aid systems
integrators and end-users in planning and implementing a project using USDATA
products. This offering is centered on an innovative project methodology
covering all aspects of the planning, designing, implementation, change
management and operation of industrial automation software systems. The key
component of an automation strategy is the use of software solutions that enable
manufacturers to create, accumulate, access, and share both product information
and manufacturing process information across the extended enterprise and
plant-to-plant. The Company combines FactoryLink and/or Xfactory with the
Xcelerate methodology designed to support successful customer installations and
the rapid realization of value. The purpose of the Xcelerate methodology is to
help buyers achieve a rapid, complete, controlled and cost effective roll-out of
FactoryLink and/or Xfactory while retaining control of their financial
investment so that business value can be achieved as rapidly as possible.

         Customer Support Services - Provided on an annual subscription basis
and in partnership with the distribution channel, this offering provides
end-users and systems integrators extended technical phone support,
knowledgebase access, and software maintenance product updates.

MARKETING, SALES AND DISTRIBUTION

         The Company's sales and support organization includes channel
management personnel, a corporate marketing 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 approximately 20 persons as of December 31,
2001, and is based in Richardson, Texas. The Company has field sales locations
in other cities in the United States and western Europe.


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         The Company goes to market via a network of distributors, referred to
as tier one partners ("TOPs") which collectively had approximately 50 sales
people generating 62% of the Company's sales during 2001. An additional 21% of
the Company's sales during 2001 were generated through an OEM private label
arrangement with Schneider Automation. The remaining 17% was sold directly to
key accounts. The Company has certified integration partners around the world
ranging from global consulting and integration companies to smaller companies
that do work with specific plants on a local basis.

         The Company is a business-to-business company with nearly 100% of its
business conducted over the web. In addition to ordering and quoting, the
Company's PartnerNet is a web site utilized by its extended community for sales
support, product support, and marketing. 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 organizations. 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 systems integrators that actually
perform project work for the end-user. The Company regularly improves the TOP
channel by monitoring performance against a comprehensive set of metrics and
upgrading distributors as appropriate. In addition, the Company is planning to
expand the number of United States based TOPs to increase sales performance.

         The TOP distribution channel has historically focused more on the
market with the FactoryLink(R) product line and the Company intends to
complement this with direct sales activity to sell Xfactory(R) and Xcelerate
services. In addition to increasing Xfactory(R) software sales for the
manufacturing market, the Company intends to increase related consulting and
implementation service revenue.

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 base 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 customer 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
vendors.

         The Company offers comprehensive training classes to customers and
third-party remarketers. Training classes are offered through in-house training
facilities and through its authorized training TOPs throughout the world. The
training curriculum is a comprehensive program of application development
training in a hands-on, 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(R) software product in 1986,
the Company has licensed more than 70,000 units 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, JT International and Michelin Tire
Corporation. In the year ended December 31, 2001, no single end user of the
Company's products accounted for more than 10% of the Company's total revenues.

         The target market for Xfactory(R) is production and visibility
management for build/configure-to-order discrete manufacturing. Systems
integrators, consultants, and in-house IT groups use Xfactory(R) to support
online business-to-business eCommerce by creating applications for order status
and change order management, visibility into manufacturing, product tracking,
genealogy, and collection and analysis for product line development. Xfactory(R)
has over 50 customers including Flextronics (formerly JIT Electronics Pte Ltd),
Kingston Technology Company, DRS Technologies, Micro Systems Engineering, Inc.,
Philips Assembly Centre Hungary Ltd, Crossroads Systems, Inc., Tower Automotive,
Inc.,


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Magna International, Inc., Filtronics Compound Semiconductors Ltd, DuPont
Photomasks, Inc., Teksid Aluminio de Mexico S.A. de C.V. and Simple Technology.

         Sales to foreign customers (primarily in Europe) continue to be a
significant source of revenue for the Company. For the years ended December 31,
2001, 2000 and 1999, the Company realized revenues from its international
operations of $9.1 million (67% of revenues), $10.8 million (67% of revenues)
and $15.1 million (59% of revenues), respectively. Most of the Company's
international revenues were derived from sales and services related to
FactoryLink(R) software products. International revenues are primarily derived
from France, United Kingdom, Italy and Canada.

         The Company has maintained a long-term partner relationship with
Schneider Automation, Inc. Schneider Automation, Inc. and its predecessors have
been purchasing for resale a private label, OEM version of FactoryLink(R) from
the Company since 1989 and accounted for $2.9 million, $3.8 million and $4.9
million or 21%, 24% and 19%, respectively, of total revenues for the years ended
December 31, 2001, 2000 and 1999, respectively.

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, Graphical User Interfaces,
Relational Database Management Systems, 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.

         During the years ended December 31, 2001, 2000 and 1999, the Company
invested approximately $3.0 million, $12.3 and $5.0 million, respectively, in
product development including $1.3 million, $4.1 million and $2.5 million of
capitalized software development costs in 2001, 2000 and 1999, respectively. In
the years ended December 31, 2001, 2000 and 1999 the Company expended 22%, 77%
and 20%, respectively, of its total revenues on product development. 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(R) product competes with a number of
suppliers, including Intellution, owned by Emerson Electric, GE Automation,
owned by General Electric, Rockwell Software, owned by Rockwell Automation, and
Wonderware Corporation, owned by Invensys, as well as other large programmable
logic controller ("PLC") and distributed control system ("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.

         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. 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.


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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 and positive cash flows from
operations.

INTELLECTUAL PROPERTY

         The Company holds patents in the United States covering control systems
that employ the features embodied in its FactoryLink(R) product. The Company has
registered its "USDATA," "FactoryLink" and "Xfactory" trademarks with the United
States 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 non-transferable, nonexclusive license that stipulates which modules can
be used and how many concurrent users may access 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 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, 2001, the Company had approximately 70 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.

CERTAIN FACTORS THAT MAY AFFECT THE COMPANY'S BUSINESS AND FUTURE OPERATING
RESULTS

THE COMPANY'S OPERATING RESULTS MAY FLUCTUATE DUE TO A VARIETY OF FACTORS AND
ARE NOT A MEANINGFUL INDICATOR OF FUTURE PERFORMANCE.

         The Company's revenues and results of operations have fluctuated in the
past and may vary from quarter-to-quarter in the future. These fluctuations may
adversely affect its business, financial condition, and the market price of its


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common stock. A number of factors, many of which are outside the Company's
control, may cause variations in quarter-to-quarter revenues and operating
results, including:

o    changes in demand for the Company's software solutions and services;

o    the length of the Company's sales cycle, and the timing and recognition of
     sales of its products and services, including the timing and recognition of
     significant product orders;

o    unexpected delays in the development and introduction of new products and
     services;

o    increased expenses, whether related to sales and marketing, software
     development or other corporate activities;

o    changes in the market for products and services in the industrial
     automation market;

o    the mix of revenue during any period, particularly with respect to the
     breakdown between software license and services revenues;

o    changes in pricing policies and product offerings by the Company or its
     competitors;

o    fluctuations in demand for Internet access and enhanced products and
     services;

o    potential customers' perception of the financial soundness of the Company;

o    the hiring, retention and utilization of personnel;

o    costs related to the integration of people, operations and products from
     previously acquired businesses and technologies and from future
     acquisitions, if any; and

o    general economic conditions.

         Accordingly, the Company believes that quarter-to-quarter comparisons
of its operating results are not necessarily meaningful and cannot be relied
upon as indicators of future performance. If the Company's operating results in
any future period falls below the expectations of analysts and investors, the
market price of its common stock would likely decline.

SALES CYCLES ARE SUBJECT TO SEASONALITY, WHICH COULD RESULT IN FLUCTUATIONS IN
THE MARKET PRICE OF THE COMPANY'S COMMON STOCK.

         The Company experiences seasonality in the sales of its software. For
instance, many of the Company's current and potential customers face budgetary
pressures to invest in software before the end of each fiscal year. As a result,
the Company may tend to report higher revenues during the fourth quarter of the
year and lower revenues during the first quarter of the year. These seasonal
variations in sales may lead to fluctuations in the Company's quarterly
operating results, which in turn may lead to volatility in the market price of
its common stock.

SUBSTANTIAL COMPETITION COULD REDUCE THE COMPANY'S MARKET SHARE AND MATERIALLY
ADVERSELY AFFECT ITS FINANCIAL PERFORMANCE.

         The market for products and services in industrial automation is very
competitive, and the Company expects competition to intensify in the future. The
Company currently faces competition from a variety of sources, including:
software providers, in-house development, systems integrators, enterprise
software companies and industrial automation hardware companies.

         Some of the Company's current and potential competitors have longer
operating histories, greater name recognition, greater resources and a higher
number of established customer relationships than the Company has. Many of these
competitors also have extensive knowledge of the Company's industry. As a result
of these factors, some of the Company's competitors may be able to adapt more
quickly to new or emerging technologies and changes in customer requirements or
may be able to devote greater resources to the marketing and sale of their
products. If the Company is not able to compete effectively, its business,
results of operations, and financial condition could be materially adversely
affected.

THE PERFORMANCE AND STRATEGIC DECISIONS OF THE COMPANY'S DISTRIBUTORS AND
RESELLER PARTNERS MAY IMPACT ITS REVENUE PERFORMANCE.


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         A significant amount of the Company's revenue is generated through
third party relationships like distributors and resellers. The Company cannot
assure you that these partners will continue to sell and support its products.
For example, they may sell their business to a competitor, discontinue their
operations, or switch to competitive products. In addition to potential revenue
loss, the replacement of these partners may place increased demands on the
Company's management, financial and operational resources. If the Company is
unable to manage its distribution network effectively, its business, results of
operations and financial condition could be materially adversely affected.

THE COMPANY RELIES ON THE REVENUES OF ITS LARGEST CUSTOMER SCHNEIDER AUTOMATION,
INC.

         Although the Company's business strategy is to implement its product
license products and services to many different customers across the industrial
automation marketplace, the Company has derived, and may derive in the future, a
significant portion of its revenue from a limited number of customers. For
example, revenues from Schneider Automation, Inc. accounted for $2.9 million,
$3.8 million and $4.9 million or 21%, 24% and 19%, respectively, of total
revenues for the years ended December 31, 2001, 2000 and 1999, respectively. If
the Company is unable to continue to serve these customers or if these customers
decide not to utilize its products, the Company will have an immediate
detrimental impact on its operating results. The Company expects revenue from
its large customers to vary from year to year. In the future, the loss of any of
its significant customers or a significant decrease in revenues from these
customers can harm its results of operations, financial position or cash flows.

THE COMPANY'S FUTURE RESULTS MAY BE HARMED BY ECONOMIC, POLITICAL, REGULATORY
AND OTHER RISKS ASSOCIATED WITH INTERNATIONAL SALES AND OPERATIONS.

          Because the Company sells and markets its products worldwide, its
business is subject to risks associated with doing business internationally.
Accordingly, the Company's future results could be harmed by a variety of
factors, including:

o    the need to comply with the laws and regulations of different countries;

o    difficulties in enforcing contractual obligations and intellectual property
     rights in some countries;

o    difficulties and costs of staffing and managing foreign operations;

o    difficulties in collecting international accounts receivable and the
     existence of potentially longer payment cycles;

o    the impact of possible recessions in economies outside the United States;
     and

o    political and economic instability, including instability related to
     terrorist attacks in the United States and abroad.

         If the Company is unable to minimize the risks associated with
international sales and operations, its business, results of operations, and
financial condition could be materially adversely affected, which could cause
its stock price to decline.

THE COMPANY MAY PURSUE STRATEGIC ACQUISITIONS, WHICH COULD HAVE AN ADVERSE
IMPACT ON ITS BUSINESS IF UNSUCCESSFUL.

         The Company may from time to time acquire or invest in complementary
companies, products or technologies. From time to time, the Company may evaluate
other acquisition opportunities that could provide it with additional product or
services offerings or additional industry expertise. These acquisitions, if any,
may result in difficulties for the Company in assimilating acquired operations
and products, and could result in the diversion of its capital and its
management's attention from other business issues and opportunities. For
instance, the integration of acquired companies may result in problems related
to the integration of technology and management teams. The Company may not be
able to successfully integrate operations, personnel or products that it may
acquire in the future. If the Company fails to successfully integrate any future
acquisitions, its business, results of operations, and financial condition could
be materially adversely affected. In addition, the Company's acquisitions may
not be successful in achieving desired strategic objectives, which would also
cause its business to suffer. Acquisitions also may present other risks, such as
exposing the Company to potential unknown liabilities associated with acquired
businesses.

IF THE COMPANY FAILS TO ADAPT TO RAPID CHANGES IN THE INDUSTRIAL AUTOMATION
MARKET, ITS EXISTING PRODUCTS COULD BECOME OBSOLETE.

         The market for the Company's products are marked by rapid technological
changes, frequent new product introductions, uncertain product life cycles,
changes in customer demands, and evolving industry standards and regulations.


                                       9
<PAGE>

The Company may not be able to successfully develop and market new products or
product enhancements that comply with present or emerging technology standards.
Also, any new regulations or technology standards could increase its cost of
doing business.

         New products based on new technologies or new industry standards could
render the Company's existing products obsolete and unmarketable. To succeed,
the Company will need to enhance its current products and develop new products
on a timely basis to keep pace with developments related to the industrial
automation market and to satisfy the increasingly sophisticated requirements of
its customers. Software addressing the needs of the industrial automation market
is complex and can be expensive to develop, and new products and product
enhancements can require long development and testing periods. Delays in
developing and releasing new or enhanced products could cause the Company to
lose revenue opportunities and customers.

THE COMPANY'S SOFTWARE PRODUCTS MAY CONTAIN ERRORS, WHICH COULD DAMAGE ITS
REPUTATION, DECREASE MARKET ACCEPTANCE OF ITS PRODUCTS, AND CAUSE IT TO LOSE
CUSTOMERS AND REVENUE.

         Despite internal testing and testing by third parties, complex software
products such as the Company's often contain errors or defects, particularly
when first introduced or when new versions or enhancements are released. Serious
defects or errors could result in lost revenues or a delay in market acceptance.

THE COMPANY MAY BE UNABLE TO ADEQUATELY PROTECT ITS INTELLECTUAL PROPERTY
RIGHTS, WHICH COULD RESULT IN THE USE OF ITS TECHNOLOGY BY COMPETITORS OR OTHER
THIRD PARTIES.

         The Company relies upon a combination of copyright and trade secret
protection, confidentiality and nondisclosure agreements, and licensing
arrangements to establish and protect its intellectual property rights. The
Company seeks to prevent disclosure of trade secrets through a number of means,
including requiring those individuals with access to its proprietary information
to enter into nondisclosure agreements with the Company, and restricting access
to its source code. Trade secret and copyright laws, under which the Company
seeks to protect its software, documentation and other proprietary materials,
provide only limited protection. Despite these efforts to protect its
proprietary rights, unauthorized parties may be successful in copying or
otherwise obtaining and using its software. In addition, other parties may
breach confidentiality agreements or other protective contracts that the Company
has entered into with them, and the Company may not be able to enforce its
rights in these circumstances. Any actions taken by the Company to enforce its
intellectual property rights could result in significant expense as well as the
diversion of management time and other resources.

         In addition, detecting infringement and misappropriation of
intellectual property can be difficult, and there can be no assurance that the
Company would detect any infringement or misappropriation of its proprietary
rights. Even if the Company is able to detect infringement or misappropriation
of its proprietary rights, litigation to enforce these rights could cause the
Company to divert significant financial and other resources from its business
operations, and may not ultimately be successful. Moreover, the Company licenses
its software internationally, and the laws of some foreign countries may not
protect proprietary rights to the same extent as do the laws of the United
States.

IF THE COMPANY IS UNABLE TO RELY ON LICENSES OF INTELLECTUAL PROPERTY FROM THIRD
PARTIES, ITS ABILITY TO CONDUCT BUSINESS COULD BE HARMED.

         The Company relies on third-party licensors for technology that is
incorporated into, and is necessary for the operation of, some elements of its
software. The Company's success will depend in part on its continued ability to
have access to such technologies that are or may become important to the
functionality of its products. The Company cannot assure you, however, that such
licenses will be available in the future on favorable terms or at all.

THE COMPANY MAY SEEK ADDITIONAL FINANCING IN THE FUTURE, WHICH COULD BE
DIFFICULT TO OBTAIN AND WHICH COULD DILUTE YOUR OWNERSHIP INTEREST OR THE VALUE
OF YOUR SHARES.

         The Company intends to continue to invest in the development of new
products and enhancements to our existing products. The Company believes that
its current cash, its revolving credit facility, and available funding under its
equity financing arrangement, together with cash generated from its operations,
will be sufficient to meet operating, debt service and capital requirements for
the foreseeable future. However, from time to time, the Company may seek to
raise additional funds through public or private financing, or other
arrangements. The timing, amount, terms and conditions of additional financings
will vary subject to a number of factors, including market conditions, the
Company's operating performance and investor sentiment. There can be no
assurance that the Company will be able to obtain any additional public or
private financing on terms acceptable to the Company, if at all. If necessary,
the Company will delay certain operations and capital expenditures until
adequate financing is obtained. In the event the Company is unable to secure
sufficient financing, the Company's operations would be materially adversely
affected.


                                       10
<PAGE>

          If the Company raises additional funds through the sale of equity or
convertible debt securities, its common stockholders' percentage ownership will
be reduced. In addition, these transactions may dilute the value of its
outstanding stock. The Company also may issue securities that have rights,
preferences and privileges senior to its common stock.

THE MARKET PRICE AND TRADING VOLUME OF THE COMPANY'S COMMON STOCK HAS BEEN AND
MAY REMAIN VOLATILE.

         The market price of the Company's common stock has fluctuated
significantly in the past, and is likely to continue to be highly volatile. In
addition, the trading volume of its common stock has fluctuated, and significant
price variations can occur as a result. The Company cannot assure you that the
market price of its common stock will not fluctuate or continue to decline
significantly in the future. In addition, the U.S. equity markets have from time
to time experienced significant price and volume fluctuations that have
particularly affected the market prices for the stocks of technology and
telecommunications companies. These broad market fluctuations may materially
adversely affect the market price of the Company's common stock in future. Such
variations may be the result of changes in its business, operations or
prospects, announcements of technological innovations and new products by
competitors, new contractual relationships with strategic partners by the
Company or its competitors, proposed acquisitions by the Company or its
competitors, financial results that fail to meet public market analyst
expectations, loss or addition of major customers, conditions and trends in the
industrial automation industry, regulatory considerations and domestic and
international market and economic conditions.

BECAUSE A SMALL NUMBER OF STOCKHOLDERS BENEFICIALLY OWN A SIGNIFICANT PERCENTAGE
OF THE COMPANY'S COMMON STOCK, THEY MAY SIGNIFICANTLY INFLUENCE MAJOR CORPORATE
DECISIONS AND THE COMPANY'S OTHER STOCKHOLDERS MAY NOT BE ABLE TO INFLUENCE
THESE CORPORATE DECISIONS.

         Approximately 69% on a fully diluted basis of the Company's outstanding
common stock is held by SCP Private Equity Partners II, L.P. ("SCP") and
Safeguard Scientifics, Inc. ("Safeguard") (collectively, the "Investors"). The
Investors have invested money in exchange for preferred stock and warrants to
purchase the Company's common stock. If the Investors act together, they can
significantly influence major corporate decisions, such as, the election of all
directors and the approval of actions requiring the approval of a majority of
the Company's stockholders. The Company's other stockholders may not be able to
influence these corporate decisions. The interests of the Investors and their
affiliates could conflict with the interests of the Company's stockholders. In
addition, if the Company is unable to fund continuing operations through its
existing capital and operating results, it may need additional investments from
the Investors which may further increase their already significant percentage
ownership and increase the likelihood of influencing these corporate decisions.

         The Investors are entitled to certain rights such as dividend, voting,
redemption and conversion rights that are unavailable to the holders of the
Company's common stock. Dividends that are accruing to the holders of the
Company's preferred stock are paid in priority to any dividends on common stock.

UPON A LIQUIDATION, MERGER, ACQUISITION, DISSOLUTION OR WINDING UP OF THE
COMPANY, WHETHER VOLUNTARY OR INVOLUNTARY, THE HOLDERS OF THE COMPANY'S
PREFERRED STOCK ARE ENTITLED TO UP TO $50 MILLION IN VALUE, PRIOR TO ANY
DISTRIBUTION TO THE HOLDERS OF THE COMPANY'S COMMON STOCK.

         Upon a liquidation, merger, acquisition, dissolution or winding up of
the Company (a "Material Event"), whether voluntary or involuntary, the holders
of the Company's preferred stock will be entitled to preferential distribution
of up to approximately $50.0 million in value, prior to any distribution to the
holders of the Company's common stock. Given the Company's current market
capitalization (calculated by multiplying the total number of outstanding shares
of common stock, on an as-converted basis by the Company's current price per
share), this may mean that upon such a Material Event, the holders of the
Company's preferred stock, including the Investors, may be entitled to all of
the proceeds from such a Material Event. For example on an as-converted basis,
the holders of Series C Convertible Preferred Stock would be entitled to up to
$15.0 million in value prior to any distribution to common stockholders, the
holders of Series B Convertible Preferred Stock would be entitled to up to $29.0
million in value prior to any distribution to common stockholders, and the
holders of Series A Convertible Preferred Stock would be entitled to up to $6.0
million in value prior to any distribution to common stockholders.

IT IS UNLIKELY THAT INVESTORS WILL RECEIVE A RETURN ON THE COMPANY'S COMMON
STOCK THROUGH THE PAYMENT OF CASH DIVIDENDS.

         Even though the Company has accrued for dividends on its preferred
stock and outstanding warrants, the Company never has declared or paid cash
dividends on its common stock and has no intention of doing so in the
foreseeable future. The Company also has had a recent history of significant
losses and may operate at a net loss for the next several years. These net
losses and the accrual for dividends for its preferred stockholders will reduce
its common stockholders'


                                       11
<PAGE>

equity. For the year ended December 31, 2001, the Company had a net loss
applicable to common stockholders of $12.7 million. The Company cannot predict
what the value of its assets or the amount of its liabilities will be in the
future.

THE COMPANY MAY BE UNABLE TO MAINTAIN THE STANDARDS FOR LISTING ON THE NASDAQ
NATIONAL MARKET, WHICH COULD MAKE IT MORE DIFFICULT FOR INVESTORS TO DISPOSE OF
ITS COMMON STOCK AND COULD SUBJECT ITS COMMON STOCK TO THE "PENNY STOCK" RULES.

         The Company's common stock is listed on the Nasdaq National Market
("Nasdaq"). Nasdaq requires listed companies to maintain standards for continued
listing, including a minimum bid price for shares of a company's stock and a
minimum market value of public float. For example, Nasdaq requires listed
companies to maintain a minimum bid price of at least $1.00 per share and a
minimum market value of public float of $5,000,000. The Company has been unable
to maintain the minimum market value of public float listing requirement since
January 1, 2002, and has received a letter from Nasdaq notifying it of its
failure to maintain the listing requirement. The Company cannot provide
assurances that it will be able to continue to meet these continued listing
requirements. If the Company is unable to maintain these standards, its common
stock could be delisted from Nasdaq , where it currently trades. Trading in the
Company's stock would then be conducted on the Nasdaq SmallCap Market unless the
Company is unable to meet the requirements for inclusion. If the Company were
unable to meet the requirements for inclusion in the Nasdaq SmallCap Market, its
common stock would be traded on an electronic bulletin board established for
securities that do not meet the Nasdaq listing requirements or in quotations
published by the National Quotation Bureau, Inc. that are commonly referred to
as the "pink sheets". As a result, it could be more difficult to sell, or obtain
an accurate quotation as to the price of the Company's common stock.

         In addition, if the Company's common stock were delisted, it would be
subject to the so-called penny stock rules. The SEC has adopted regulations that
define a "penny stock" to be any equity security that has a market price of less
than $5.00 per share, subject to certain exceptions. For any transaction
involving a penny stock, unless exempt, the rules impose additional sales
practice requirements on broker-dealers subject to certain exceptions.

         For transactions covered by the penny stock rules, a broker-dealer must
make a special suitability determination for the purchaser and must have
received the purchaser's written consent to the transaction prior to the sale.
The penny stock rules also require broker-dealers to deliver monthly statements
to penny stock investors disclosing recent price information for the penny stock
held in the account and information on the limited market in penny stocks. Prior
to the transaction, a broker-dealer must provide a disclosure schedule relating
to the penny stock market. In addition, the broker-dealer must disclose the
following:

o commissions payable to the broker-dealer and the registered representative;
and

o current quotations for the security as mandated by the applicable
regulations.

         If the Company's common stock were delisted and is determined to be a
"penny stock," a broker-dealer may find it to be more difficult to trade its
common stock, and an investor may find it more difficult to acquire or dispose
of the Company's common stock in the secondary market.

FUTURE SALES OF THE COMPANY'S COMMON STOCK COULD REDUCE THE PRICE OF ITS STOCK
AND ITS ABILITY TO RAISE CASH IN FUTURE EQUITY OFFERINGS.

         No prediction can be made as to the effect, if any, that future sales
of shares of common stock or the availability for future sale of shares of
common stock or securities convertible into or exercisable for the Company's
common stock will have on the market price of its common stock. Sales, or the
availability for sale, of substantial amounts of common stock by existing
stockholders under Rule 144, through the exercise of registration rights or the
issuance of shares of common stock upon the exercise of stock options or
warrants, or the perception that such sales or issuances could occur, could
adversely affect prevailing market prices for the Company's common stock and
could materially impair its future ability to raise capital through an offering
of equity securities.

ITEM 2. PROPERTIES

         The Company leases approximately 79,382 rentable square feet of office
space for its corporate office in Richardson, Texas. As a result of the fourth
quarter 2000 restructuring plan (see Note 6 in the Notes to the Consolidated
Financial Statements), approximately 44,400 square feet of this office space was
deemed to be excess lease capacity and the Company attempted to sublease this
excess space during 2001. During 2001, the continuing deterioration of the
commercial real estate market in Richardson, Texas negatively impacted the
Company's ability to sublease the excess space; therefore the Company initiated
negotiations with its landlord to resolve this issue. In March 2002, the Company
entered into a Fourth Amendment to Office Lease Space Agreement with the
landlord which provides for the landlord to remove approximately 44,400 rentable
square feet under the facility lease, leaving the Company with 34,982 rentable
square feet.


                                       12
<PAGE>

See Note 15 in the Notes to the Consolidated Financial Statements. The Company
believes that suitable additional or alternative space will be available as
needed to accommodate the corporate operations and 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 its business,
financial condition or operations.

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

         None.

PART II

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

         The Company's common stock, par value $.01 per share (the "Common
Stock"), has been listed on the Nasdaq National Market since June 16, 1995,
under the symbol "USDC." The following table sets forth, on a per share basis
for the periods shown, the range of high and low closing prices of the Company's
Common Stock compiled from published sources (adjusted for the effect of a
one-for-five reverse stock split effective on August 21, 2001):

<Table>
<Caption>
                                      High              Low
                                      -----            -----
<S>                                   <C>              <C>
         2001:
         Fourth Quarter                2.60             0.69
         Third Quarter                 2.30             0.76
         Second Quarter                3.70             1.09
         First Quarter                 8.75             1.41

         2000:
         Fourth Quarter               23.75             2.50
         Third Quarter                42.50            20.00
         Second Quarter               65.00            23.13
         First Quarter                95.63            55.63
</Table>

         As of December 31, 2001, there were approximately 2,700 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).

RECENT SALES OF UNREGISTERED SECURITIES

         On September 12, 2000, SCP and Safeguard Capital 2000, L.P. ("Safeguard
2000") each purchased through a private placement 5,300,000 shares, for a total
of 10,600,000 shares, of eMake Corporation ("eMake") Series A-1 Convertible
Preferred Stock and Series A-2 Convertible Preferred Stock (collectively
referred to as the "Series A Preferred") and warrants to purchase up to an
additional 5,300,000 shares each of eMake Series A-1 and Series A-2 Preferred
Stock, respectively.

         The eMake Series A-1 Preferred Stock was convertible into shares of
eMake Class A common stock at a conversion rate of $2.50 per share of common
stock or into shares of the Company's Series B Preferred Stock at the rate of
one preferred share of the Company for each 40 shares of eMake Series A-1
Preferred Stock owned. The eMake Series A-2 Preferred Stock was convertible into
shares of eMake Class B common stock at a conversion rate of $2.50 per share of
common stock or into shares of the Company's Series B Preferred Stock at the
rate of one preferred share of the Company for each 40 shares of eMake Series
A-2 Preferred Stock owned.

         During the first quarter 2001, SCP and Safeguard each elected to
exercise their right to convert their eMake Series A Preferred Stock into shares
of the Company's Series B Preferred Stock.

         On March 30, 2001, the Company secured an equity infusion of $1.5
million from SCP through the issuance of 37,500 shares of Series C-1 Convertible
Preferred Stock of the Company ("Series C-1 Preferred") and a warrant to
purchase up to 75,000 shares of Series C-2 Convertible Preferred Stock ("Series
C-2 Preferred"). In addition, SCP committed to purchase an additional 37,500
shares of Series C-1 Convertible Preferred ("Option Stock") at the purchase
price of $40 per


                                       13
<PAGE>

share or $1.5 million. The Company had the right to sell the Option Stock to SCP
on or before the expiration of nine months after March 30, 2001 ("Closing
Date"), but not before May 30, 2001, provided the Company was in compliance with
specified monthly targets as defined in the Series C Preferred Stock Agreement.
As an additional condition to this equity financing, SCP and Safeguard 2000
agreed not to convert upon exercise of eMake warrants to acquire Series A-1 and
A-2 Preferred Stock, respectively, which are convertible into the Company's
Series B Convertible Preferred Stock. SCP and Safeguard 2000 hold warrants
exercisable for 5,300,000 shares and 5,300,000 shares, respectively, of eMake
Series A-1 and A-2 Preferred Stock which are convertible into a total of 265,000
shares of the Company's Series B Convertible Preferred Stock.

         On July 20, 2001, the Company exercised its right to sell 16,250 shares
of the Option Stock to SCP. The Company received $635,596, net of transaction
costs, in exchange for issuing 16,250 shares of its Option Stock to SCP. In
conjunction with the Series C-1 and C-2 Preferred Stock purchase, the Company
executed a Certificate of Designation for the Series C-1 Preferred and Series
C-2 Preferred which designated 125,000 shares of authorized preferred stock as
Series C-1 Preferred and designated 125,000 shares of authorized but unissued
preferred stock as Series C-2 Preferred. As of December 31, 2001, 53,750 shares
of Series C-1 Preferred are issued and outstanding. The total proceeds were $2.1
million, net of transaction costs, for the year ended December 31, 2001.

         On March 8, 2002, the Company and SCP entered into a First Amendment to
the Series C Preferred Stock Purchase Agreement (the "Agreement"). The Agreement
extended the Option Stock draw down period to December 31, 2002, deleted the
specified monthly target provisions and provided for additional warrant coverage
equal to 50% of the remaining Option Stock, or up to 10,625 shares. If the
Company exercises its right to sell the remaining 21,250 shares, then the
Company would issue a warrant to SCP for the purchase of 10,625 shares of the
Company's Series C-2 Preferred. All other terms of the original Series C
Preferred Stock Purchase Agreement were unchanged. The Agreement was unanimously
approved by the disinterested members of the Company's Board of Directors on
March 8, 2002. As of March 31, 2002, the Company has not exercised its right to
sell any shares of the remaining Option Stock.

         The Series C-1 Convertible Preferred Stock has a par value of $.01 per
share and a liquidation preference of $80 per share plus cumulative dividends
and interest. The preferred stock is convertible into the Company's common stock
at a conversion rate of 20 shares of common stock for each share of preferred
stock and the cumulative dividends are payable at $4.00 per share per annum in
the form of additional shares of Series C-1 Preferred. The Series C-1 Preferred
Stock ranks senior to all other classes and series of the Company's capital
stock with respect to dividend rights, rights on liquidation, dissolution and
winding up. The excess of the liquidation preference over the purchase price of
the preferred stock has been reflected as a $2.150 million dividend on preferred
stock for the year ended December 31, 2001, increasing the loss applicable to
common stockholders and decreasing additional paid-in capital.

         The Series C-2 Preferred warrant issued to SCP by the Company grants
SCP the right to purchase up to 75,000 shares of the Company's Series C-2
Preferred at a purchase price of $40 per share. The Series C-2 Preferred has a
par value of $.01 per share and a liquidation preference of $120 per share, plus
cumulative dividends and interest, and is convertible into the Company's common
stock at a conversion rate of 20 shares of common stock for each share of
preferred stock. The right to purchase the shares of Series C-2 Preferred under
the warrant are exercisable on any business day on or before March 30, 2011,
with the exception of 50,500 shares, which may not be exercisable until the
earlier of stockholder approval of the transactions under the warrant or May 31,
2001. On exercise, the warrant provides the holder a liquidation preference of
three times the exercise price per share. The excess of the liquidation
preference of the Series C-2 Preferred to be acquired on warrant exercise over
the warrant exercise price of $3.0 million has been reflected as additional
return to the Series C-1 preferred stockholder, increasing loss applicable to
common stockholders for the year ended December 31, 2001 and decreasing
additional paid-in capital by $6.0 million.

         On March 19, 2002, the Company issued a warrant to Crescent Real Estate
Funding VIII, L.P., its landlord, for the purchase of up to 243,902 shares of
its common stock at an exercise price of $2.05 per share, exercisable in whole
or in part at any time through March 18, 2007.

         All of the above referenced shares were issued pursuant to an exemption
by reason of Section 4(2) of the Securities Act of 1933. The sales were made
without general solicitation or advertising. Each purchaser represented that he,
she, or it was acquiring the shares without a view to distribute and was
afforded an opportunity to review all documents and ask questions of the
Company's officers pertaining to matters they deemed material to an investment
in the Company's securities.

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


                                       14
<PAGE>

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.

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. All share and per share amounts have been adjusted to reflect
the one for five reverse stock split effective August 21, 2001.

<Table>
<Caption>
                                                        Years Ended December 31,
                                        --------------------------------------------------------
                                          2001        2000        1999        1998        1997
                                        --------    --------    --------    --------    --------
<S>                                     <C>         <C>         <C>         <C>         <C>
STATEMENT OF OPERATIONS DATA
(in thousands, except per share data)

Revenues                                $ 13,572    $ 16,034    $ 25,634    $ 22,861    $ 22,381

Income (loss) from continuing
operations                              $ (2,067)   $(14,916)   $  2,767    $ (2,094)   $ (3,907)

Net loss applicable to common
stockholders                            $(12,697)   $(44,834)   $ (2,583)   $ (3,813)   $ (3,690)

Net income (loss) per common share
from continuing operations:
  Basic                                 $  (4.57)   $  (5.60)   $   1.10    $  (0.95)   $  (1.75)
  Diluted                               $  (4.57)   $  (5.60)   $   0.96    $  (0.95)   $  (1.75)

Net loss per common share:
  Basic                                 $  (4.50)   $ (16.39)   $  (1.09)   $  (1.70)   $  (1.65)
  Diluted                               $  (4.50)   $ (16.39)   $  (0.96)   $  (1.70)   $  (1.65)

BALANCE SHEET DATA
(in thousands)

Total assets                            $ 13,078    $ 16,354    $ 26,162    $ 16,401    $ 19,254

Long term debt, including current
portion                                 $  2,427    $  1,719    $    450    $     --    $     --

Stockholders' equity (deficit)          $  6,200    $(21,212)   $ 14,087    $ 10,295    $ 13,873
</Table>

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

OVERVIEW

         The Company is a global provider of software and services that give
enterprises the knowledge and control needed to perfect the products they
produce and the processes they manage. Based upon a tradition of flexible
service, innovation and integration, the Company's software currently operates
in more than 60 countries around the globe, including 17 of the top 25
manufacturers. The Company's software heritage is born out of manufacturing and
process automation solutions and has grown to encompass the industry's deepest
product knowledge and control solutions. The Company continues to innovate
solutions that will support the integration of enterprise production and
automation information into the supply chain. The company has six offices
worldwide and a global network of distribution and support partners.


                                       15
<PAGE>

         The Company's software products are designed to enable manufacturers
access to 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 with customers' existing manufacturing and
business software, as well as, help customers manage their business in real
time, reduce operating costs, shorten cycle times and improve quality in their
manufacturing operations. This combination of product breadth and ease of
integration is intended to provide a total plant solution intended to improve
manufacturing performance and give customers a competitive advantage.

         Revenues have been generated primarily from licenses of the Company's
FactoryLink(R) and Xfactory(R) 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. Revenue
from services represented approximately 15%, 19% and 13% of revenues during the
years ended December 31, 2001, 2000, and 1999, respectively.

         FactoryLink(R) is a process knowledge and control solution used to
develop custom SCADA and HMI for the supervision and control of a broad range of
automated processes. FactoryLink(R) is a horizontal application tool set used by
systems integrators and end customers to build automation and control
applications for a wide variety of industrial markets such as electronics
assembly, semiconductor, automotive, building automation, food and beverage,
pharmaceuticals, metals, mining, cement, oil and gas, electricity generation,
transmission and distribution and water and waste water transport. It allows
customers to collect and monitor data from disparate process control systems and
acts as a hub for real-time information that may be used by various decision
makers interested in the real-time status of the production process. In 2000,
the Company released FactoryLink(R) 7, which is designed to have a lower total
cost of ownership than other SCADA/HMI products on the market.

         In April 2001, the Company released FactoryLink++, the newest addition
to its FactoryLink(R) product. FactoryLink++ is designed specifically to help
new SCADA/HMI users to jump start application development, lower application
maintenance and reduce project risk. FactoryLink++ includes integrated modules,
concepts, methods and tools designed to help end users, integrators, original
equipment manufacturers and consultants achieve the maximum value out of the
FactoryLink(R) software system.

         Xfactory(R) is a product knowledge and control solution designed to
capture and communicate real-time manufacturing data from the shop floor to the
people and systems who need it, when they need it. The information is intended
to help customers make better-informed decisions and reduce manufacturing costs
and lead times. Xfactory(R) is designed to track all aspects of discrete
manufacturing production maintaining historically accurate records as well as
real-time production information, defect tracking, complete product genealogy
and integration into enterprise software systems. Xfactory(R) is intended to
benefit manufacturing customers by reducing work in progress, lowering cost of
errors, and lowering cost of compliance with government regulations, while
limiting the amount of rework and increasing product revenue. The Xfactory(R)
suite includes a process knowledge and control module based on the Company's
FactoryLink(R) product. In November 2001, the Company announced its worldwide
release of the newest version of Xfactory(R). Xfactory (R) 2.0 is intended to
enhance real-time visibility and decision making, performance monitoring,
analysis and reporting and data management.

         The Company focuses its sales efforts through selected distributors
capable of providing the level of support and expertise required in the
industrial automation market. The Company currently has channel support
locations in 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.

         During the fourth quarter 2000, the Company implemented a restructuring
plan designed to significantly reduce the Company's cost structure by reducing
its workforce and other operating costs. A revised operating plan was developed
to restructure and stabilize the business.

       In February 2001, management of the Company determined that the market
adoption rate of the technology around the Company's eMake subsidiary was not
progressing in a manner to support the resources needed to continue eMake's
newly developed operating plan. As a result, the Company's Board of Directors
approved a plan to terminate the operations of eMake as part of a strategy to
commit the Company's resources to its core business: the FactoryLink(R) and
Xfactory(R) product lines. The Company recorded an estimate of loss on disposal
of $1.2 million in the 2000 consolidated financial statements, including
estimated operating losses of $360 thousand to be incurred through the disposal
date of March 31, 2001. eMake is reported as a discontinued operation, and the
consolidated financial statements have been reclassified to segregate the net
assets and operating results of the business. See Note 2 in the Notes to the
Consolidated Financial Statements for details regarding eMake's operating
results.


                                       16
<PAGE>

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, market acceptance and success for service
offerings, short-term interest rate fluctuations, general economic conditions,
employee turnover, possible future litigation, and related uncertainties 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. All subsequent written and oral forward-looking
statements attributable to the Company or persons acting on its behalf are
expressly qualified in their entirety by these cautionary statements.

RESULTS OF OPERATIONS

         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. The table sets forth, for the periods indicated, the Company's
statement of operations as a percentage of revenues.

<Table>
<Caption>
                                                            YEARS ENDED DECEMBER 31,
                                                           --------------------------
                                                           2001       2000       1999
                                                           ----       ----       ----
<S>                                                        <C>        <C>        <C>
Revenues:
  Product license                                            85%        81%        87%
  Services                                                   15%        19%        13%
                                                           ----       ----       ----
Total revenues                                              100%       100%       100%
                                                           ----       ----       ----
Operating expenses:
  Selling and product materials                              67%        80%        58%
  Product development                                        12%        40%         9%
  General and administrative                                 24%        41%        19%
  Severance and other restructuring charges                   8%        15%         0%
  Write off of capitalized software                           3%        11%         0%
                                                           ----       ----       ----
Total operating expenses                                    114%       187%        86%
                                                           ----       ----       ----
Income (loss) from operations                               (14)%      (87)%       14%
Interest expense                                             (1)%       (2)%       (0)%
Other income, net                                             0%         1%         0%
                                                           ----       ----       ----
Income (loss) from continuing operations before income
  taxes and preferred stock dividends of subsidiary         (15)%      (88)%       14%
Income tax provision                                          0%         0%        (3)%
Preferred stock dividends of subsidiary                       0%        (4)%        0%
                                                           ----       ----       ----
Income (loss) from continuing operations                    (15)%      (92)%       11%
Discontinued operations:
  Income (loss) from discontinued operation                   1%      (177)%      (20)%
  Loss on disposal of discontinued operation,
    including operating losses of $360 for 2001               0%        (7)%        0%
                                                           ----       ----       ----
Net loss                                                    (14)%     (276)%       (9)%
Dividends on preferred stock, preferred stock
  warrant and beneficial conversion                         (80)%       (3)%       (1)%
                                                           ----       ----       ----
Net loss applicable to common stockholders                  (94)%     (279)%      (10)%
                                                           ====       ====       ====
</Table>

COMPARISON OF YEARS ENDED DECEMBER 31, 2001 AND 2000

         Total revenues for the year ended 2001 were $13.6 million, a decrease
of $2.5 million or 15% compared to the same period in 2000. Product licensing
revenue decreased $1.542 million due to a decrease in both FactoryLink(R) and


                                       17
<PAGE>
Xfactory(R) licensing revenue when compared to the same period in 2000. The
decline in licensing revenue is due to the weakening of the industrial
automation market during the third and fourth quarters of 2001, causing product
license purchases to be delayed, downsized or canceled. The manufacturing
sector, Xfactory(R)'s market, was particularly impacted by the continued general
decline in the economy, and $0.9 million is due to a decline in FactoryLink(R)'s
license revenue, primarily from one of its significant customers. Revenue from
services decreased $0.920 million from 2000 primarily due to a one-time billable
project during the third quarter of 2000 of $0.4 million and lower renewals of
technical support and service agreements in 2001.

         Selling and product materials expenses decreased $3.7 million from
$12.8 million in 2000 to $9.1 million for the same period in 2001. The decrease
was a result of decreased sales, marketing and technical support services
totaling $4.8 million attributed to the Company's own cost reduction efforts in
2001 and to the cost reductions relative to the 2000 restructuring plans. The
decrease is offset by a $1.1 million increase in capitalized software
amortization due to the release of FactoryLink(R) 7 in June 2000. Selling and
product materials expenses as a percentage of revenues decreased to 67% for the
year ended December 31, 2001, from 80% for the same period in 2000. The decrease
in selling and product materials expenses more than offset the decrease in
revenue.

         Product development expenses, which consisted primarily of labor costs,
decreased $4.7 million from $6.4 million in 2000 to $1.7 million for the same
period in 2001, net of amounts capitalized. The decrease in 2001 is primarily
related to the Company's own cost reduction efforts in 2001, in addition to a
reduction in personnel and personnel-related costs relative to the 2000
restructuring plans. The Company capitalized $2.3 million (net of a write-off of
$1.8 million) and $1.3 million of software development costs for the year ended
December 31, 2000 and 2001, respectively, primarily related to the next major
version of the FactoryLink(R) product line. The Company intends to continue to
invest in product development for both its FactoryLink(R) and Xfactory(R)
product lines to keep up with customer needs and technology, and is intended to
position the Company for potential revenue growth in the future. Gross product
development expenses as a percentage of revenues decreased to 22% for the year
ended December 31, 2001 from 77% for the same period in 2000.

         General and administrative expenses decreased $3.3 million from $6.5
million in 2000 to $3.2 million for the same period in 2001. The decrease is
attributed to the Company's ongoing efforts in managing its costs in 2001, cost
reductions relative to the 2000 restructuring plans and a settlement of amounts
owed for consulting services provided to the Company in 2000, of which $1.1
million was included in general and administrative expenses in 2000. Under the
terms of the settlement arrangement, approximately $0.3 million of previously
accrued consulting expenses were forgiven in the second quarter of 2001,
resulting in a total reduction in expenses compared to 2000 of $1.4 million.
General and administrative expenses as a percentage of revenues decreased to 24%
for the year ended December 31, 2001 from 41% for the same period in 2000.

         The continuing deterioration of the real estate market affected the
Company's ability to sublease approximately 44,400 square feet of excess office
space at the Company's Richardson, Texas headquarter facilities. The excess
office space is a result of the restructuring plans implemented by the Company
during 2000. As a result, the Company recorded a $1.1 million restructuring
charge in the third quarter of 2001 representing one full year of lease costs
associated with the vacated office space. In October 2001, the Company initiated
negotiations with the landlord whereby the landlord would remove 44,400 square
feet of excess office space under the facility lease. As a result, in March
2002, the Company entered into a Fourth Amendment to Office Lease Space
Agreement with the landlord. The Company will compute rent expense to be
recognized under the amended arrangement considering the increasing rent over
the rent term and amounts previously accrued for rent expense. See Note 15 in
The Notes to the Consolidated Financial Statements.

         As a result of strategy changes from two of the Company's suppliers,
the Company determined that the carrying amounts of capitalized software
development costs related to two of its software products were not recoverable
and as a result were deemed to be impaired. The Company wrote off $355 thousand
related to its Analyzer software product and $36 thousand related to its
Connector software product, totaling $391 thousand, in the third quarter of
2001.

         As a result of the factors discussed above, the Company recorded a loss
from continuing operations of $2.1 million for the year ended December 31, 2001,
as compared to a loss from continuing operations of $14.9 million for the same
period in 2000.

DISCONTINUED OPERATION

         In February 2001, management of the Company determined that the market
adoption rate of the technology around eMake was not progressing in a manner to
support the resources needed to continue eMake's newly developed operating plan
(see details below). As a result, the Company's Board of Directors approved a
plan to terminate the operations of eMake as part of a strategy to commit the
Company's resources to its core business: the FactoryLink(R) and Xfactory(R)
product lines. All of eMake's operations were curtailed as of March 30, 2001.
For the year ended December 31, 2001, the Company recorded income from
discontinued operation of $182 thousand primarily related to settling eMake's
lease obligation in Post Falls, Idaho. As part of the 2000 restructuring charge,
the Company accrued one full year of lease


                                       18
<PAGE>

costs associated with the vacated office space in Post Falls, Idaho. The Company
settled the lease contract, which expired in February 2004, by paying an early
termination fee of $125 thousand. As a result, the Company reversed the
remaining liability of $132 thousand in the third quarter of 2001 to income from
discontinued operation.

COMPARISON OF YEARS ENDED DECEMBER 31, 2000 AND 1999

         Total revenues for the year ended 2000 were $16.0 million, a decrease
of $9.6 million or 37% compared to the same period in 1999. The decrease was
primarily a result of $9.4 million in lower software licensing revenue. The
decrease in software licensing revenue was primarily related to the Company's
FactoryLink(R) product, partially offset by a 31% increase in software licensing
of Xfactory(R) during 2000. The Company believed that the decrease in software
licensing revenues was primarily due to a major industry-wide decline in the
first quarter of 2000. Although the market did not deteriorate further
throughout the remainder of 2000, it did not recover to the same levels the
Company experienced in 1999. Additionally, while FactoryLink(R) 7 was released
on June 30, 2000, it was substantially later than originally planned and
adversely affected revenues during 2000.

         Selling and product materials expenses decreased $2.0 million from
$14.8 million in 1999 to $12.8 million for the same period in 2000. The Company
attributes the decrease to its cost reduction efforts under the revised
operating plan developed to restructure and stabilize the business. Selling and
product materials expenses as a percentage of revenues increased to 80% for the
year ended December 31, 2000 from 58% for the same period in 1999 primarily
resulting from the decrease in revenues from 1999.

         Product development expenses, which consisted primarily of labor costs,
increased $3.9 million from $2.5 million in 1999 to $6.4 million for the same
period in 2000, net of amounts capitalized. Compared to 1999, the Company
increased its engineering development activities related to the FactoryLink(R)
and Xfactory(R) product lines. The Company capitalized $2.3 million (net of a
write-off of $1.8 million) and $2.5 million of software development costs for
the year ended December 31, 2000 and 1999, respectively, primarily related to
the next major version of the FactoryLink(R) product line.

         General and administrative expenses increased $1.5 million from $5.0
million in 1999 to $6.5 million for the same period in 2000. The increase is
primarily due to incremental consulting fees associated with refining the
Company's longer-term business plan. Also, during the second quarter 2000, the
Company appointed a Chief Operating Officer. This newly staffed position
contributed to the increase in general and administrative expenses during 2000.
General and administrative expenses as a percentage of revenues increased to 41%
for the year ended December 31, 2000 from 19% for the same period in 1999,
primarily due to the decrease in revenues in 2000 combined with the fixed cost
nature of a majority of general and administrative costs.

         During the year 2000, the Company implemented a restructuring plan
designed to reduce the cost structure by reducing its workforce and other
operating expenses. The Company recorded a charge of $2.5 million primarily
consisting of employee severance and other employee related costs of $1.1
million. The reduction in workforce included approximately 56 employees and
affected all functions of the Company. Other charges included in the $2.5
million are early lease termination and facility shutdown costs of $200
thousand, write-downs of redundant property and equipment of $81 thousand, lease
costs associated with vacated office space of $1.0 million and $91 thousand for
legal and other related costs. These charges provide for future streamlining of
operations related to cost reduction initiatives. Of the total amount expensed
in 2000, approximately $827 thousand was paid during the year ended December 31,
2000 and approximately $1.5 million was paid during the year ended December 31,
2001. See note 6 in the Notes to the Consolidated Financial Statements. The
remaining $76 thousand will be paid by December 31, 2002. The cost reductions
resulting from the 2000 restructuring plan initiatives result in an annual cash
savings of approximately $6.6 million to the Company.

         As a result of the factors discussed above, the Company recorded a net
loss from continuing operations of $14.9 million for the year ended December 31,
2000, compared to income from continuing operations of $2.8 million for the same
period in 1999.

DISCONTINUED OPERATION

         In February 2001, the Company implemented a plan to terminate the
operations of eMake as part of a strategy to commit the Company's resources to
its core business: the FactoryLink(R) and Xfactory(R) product lines. As a
result, for the year ended 2000, the Company recorded an estimated loss of $1.2
million related to the disposal of eMake, including $360 thousand in estimated
operating losses to be incurred through the disposal date of March 31, 2001.
eMake is reported as a discontinued operation, and the consolidated financial
statements have been reclassified to segregate the net assets and operating
results of the business. For the year ended December 31, 2000, loss from
discontinued operations was $28.3 million compared to $5.2 million for the same
period in 1999. The primary elements of the increase in loss from discontinued
operations are set forth below.


                                       19
<PAGE>

         Total revenues for eMake were $1.1 million for the year ended 2000
compared to $1.4 million for the period ended December 31, 1999. The decrease is
primarily related to the market adoption rate of the technology around eMake's
products and services not progressing as quickly as anticipated.

         Selling and product materials, product development and general and
administrative expenses for the discontinued operation increased $9.9 million,
$1.4 million and $1.9 million, respectively, compared to the same period in
1999. The increases are primarily attributable to incremental expenses
associated with developing technology, building the infrastructure, start-up and
launching of eMake.

         During the year 2000, the Company implemented a restructuring plan
designed to reduce eMake's cost structure by reducing its workforce and other
operating expenses. The Company recorded a charge for eMake of $1.9 million
primarily consisting of employee severance and other employee-related costs of
$1.2 million. The reduction in workforce included approximately 93 employees and
affected all functions of eMake. Other charges included in the $1.9 million are
early lease termination and facility shutdown costs of $112 thousand,
write-downs of redundant property and equipment of $308 thousand, lease costs
associated with vacated office space in Post Falls, Idaho of $242 thousand and
$10 thousand for legal and other related costs. Of the total amount expensed in
2000, approximately $667 thousand was paid during the year ended December 31,
2000 and approximately $920 thousand was paid through December 31, 2001. The
Company settled the lease contract in Post Falls, Idaho, which expired in
February 2004, by paying an early termination fee of $125 thousand. As a result,
the Company reversed the remaining liability of $132 thousand in the third
quarter of 2001 to income from discontinued operation. The remaining $14
thousand is expected to be paid by the first quarter of 2002.

         Also, included in loss from discontinued operations are $2.4 million in
charges related to non-cash compensation and amortization of acquired intangible
assets compared to $1.3 million for the same period in 1999. In addition, during
1999 the Company recorded a $476 thousand charge to write off acquired in
process research and development costs. These charges are in connection with the
acquisition of Smart Shop Software, Inc. in 1999. During the fourth quarter
2000, the Company developed a revised operating plan to restructure and
stabilize eMake's operations. Accordingly, certain business activities were
abandoned or curtailed that required significant operating and capital
expenditures during 1999 and 2000. Based on the forecasted undiscounted cash
flows from the revised operating plan, the Company deemed that the acquired
intangible assets were impaired and recorded an asset impairment charge of $7.1
million in 2000, which is included in loss from discontinued operations. These
intangible assets were deemed to be impaired due to the Smart Shop element of
eMake being significantly curtailed as a result of the revised operating plan.
The asset impairment charge includes a write-off of goodwill and intangible
assets of $4.0 million, net and $1.5 million, net, respectively. Also included
in the impairment charge are capitalized website development costs and
capitalized software costs of $1.2 million, net and $365 thousand, net,
respectively. These costs were deemed to be impaired due to the curtailment of
the eMake portal project as a result of the revised operating plan.

CRITICAL ACCOUNTING POLICIES

         In preparing the Company's financial statements, management is required
to make estimates and assumptions that, among other things, affect the reported
amounts of assets and liabilities and reported amounts of revenues and expenses.
These estimates are most significant in connection with the Company's most
critical accounting polices, namely the Company's accounting policies that are
most important to the portrayal of its financial condition and results and
require management's most difficult, subjective or complex judgments. These
judgments often result from the need to make estimates about the effects of
matters that are inherently uncertain. The following is a brief discussion of
the more critical accounting policies and methods used by the Company.

Significant Estimates and Assumptions

         Management of the Company has made a number of estimates and
assumptions related to the reporting of assets and liabilities in preparation of
the consolidated financial statements in conformity with generally accepted
accounting principles in the United States of America. The most significant
estimates relate to the allowance for doubtful accounts, the determination of
the recoverability of property and equipment, capitalized software development
costs, software held for resale, and valuation of deferred tax asset.

          In determining the adequacy of the allowance for doubtful accounts,
management considers a number of factors, including the aging of the receivable
portfolio, customer payment trends, financial condition of the customer,
economic conditions in the customer's country and industry conditions. For the
three years ended December 31, 2001, the Company did not experience significant
charges to bad debt expense, however, due to the general weakening of the
economy during 2001 and into 2002, there can be no assurance that this trend
will continue. Actual amounts could differ significantly from management's
estimates.


                                       20
<PAGE>

         The Company assesses the recoverability of property and equipment,
capitalized software development costs and software held for resale by
determining the estimated future cash flows related to such assets. The Company
reviews these assets 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 generally 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 to be recognized is equal to the amount by which the carrying amounts
of the assets exceed the fair values of the assets. Assets to be disposed of are
reported at the lower of the carrying amount or fair value, less costs to sell.

         Management's estimates of future cash flows are based in part upon
prior performance, industry conditions, economic conditions, technology trends
and customer relationships. Changes in these factors or other factors could
result in significantly different cash flow estimates and an impairment charge.
During the year ended December 31, 2001, as a result of strategy changes from
two of the Company's suppliers, the Company determined that the carrying amount
of capitalized software development costs related to two of its software
products were not recoverable and as a result were deemed to be impaired. Due to
this impairment, the Company wrote off $355 thousand related to its Analyzer
software product and $36 thousand related to its Connector software product,
totaling $391 thousand, in the third quarter of 2001. In addition, due to a
revised operating plan of the Company's subsidiary eMake, certain business
activities were abandoned or curtailed that required significant operating and
capital expenditures during 1999 and 2000. During 2000, based on the forecasted
undiscounted cash flows from the revised operating plan, the Company deemed that
the acquired intangible assets were impaired and recorded an asset impairment
charge of $7.1 million, which is included in loss from discontinued operations
for the year ended 2000. These intangible assets were deemed to be impaired due
to the Smart Shop element of eMake being significantly curtailed as a result of
the revised operating plan. The asset impairment charge includes a write-off of
goodwill and intangible assets of $4.0 million, net and $1.5 million, net,
respectively. Also included in the impairment charge are capitalized website
development costs and capitalized software costs of $1.2 million, net, and $365
thousand, net, respectively. These costs were deemed to be impaired due to the
curtailment of the eMake portal project as a result of the revised operating
plan.

         In assessing the realizability of deferred income tax assets,
management considers whether it is more likely than not that the deferred income
tax assets will be realized. The ultimate realization of deferred income tax
assets is dependent on the generation of future taxable income during the
periods in which those temporary differences become deductible. Management
considers the scheduled reversal of deferred income tax liabilities, projected
future taxable income, and tax planning strategies in making this assessment.
Based on the level of historical taxable income and projections for future
taxable income over the periods in which the deferred income tax assets are
deductible, management has fully reserved all deferred tax assets to the extent
such assets exceed deferred tax liabilities.

Revenue Recognition

         The Company earns revenue primarily from license fees, maintenance fees
and professional services sold through direct sales or through its channel
partners. The license arrangements, do not provide for a right of return, and
are primarily non-transferable and non-exclusive perpetual licenses. The Company
offers two types of maintenance fees: one that provides the customer the right
to telephone support and to receive error and bug fix releases and one that
provides upgrade version releases of the product during the maintenance term.

         The Company recognizes revenue in accordance with Statement of Position
97-2, Software Revenue Recognition ("SOP 97-2"), as amended by SOP 98-9, and
generally recognizes revenue when all of the following criteria are met as set
forth in paragraph 8 of SOP 97-2: (1) persuasive evidence of an arrangement
exists; (2) delivery has occurred; (3) the fee is fixed or determinable; and (4)
collectibility is probable. Each of the four criteria above is defined as
follows:

         Persuasive evidence of an arrangement exists. It is customary practice
to have a written contract, which is signed by both the customer and the Company
or, in situations where a contract is not required, a customer purchase order
has been received.

         Delivery has occurred. The Company's software may be either physically
or electronically delivered to the customer. Delivery is deemed to have occurred
upon the delivery of the electronic code or the shipment of the physical product
based on standard contractual committed shipping terms, whereby risk of loss
passes to customer when shipment is picked up by the carrier. If undelivered
products or services exist in an arrangement that are essential to the
functionality of the delivered product, delivery is not considered to have
occurred until these products or services are delivered as described above.

         The fee is fixed or determinable. The Company's customers generally pay
a per-license fee that is based on the number of servers on which the software
is installed, the size of the application that they will develop for the
software, the options provided for those servers, and the number of client
workstations that access with the server. Additional license fees


                                       21
<PAGE>

are due when the total number of subscribers using the Company's products
increases beyond the specified number for which a license was purchased or when
additional options are added. License fees are generally due within 30-45 days
from product delivery in the United States and within 30 - 60 days from product
delivery internationally.

         Collectibility is probable. Collectibility is assessed on a
customer-by-customer basis. The Company typically sell to customers with high
credit ratings and solid payment practices. New customers are subjected to a
credit review process, in which the Company evaluates the customers' financial
position and ultimately their ability to pay. If it is determined from the
outset of an arrangement that collectibility is not probable based upon our
credit review process, revenue is recognized as cash payments are received.

         The Company allocates revenue on software arrangements involving
multiple elements to each element based on the relative fair value of each
element. The Company's determination of fair value of each element in multiple
element arrangements is based on vendor-specific objective evidence ("VSOE").
The Company limits its assessment of VSOE to the price charged when the same
element is sold separately. The Company has analyzed all of the elements
included in its multiple-element arrangements and determined that it has
sufficient VSOE to allocate revenue to maintenance and support services and
professional service components of its license arrangements. The Company sells
its professional services separately, and has established VSOE on this basis.
VSOE for maintenance and support services is based on the customer's annual
renewal rates for these elements. Accordingly, assuming all other revenue
recognition criteria are met, revenue from licenses is recognized on delivery
using the residual method in accordance with SOP 98-9, and revenue from
maintenance and support services is recognized ratably over the respective term.

         Professional services generally are not essential to the functionality
of the software. The Company's software products are fully functional upon
delivery and implementation and do not require any significant modification or
alteration. Customers purchase these professional services to facilitate the
adoption of the Company's technology and dedicate personnel to participate in
the services being performed, but they may also decide to use their own
resources or appoint other professional service organizations to provide these
services. Software products are typically billed separately and independently
from professional services, which are generally billed either on a
time-and-materials or a milestone-achieved basis. The Company generally
recognizes revenue from professional services as the services are performed.

Capitalized Software Development

         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. The Company establishes technological feasibility when it has
completed all planning, designing, coding and testing activities necessary to
determine that the final product meets its design specifications, specifically
when the company has completed a detail program design and is ready to begin
coding. Annual amortization, which is charged to selling and product materials,
is the greater of (i) 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 (ii) the straight-line method over the remaining
estimated economic life of the product. The Company amortizes capitalized
software development and purchased software costs using the straight-line method
over the remaining estimated economic life of the product, generally three
years.

LIQUIDITY AND CAPITAL RESOURCES

         The Company's operating activities used $243 thousand of cash for the
year ended December 31, 2001, compared to using $23.5 million for the same
period in 2000, primarily due to a decrease in net loss of $42.5 million,
partially offset by a decrease in accounts payable and other accrued liabilities
and accrued compensation and benefits totaling $2.0 million, primarily due to
paying $1.5 million during 2001 related to the 2000 restructuring plans. In
addition, cash used in discontinued operations was $1.9 million for the year
ended December 31, 2001, compared to $16.2 million for the same period in 2000.
Cash provided by continuing operations was $1.6 million for the year ended
December 31, 2001, compared to cash used by continuing operations of $7.3
million for the same period in 2000.

         Net cash used in investing activities was $1.2 million for the year
ended December 31, 2001, compared to using $8.0 million for the same period in
2000. The improvement is primarily due to a $2.8 million decrease in capitalized
software development cost from $4.1 million for the year ended 2000 to $1.3
million for the same period in 2001. In addition, capital expenditures decreased
$1.0 million from $1.1 million for the year ended 2000 to $60 thousand for the
same period in 2001. During 2001, the capital expenditures were primarily for
software, and during 2000 the capital expenditures were for computer equipment,
software and other equipment. In addition, $2.8 million of cash was used in
investing activities from discontinued operations for the year ended December
31, 2000, and none for the same period in 2001.


                                       22
<PAGE>
         Net cash provided by financing activities was $2.6 million for the year
ended December 31, 2001, compared to $29.3 million for the same period in 2000.
For the year ended December 31, 2001, the Company issued its Series C-1
Convertible Preferred Stock for $2.1 million in cash, net of issuance costs (see
discussion below), borrowed $1.7 million from its revolving line of credit and
$0.7 million from other borrowings. This is offset by $1.9 million in long-term
debt payments, including $1.3 million in repayments on the revolving line of
credit. For the year ended December 31, 2000, cash provided by financing
activities are primarily a result of the Company and its discontinued subsidiary
eMake issuing through a private placement 10,600,000 shares of eMake Series A-1
and A-2 Preferred Stock for $26.5 million comprised of $6.937 million in cash
and conversion of $19.25 million of notes payable plus accrued interest of $313
thousand (see discussion below). In addition, during the year ended December 31,
2000, Safeguard exercised its warrant to purchase 139,648 shares of the
Company's common stock for $2.1 million in cash (the shares are adjusted for the
one-for-five reverse stock split), and the Company borrowed $750 thousand from
its revolving line of credit.

         The Company's working capital requirements have been funded through
internally generated funds, its $3.0 million revolving line of credit and its
various equity financings from SCP and Safeguard. The details of these financing
arrangements are described below.

Equity Financings

         On February 8, 2000 and March 24, 2000, the Company, through its
wholly-owned subsidiary eMake, entered into two convertible promissory note
agreements with a subsidiary of Safeguard, for $2.5 million each, totaling $5.0
million in borrowings. The promissory notes had an interest rate of 12% per
annum and were due in full on February 8, 2001 and March 24, 2001, respectively.
If the notes payable were paid in full at maturity, interest would be forgiven.
The notes were paid in full on September 12, 2000, as described below, and
accrued interest of $322 thousand was forgiven.

         At various times throughout 2000, a subsidiary of Safeguard provided
$10.75 million in financings to the Company or to eMake in exchange for four
demand notes ranging from $1.5 million to $5.0 million. Each demand note was due
the earlier of one year from the date of the note or 60 days following the date
of demand for payment. The notes had an interest rate based on a specified bank
prime rate plus one percent.

         On August 14, 2000, SCP provided $6.0 million in financing to the
Company's subsidiary eMake in exchange for a demand note due the earlier of one
year from the date of the note or 60 days following the date of demand for
payment. The note had an interest rate based on a specified bank prime rate plus
one percent. Concurrently, the Company repaid the $2.5 million demand note dated
July 28, 2000 to Safeguard plus accrued interest of $13 thousand with proceeds
from this demand note payable.

         On September 12, 2000, SCP and Safeguard purchased through a private
placement 5,300,000 shares each, for a total of 10,600,000 shares, of eMake
Series A-1 Convertible Preferred Stock and Series A-2 Convertible Preferred
Stock and warrants to purchase up to an additional 5,300,000 shares each of
eMake Series A-1 and Series A-2 Preferred Stock, respectively. The aggregate
purchase price of $26.5 million was comprised of $6.937 million in cash and
conversion of $19.25 million of the notes payable described above and the
related accrued interest of $313 thousand. Subsequently, on January 31, 2001,
SCP and Safeguard elected to exercise their right to acquire 132,500 shares
each, totaling 265,000 shares, of Series B Convertible Preferred Stock of the
Company in exchange for their shares of the eMake Series A-1 and A-2 Convertible
Preferred Stock totaling 10,600,000 shares. See Note 8 in the Notes to the
Consolidated Financial Statements.

         On March 30, 2001, the Company secured an equity infusion of $1.5
million from SCP through the issuance of 37,500 shares of Series C-1 Convertible
Preferred Stock of the Company ("Series C-1 Preferred") and a warrant to
purchase up to 75,000 shares of Series C-2 Convertible Preferred Stock ("Series
C-2 Preferred"). In addition, SCP has committed to purchase an additional 37,500
shares of Series C-1 Convertible Preferred ("Option Stock") at the purchase
price of $40 per share or $1.5 million. The Company had the right to sell the
Option Stock to SCP on or before the expiration of nine months after March 30,
2001 ("Closing Date"), but not before May 30, 2001, provided the Company was in
compliance with specified monthly targets as defined in the Series C Preferred
Stock Agreement (see amended terms below). As an additional condition to this
equity financing, SCP and Safeguard 2000 Capital, L.P. ("Safeguard 2000") agreed
not to convert upon exercise of eMake warrants to acquire Series A-1 and A-2
Preferred Stock, respectively, which are Convertible into the Company's Series B
Convertible Preferred Stock. SCP and Safeguard 2000 hold warrants exercisable
for 5,300,000 shares and 5,300,000 shares, respectively, of eMake Series A-1 and
A-2 Preferred Stock which are convertible into a total of 265,000 shares of the
Company's Series B Convertible Preferred Stock. See Note 8 in the Notes to the
Consolidated Financial Statements.

         On July 20, 2001, the Company exercised its right to sell 16,250 shares
of the Option Stock to SCP. The Company received $635,596, net of transaction
costs, in exchange for issuing 16,250 shares of its Option Stock to SCP. As of
December 31, 2001, 53,750 shares of Series C-1 Preferred are issued and
outstanding. The total proceeds were $2.1 million, net of transaction costs, for
the year ended December 31, 2001.


                                       23
<PAGE>

         On March 8, 2002, the Company and SCP entered into a First Amendment to
the Series C Preferred Stock Purchase Agreement (the "Agreement"). The Agreement
extended the Option Stock draw down period to December 31, 2002, deleted the
specified monthly target provisions and provided for additional warrant coverage
equal to 50% of the remaining Option Stock, or 10,625 shares. All other terms of
the original Series C Preferred Stock Purchase Agreement were unchanged. The
Agreement was unanimously approved by the disinterested members of the Company's
Board of Directors on March 8, 2002. As of March 31, 2002, the Company has not
exercised its right to sell any shares of the remaining Option Stock.

         As of December 31, 2001, the Company had issued 50,000 shares of its
Series A Convertible Preferred Stock ("Series A Preferred") with a liquidation
preference of $100 per share, plus cumulative dividends; 265,000 shares of its
Series B Convertible Preferred Stock ("Series B Preferred") with a liquidation
preference of $100 per share, plus cumulative dividends; 53,750 shares of its
Series C-1 Convertible Preferred Stock ("Series C-1 Preferred") with a
liquidation preference of $80 per share, plus cumulative dividends; and a
warrant for the purchase of 75,000 shares of its Series C-2 Convertible
Preferred Stock ("Series C-2 Preferred" and collectively "Series C Preferred")
with a liquidation preference of $120 per share, plus cumulative dividends. The
Series C Preferred ranks senior to all other classes and series of the Company's
capital stock with respect to dividend rights, rights on liquidation,
dissolution and winding up, and the Series B Preferred ranks senior to the
holders of the Series A Preferred with respect to dividend rights, rights on
liquidation, dissolution and winding up. In the event of any liquidation,
merger, acquisition, dissolution or winding up of the Company, whether voluntary
or involuntary, the preferred stockholders shall be entitled to preferential
distribution of up to approximately $50.0 million in value, prior and in
preference to any distribution of any assets or surplus funds of the Company to
the holders of the common stock of the Company.

         On March 19, 2002, the Company issued a warrant to Crescent Real Estate
Funding VIII, L.P., its landlord, for the purchase of up to 243,902 shares of
its common stock at an exercise price of $2.05 per share, exercisable in whole
or in part at any time through March 18, 2007. See Note 15 in the Notes to the
Consolidated Financial Statements.

Debt Financings

         In December 2000, two wholly-owned subsidiaries of the Company entered
into a Note Agreement ("Note") with JPMorgan Chase Bank, formerly known as The
Chase Manhattan Bank, that provides for a $3.0 million revolving credit
availability through January 15, 2002. The Note bears interest at prime rate
plus 1.5%, or 11% at December 31, 2000, and 6.25% at December 31, 2001. The Note
has a commitment fee of 1.25% per annum on the total commitment of up to $3.0
million. The Note is collateralized by certain foreign accounts receivable of
the Company's and is guaranteed by the Company, a wholly-owned subsidiary of the
Company, and Export-Import Bank of the United States for 90% of principal and
interest. On January 15, 2002, the Note was amended to extend the Note to
January 31, 2003, references to eMake as a borrower were deleted, and the
commitment fee was increased to 1.50% per annum. At December 31, 2001 and 2000,
$1.1 million and $750 thousand, respectively, were drawn under the Note
Agreement. Based on the qualifying borrowing base arrangement under the Note,
total remaining availability at December 31, 2001 and 2000 was $309 thousand and
$924 thousand, respectively. Availability under the credit facility is subject
to a borrowing base calculation, which varies each month depending on billings
and cash collections. In addition, the Company must be in compliance with
certain debt covenants.

         At March 31, 2001, the Company was not in compliance with the tangible
net worth debt covenant under its revolving credit facility and subsequently
received a waiver from the lending bank for this covenant. As of May 3, 2001,
the credit facility was amended to ease compliance with this covenant
retroactively to December 2000 and for the remainder of the agreement ending
January 15, 2002. At December 31, 2001, the Company was in compliance with all
debt covenants.

         The following table summarizes the Company's contractual obligations
related to debt, capital leases and operating leases at December 31, 2001:

<Table>
<Caption>
(in thousands)                                    Commitment Per Period
                                  --------------------------------------------------------
                                   Total       2002        2003        2004     Thereafter
                                  -------     -------     -------     -------   ----------
<S>                               <C>         <C>         <C>         <C>         <C>
Revolving line of credit          $ 1,145     $ 1,145     $    --     $    --     $    --
Long-term debt and other debt         868         516         281          71          --
Capital leases                        446         198         138          66          44
Operating leases                   14,418       1,709       1,656       1,627       9,426
                                  -------     -------     -------     -------     -------
                                  $16,877     $ 3,568     $ 2,075     $ 1,764     $ 9,470
                                  =======     =======     =======     =======     =======
</Table>

         On March 19, 2002, the Company and its landlord entered into a Fourth
Amendment to its office lease agreement, which provides for, among other things,
the landlord removing approximately 44,400 rentable square feet of office space.
This is not reflected in the above table. If this transaction was reflected in
the table, the operating leases commitment per period would be $810 thousand in
2002, $792 thousand in 2003, $798 thousand in 2004 and $5.2 million thereafter.
See Note 15 in the Notes to the Consolidated Financial Statements.

         The Company currently anticipates that its ongoing working capital
requirements will continue to be funded through internally generated funds, its
revolving credit facility and $850,000 available under the equity financing
arrangement with SCP discussed above. The Company believes such source of funds
will be sufficient to satisfy its operating and debt service cash needs for the
foreseeable future. However, based on the conditional financing


                                       24
<PAGE>

arrangements, there can be no assurance that the Company will be able to obtain
any additional debt funding on terms acceptable to the Company, if at all. If
necessary, the Company will delay certain operations and capital expenditures
until adequate financing is obtained. In the event the Company is unable to
secure sufficient debt or equity financing, the Company's operations would be
materially adversely affected.

International Operations

         The Company's international revenues represent approximately 67% of its
total revenue. Revenues from these international operations are subject to
various political and economic risks including, but not limited to, the
following: political instability; economic instability; currency controls;
currency devaluations; exchange rate fluctuations; potentially unstable channels
of distribution; increased credit risks; export control laws that might limit
the markets the Company can enter; inflation; changes in laws related to foreign
ownership of businesses abroad; foreign tax laws; trade disputes among nations;
changes in cost of capital; changes in import/export regulations, including
enforcement policies; "gray market" resales; tariffs and freight rates. Such
risks and other factors beyond the control of the Company in any nation where
the Company conducts business could have a material adverse effect on the
Company.

Nasdaq Compliance Notices

         On August 2, 2001, the Company received notification from Nasdaq
indicating that since the Company's common stock had failed to maintain a
minimum market value of public float ("MVPF") of $5.0 million and a minimum bid
price of $1.00 over a period of 30 consecutive trading days, the Company was not
in compliance with two of the Nasdaq listing requirements. Nasdaq indicated in
their notification that if at any time before October 31, 2001, the MVPF of the
Company's common stock is at least $5.0 million and the bid price is at least
$1.00 for a minimum of 10 consecutive trading days the Company would avoid a
delisting determination. If the MVPF of the Company's common stock is not at
least $5.0 million at any time before October 31, 2001, the Company would then
have the right to appeal the Nasdaq's determination. On September 27, 2001,
Nasdaq announced its implementation of a moratorium on the minimum bid and
public float requirements for continued listing on Nasdaq and to suspend these
requirements until January 2, 2002. As of March 31, 2002, the Company is in
compliance with the minimum bid price of $1.00 Nasdaq listing requirement.

         On February 14, 2002, the Company received a letter from Nasdaq
notifying the Company that over the previous 30 consecutive trading days, its
common stock had not maintained a minimum market value of publicly held shares
("MVPHS") of $5.0 million as required for continued listing on The Nasdaq
National Market under Marketplace Rule 4450(a)(2) (the "Rule"). In accordance
with Nasdaq Marketplace Rule 4450(e)(1), the Company will be provided 90
calendar days, or until May 15, 2002, to regain compliance. If, at any time
before May 15, 2002, the MVPHS of the Company's common stock is $5.0 million or
greater for a minimum of 10 consecutive trading days, the Company will have
achieved compliance with the Rule. There can be no assurance that the Company
will be able to achieve compliance with the Rule. If the Company is unable to
regain compliance with the Rule by May 15, 2002, the Company can either appeal
Nasdaq's decision to a Nasdaq Listing Qualifications Panel or submit an
application to transfer to the Nasdaq SmallCap Market. The initiation of the
delisting proceedings will be stayed pending Nasdaq's review of the Company's
appeal or the application to transfer its securities to the Nasdaq SmallCap
Market. There can be no assurance that the appeal will be successful or that the
Company will satisfy the requirements for listing on the Nasdaq SmallCap Market.

RECENT ACCOUNTING PRONOUNCEMENTS

         On June 30, 2001, the Financial Accounting Standards Board ("FASB")
issued Statement of Financial Accounting Standard ("SFAS") No.s 141 and 142,
"Business Combinations" and "Goodwill and Other Intangible Assets,"
respectively. SFAS No. 141 requires all business combinations initiated after
June 30, 2001 to be accounted for using the purchase method. SFAS 142 requires
that ratable amortization of goodwill be replaced with periodic fair-value based
tests of the goodwill's impairment and that intangible assets other than
goodwill be amortized over their useful lives. Additionally, under the provision
of the new accounting standard, an acquired intangible asset should be
separately recognized if the benefit of the intangible asset is obtained through
contractual or other legal rights, or if the intangible asset can be sold,
transferred, licensed, rented, or exchanged, regardless of the acquirer's intent
to do so. SFAS 141 is effective for all business combinations initiated after
June 30, 2001 and for all business combinations accounted for by the purchase
method for which the date of acquisition is after June 30, 2001. The provisions
of SFAS 142 will be effective for fiscal years beginning after December 15,
2001, and will thus be adopted by the Company, as required, in fiscal year 2002.
Adoption of SFAS No. 141 and No. 142 is not expected to have a material impact
on the Company's consolidated results of operations or financial position.

         In June 2001, the FASB issued Statement No. 143, "Accounting for Asset
Retirement Obligations", which addresses financial accounting and reporting
obligations associated with the retirement of tangible long-lived assets and the
associated asset retirement costs. The standard applies to legal obligations
associated with the retirement of long-lived assets that result from the
acquisition, construction, development and (or) normal use of the asset.
Statement No. 143


                                       25
<PAGE>

requires that the fair value of a liability for an asset retirement obligation
be recognized in the period in which it is incurred if a reasonable estimate of
fair value can be made. The fair value of the liability is added to the carrying
amount of the associated asset and this additional carrying amount is
depreciated over the life of the asset. The liability is accreted at the end of
each period through charges to operating expense. If the obligation is settled
for other than the carrying amount of the liability, the Company will recognize
a gain or loss on settlement. The Company is required to adopt the provisions of
Statement No. 143 no later than the beginning of fiscal year 2003, with early
adoption permitted. The Company does not expect the adoption of this statement
to have a material effect on its consolidated results of operations or financial
position.

         In October 2001, the FASB issued Statement No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets", which addresses financial
accounting and reporting for the impairment or disposal of long-lived assets.
While Statement No. 144 supersedes FASB Statement No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of", it
retains many of the fundamental provisions of that Statement. Statement No. 144
becomes effective for fiscal years beginning after December 15, 2001, with early
applications encouraged. The Company does not expect the adoption of this
statement to have a material effect on its consolidated results of operations or
financial position.

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 $143 thousand
and its revolving line of credit of $1.1 million. 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.

         Foreign operations comprised approximately 67% of the Company's 2001
sales. The Company primarily invoices and collects in U.S. dollars. Risk
resulting from foreign currency exposure is therefore minimal.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

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

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

         None.

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

         The information required by Item 10, Directors and Executive Officers
of the Registrant, is hereby incorporated by reference from the Registrant's
definitive Proxy Statement for its Annual Meeting of Stockholders presently
scheduled to be held on May 28, 2002, 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.


                                       26
<PAGE>

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

(a) (1) FINANCIAL STATEMENTS

<Table>
<S>                                                                       <C>
        Independent Auditors' Report for the Years Ended
                 December 31, 2001, 2000 and 1999                         F-1

        Consolidated Balance Sheets as of December 31, 2001 and 2000      F-2

        Consolidated Statements of Operations for the Years Ended
                 December 31, 2001, 2000 and 1999                         F-3

        Consolidated Statements of Stockholders' Equity (Deficit) and
                 Comprehensive Loss for the Years Ended December 31,
                 2001, 2000 and 1999                                      F-4

        Consolidated Statements of Cash Flows for the Years Ended
                 December 31, 2001, 2000 and 1999                         F-5

        Notes to Consolidated Financial Statements                        F-6

(a) (2) FINANCIAL STATEMENT SCHEDULES

        Schedule II - Valuation and Qualifying Accounts                    23
</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

                  None.

(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.*

           10.5        Employee Stock Purchase Plan.###

           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.*****

           10.12       Convertible Promissory Note dated February 8, 2000.******

           10.13       Convertible Promissory Note dated March 24, 2000.******

           10.14       Demand Note dated April 26, 2000.******

           10.15       Demand Note dated June 29, 2000.*******

           10.16       Demand Note dated July 13, 2000.********

           10.17       Demand Note dated July 28, 2000.********

           10.18       Demand Noted dated August 14, 2000.********


                                       27
<PAGE>

           10.19       Securities Purchase Agreement, dated as of August 4,
                       2000, by and among eMake Corporation, USDATA Corporation,
                       Safeguard 2000 Capital, L.P. and SCP Private Equity
                       Partners II, L.P.********

           10.20       Amended and Restated Investors' Rights Agreement, dated
                       as of September 12, 2000, by and among USDATA
                       Corporation, Safeguard Delaware, Inc., Safeguard 2000
                       Capital, L.P., SCP Private Equity Partners II, L.P. and
                       Safeguard Scientifics, Inc.********

           10.21       Exchange Agreement, dated as of September 12, 2000, by
                       and between USDATA Corporation and SCP Private Equity
                       Partners II, L.P.********

           10.22       Export Loan Agreement.**********

           10.23       Guaranty.**********

           10.24       First Amendment to the Series C Preferred Stock Purchase
                       Agreement.#

           10.25       Fourth Amendment to Office Lease Agreement.#

            21.1       Subsidiaries of the Registrant.*

            23.1       Consent of KPMG LLP.#

            23.2       Power of Attorney (included on signature page).

----------

#          Filed herewith

##         Compensatory plan or arrangement required to be filed or incorporated
           as an exhibit.

###        Filed on April 29, 1999 as Appendix A to the Company's Definitive
           Proxy Statement on Form 14A.

*          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.

*****      Filed on March 29, 2000 as an exhibit to the Company's Annual Report
           on Form 10-K for the fiscal year ended December 31, 1999.

******     Filed on May 15, 2000 as an exhibit to the Company's Form 10-Q for
           the quarterly period ended March 31, 2000.

*******    Filed on August 14, 2000 as an exhibit to the Company's Form 10-Q for
           the quarterly period ended June 30, 2000.

********   Filed on November 14, 2000 as an exhibit to the Company's Form 10-Q
           for the quarterly period ended September 30, 2000.

*********  Filed on March 31, 2000 as an exhibit to the Company's Annual Report
           on Form 10-K for the fiscal year ended December 31, 1999.

********** Filed on March 30, 2001 as an exhibit to the Company's Annual Report
           on Form 10-K for the fiscal year ended December 31, 2000.


                                       28
<PAGE>

                          INDEPENDENT AUDITORS' REPORT


THE STOCKHOLDERS AND BOARD OF DIRECTORS OF
USDATA CORPORATION:

         We have audited the accompanying consolidated balance sheets of USDATA
Corporation and subsidiaries as of December 31, 2001 and 2000, and the related
consolidated statements of operations, stockholders' equity (deficit) and
comprehensive loss, and cash flows for each of the years in the three-year
period ended December 31, 2001. In connection with our audits 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
audits.

         We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. 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 audits provide 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, 2001 and 2000, and the results
of their operations and their cash flows for each of the years in the three-year
period ended December 31, 2001, in conformity with accounting principles
generally accepted in the United States of America. Also, in our opinion, the
related financial statement schedule, when considered in relation to the basic
consolidated financial statements taken as a whole, presents fairly, in all
material respects, the information set forth therein.


                                              KPMG LLP


Dallas, Texas
February 8, 2002,
  except for Note 15, which is
  as March 19, 2002


                                      F-1
<PAGE>
                      USDATA CORPORATION AND SUBSIDIARIES
                          CONSOLIDATED BALANCE SHEETS
                (IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)


<Table>
<Caption>
                                                                          DECEMBER 31,  DECEMBER 31,
                                                                             2001          2000
                                                                          ------------  ------------
<S>                                                                       <C>           <C>
ASSETS
Current assets:
  Cash and cash equivalents                                                $  1,844      $    673
  Accounts receivable, net of allowance for doubtful
    accounts of $279 and $224, respectively                                   2,573         4,073
  Other current assets                                                          557           678
                                                                           --------      --------
      Total current assets                                                    4,974         5,424
                                                                           --------      --------
Property and equipment, net                                                   1,212         2,216
Computer software development costs, net                                      6,443         7,848
Software held for resale, net                                                   426           824
Other assets                                                                     23            42
                                                                           --------      --------
      Total assets                                                         $ 13,078      $ 16,354
                                                                           ========      ========
LIABILITIES, REDEEMABLE CONVERTIBLE PREFERRED
  STOCK AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
  Accounts payable                                                         $    694      $  1,511
  Deferred revenue                                                            1,248         1,218
  Accrued compensation and benefits                                             468           808
  Notes payable and current portion of long-term debt                         1,837         1,165
  Other accrued liabilities                                                   1,702         2,755
  Net liabilities of discontinued operation                                     339         2,413
                                                                           --------      --------
      Total current liabilities                                               6,288         9,870
                                                                           --------      --------
Long-term debt, less current portion                                            590           554
                                                                           --------      --------
      Total liabilities                                                       6,878        10,424
                                                                           --------      --------
Commitments and contingencies (Note 12)
Redeemable convertible preferred stock, Series A-1 and Series A-2,
  $.01 par value, with a redemption and liquidation value of $2.56 per
  share in 2000; 16,000,000 shares authorized for Series A-1 and
  16,000,000 shares for Series A-2; 5,300,000 shares issued and
  outstanding for each series of preferred stock in 2000                         --        27,142
Stockholders' equity (deficit):
Series A cumulative convertible preferred stock, $.01 par value;
  liquidation preference $100 per share; 100,000 shares authorized;
  50,000 shares issued and outstanding in 2001 and 2000                       5,968         5,568
Series B cumulative convertible preferred stock; $.01 par value;
  liquidation preference $100 per share; 800,000 shares authorized;
  265,000 shares issued and outstanding in 2001                              29,262            --
Series C-1 cumulative convertible preferred stock; $.01 par value;
  liquidation preference $80 per share; 125,000 shares authorized;
  53,750 shares issued and outstanding in 2001                               10,442            --
Common stock, $.01 par value, 40,000,000 shares
  authorized; 3,264,872 issued in 2001 and 2000                                  33            33
Additional paid-in capital                                                   12,815        24,022
Accumulated deficit                                                         (43,795)      (41,910)
Treasury stock at cost, 438,247 shares in 2001
  and 463,402 shares in 2000                                                 (7,522)       (7,961)
Accumulated other comprehensive loss                                         (1,003)         (964)
                                                                           --------      --------
      Total stockholders' equity (deficit)                                    6,200       (21,212)
                                                                           --------      --------
      Total liabilities, redeemable convertible preferred
        stock and stockholders' equity (deficit)                           $ 13,078      $ 16,354
                                                                           ========      ========
</Table>


See accompanying notes to consolidated financial statements.


                                      F-2
<PAGE>

                      USDATA CORPORATION AND SUBSIDIARIES
                     CONSOLIDATED STATEMENTS OF OPERATIONS
                     (IN THOUSANDS, EXCEPT PER SHARE DATA)


<Table>
<Caption>
                                                                 YEAR ENDED DECEMBER 31,
                                                           ------------------------------------
                                                             2001          2000          1999
                                                           --------      --------      --------
<S>                                                        <C>           <C>           <C>
Revenues:
  Product license                                          $ 11,477      $ 13,019      $ 22,408
  Services                                                    2,095         3,015         3,226
                                                           --------      --------      --------
Total revenues                                               13,572        16,034        25,634
                                                           --------      --------      --------
Operating expenses:
  Selling and product materials                               9,088        12,812        14,776
  Product development                                         1,694         6,402         2,496
  General and administrative                                  3,222         6,521         5,001
  Severance and other restructuring charges                   1,068         2,518            --
  Write off of capitalized software                             391         1,781            --
                                                           --------      --------      --------
Total operating expenses                                     15,463        30,034        22,273
                                                           --------      --------      --------
Income (loss) from operations                                (1,891)      (14,000)        3,361
Interest expense                                               (213)         (388)          (14)
Other income, net                                                37           114           128
                                                           --------      --------      --------
Income (loss) from continuing operations before income
  taxes and preferred stock dividends of subsidiary          (2,067)      (14,274)        3,475
Income tax provision                                             --            --          (708)
Preferred stock dividends of subsidiary                          --          (642)           --
                                                           --------      --------      --------
Income (loss) from continuing operations                     (2,067)      (14,916)        2,767
Discontinued operations:
  Income (loss) from discontinued operation                     182       (28,324)       (5,183)
  Loss on disposal of discontinued operation,
    including operating losses of $360 for 2001                  --        (1,193)           --
                                                           --------      --------      --------
Net loss                                                     (1,885)      (44,433)       (2,416)
Dividends on preferred stock, preferred stock
  warrant and beneficial conversion                         (10,812)         (401)         (167)
                                                           --------      --------      --------
Net loss applicable to common stockholders                 $(12,697)     $(44,834)     $ (2,583)
                                                           ========      ========      ========
Net loss per common share:
  Basic:
    Income (loss) from continuing operation                $  (4.57)     $  (5.60)     $   1.10
    Income (loss) from discontinued operation                  0.07        (10.79)        (2.19)
                                                           --------      --------      --------
  Net loss per common share - basic                        $  (4.50)     $ (16.39)     $  (1.09)
                                                           ========      ========      ========
  Diluted:
    Income (loss) from continuing operation                $  (4.57)     $  (5.60)     $   0.96
    Income (loss) from discontinued operation                  0.07        (10.79)        (1.92)
                                                           --------      --------      --------
  Net loss per common share - diluted                      $  (4.50)     $ (16.39)     $  (0.96)
                                                           ========      ========      ========

  Weighted average shares outstanding:
    Basic                                                     2,820         2,735         2,370
    Diluted                                                   2,820         2,735         2,698
                                                           ========      ========      ========
</Table>


See accompanying notes to consolidated financial statements.


                                      F-3
<PAGE>

                       USDATA CORPORATION AND SUBSIDIARIES
            CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT)
                             AND COMPREHENSIVE LOSS
                                 (IN THOUSANDS)

<Table>
<Caption>

                                                                          ADDITIONAL    DEFERRED
                                                PREFERRED      COMMON      PAID-IN        STOCK       RETAINED      TREASURY
                                                  STOCK        STOCK       CAPITAL     COMPENSATION   EARNINGS       STOCK
                                                ---------     --------    ----------   ------------   --------      --------
<S>                                             <C>           <C>         <C>          <C>            <C>           <C>
Balance, at
  December 31, 1998                             $      --     $     13    $  16,664     $      --     $  5,106      $(10,929)
    Exercise of stock options                                                    12                                      184
    Exercise of common stock warrants                                1           77                                      (78)
    Issuance of common stock                                        12        5,173                                      608
    Issuance of restricted stock                                                           (1,937)                     1,937
    Amortization of deferred compensation                                                     659
    Preferred stock dividends                                                                             (167)
    Acquisition of common stock                                                 156                                     (156)
    Comprehensive loss:
      Net loss                                                                                          (2,416)
      Foreign currency translation
        adjustment
          Total comprehensive loss
                                                 --------     --------     --------      --------     --------      --------
Balance, at
  December 31, 1999                                    --           26       22,082        (1,278)       2,523        (8,434)
    Exercise of stock options                                                    56                                      330
    Exercise of common stock warrants                                7        2,102
    Issuance of common stock                                                    206                                      259
    Amortization of deferred compensation                                                   1,278
    Acquisition of common stock                                                 116                                     (116)
    Preferred stock (Note 8)                        5,167                      (164)
    Preferred stock dividends                         401                      (401)
    Acceleration of stock option vesting                                         25
    Comprehensive loss:
      Net loss                                                                                         (44,433)
      Foreign currency translation
        adjustment
          Total comprehensive loss
                                                 --------     --------     --------      --------     --------      --------
Balance, at
  December 31, 2000                                 5,568           33       24,022            --      (41,910)       (7,961)
    Issuance of common stock                                                   (382)                                     439
    Issuance of common stock warrant                                             87
    Issuance of preferred stock                     2,150                      (100)
    Conversion of eMake Series A-1
      and A-2 preferred stock into
      Series B preferred stock                     27,142
    Preferred stock dividends                       2,662                    (2,662)
    Dividends on Series C-2 warrant                 6,000                    (6,000)
    Series C beneficial conversion                  2,150                    (2,150)
    Comprehensive loss:
      Net loss                                                                                          (1,885)
      Foreign currency translation
        adjustment
          Total comprehensive loss
                                                 --------     --------     --------      --------     --------      --------
Balance, at
  December 31, 2001                              $ 45,672     $     33     $ 12,815      $     --     $(43,795)     $ (7,522)
                                                 ========     ========     ========      ========     ========      ========

<Caption>
                                                  ACCUMULATED
                                                     OTHER            TOTAL
                                                 COMPREHENSIVE     STOCKHOLDERS'
                                                     LOSS        EQUITY (DEFICIT)
                                                 -------------   ----------------
<S>                                              <C>             <C>
Balance, at
  December 31, 1998                                $   (559)        $ 10,295
    Exercise of stock options                                            196
    Exercise of common stock warrants                                     --
    Issuance of common stock                                           5,793
    Issuance of restricted stock                                          --
    Amortization of deferred compensation                                659
    Preferred stock dividends                                           (167)
    Acquisition of common stock                                           --
    Comprehensive loss:
      Net loss                                                        (2,416)
      Foreign currency translation
        adjustment                                     (273)            (273)
                                                                    --------
          Total comprehensive loss                                    (2,689)
                                                   --------         --------
Balance, at
  December 31, 1999                                    (832)          14,087
    Exercise of stock options                                            386
    Exercise of common stock warrants                                  2,109
    Issuance of common stock                                             465
    Amortization of deferred compensation                              1,278
    Acquisition of common stock                                           --
    Preferred stock (Note 8)                                           5,003
    Preferred stock dividends                                             --
    Acceleration of stock option vesting                                  25
    Comprehensive loss:
      Net loss                                                       (44,433)
      Foreign currency translation
        adjustment                                     (132)            (132)
                                                                    --------
          Total comprehensive loss                                   (44,565)
                                                   --------         --------
Balance, at
  December 31, 2000                                    (964)         (21,212)
    Issuance of common stock                                              57
    Issuance of common stock warrant                                      87
    Issuance of preferred stock                                        2,050
    Conversion of eMake Series A-1
      and A-2 preferred stock into
      Series B preferred stock                                        27,142
    Preferred stock dividends                                             --
    Dividends on Series C-2 warrant                                       --
    Series C beneficial conversion                                        --
    Comprehensive loss:
      Net loss                                                        (1,885)
      Foreign currency translation
        adjustment                                      (39)             (39)
                                                                    --------
          Total comprehensive loss                                    (1,924)
                                                   --------         --------
Balance, at
  December 31, 2001                                $ (1,003)        $  6,200
                                                   ========         ========

</Table>


See accompanying notes to the consolidated financial statements.


                                      F-4
<PAGE>

                      USDATA CORPORATION AND SUBSIDIARIES
                     CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (IN THOUSANDS)


<Table>
<Caption>
                                                                           YEAR ENDED DECEMBER 31,
                                                                     ------------------------------------
                                                                       2001          2000          1999
                                                                     --------      --------      --------
<S>                                                                  <C>           <C>           <C>
Cash flows from operating activities:
Net loss                                                             $ (1,885)     $(44,433)     $ (2,416)
  Adjustments to reconcile net loss to net cash
  used in operating activities:
    (Income) loss from discontinued operations                           (182)       28,324         5,183
    Loss on disposal of discontinued operations                            --         1,193            --
    Depreciation and amortization                                       3,586         2,527         1,045
    Non-cash stock compensation                                            87            --            --
    Write off of fixed assets                                              --            81            --
    Write off of capitalized software development costs                   391         1,781            --
    Non-cash interest expense                                              --           313            --
    Preferred stock dividends of subsidiary                                --           642            --
    Deferred income taxes                                                  --            --           533
    Changes in operating assets and liabilities:
        Accounts receivable, net                                        1,500         2,134          (112)
        Other assets, net                                                 140           (51)          (72)
        Accounts payable and other accrued liabilities                 (1,678)        1,977           (87)
        Accrued compensation and benefits                                (340)       (1,112)          960
        Deferred revenue                                                   30          (636)         (151)
                                                                     --------      --------      --------
        Net cash provided by (used in) continuing operations            1,649        (7,260)        4,883
        Net cash used in discontinued operations                       (1,892)      (16,204)      (10,635)
                                                                     --------      --------      --------
        Net cash used in operating activities                            (243)      (23,464)       (5,752)
                                                                     --------      --------      --------
Cash flows from investing activities:
    Capital expenditures                                                  (60)       (1,114)         (780)
    Capitalized software development costs                             (1,317)       (4,120)       (2,518)
    Refund of leasehold improvement costs                                 209            --            --
                                                                     --------      --------      --------
        Net cash used in continuing operations                         (1,168)       (5,234)       (3,298)
        Net cash used in discontinued operations                           --        (2,783)         (263)
                                                                     --------      --------      --------
        Net cash used in investing activities                          (1,168)       (8,017)       (3,561)
                                                                     --------      --------      --------
Cash flows from financing activities:
    Proceeds from stock warrant exercise                                   --         2,109            --
    Proceeds from stock option exercises                                   --           386            --
    Proceeds from issuance of common stock                                 57            --         5,196
    Proceeds from issuance of preferred stock, net                      2,050         6,937         5,000
    Proceeds from issuance of demand notes payable                         --        26,750            --
    Payments on demand notes payable                                       --        (7,500)           --
    Borrowing under revolving line of credit                            1,657           750            --
    Other borrowings                                                      710            --            --
    Payments on long-term debt                                         (1,892)         (126)          (15)
                                                                     --------      --------      --------
        Net cash provided by financing activities                       2,582        29,306        10,181
                                                                     --------      --------      --------
Net increase (decrease) in cash and cash equivalents                    1,171        (2,175)          868
Cash and cash equivalents, beginning of period                            673         2,848         1,980
                                                                     --------      --------      --------
Cash and cash equivalents, end of period                             $  1,844      $    673      $  2,848
                                                                     ========      ========      ========

Non-cash operating and financing activity:
    Conversion of accrued liabilities to long-term
      notes payable                                                  $    232      $     --      $     --
    Conversion of notes payable and accrued interest
      to preferred stock                                             $     --      $ 19,563      $     --
    Property and equipment acquired by capital lease                 $     --      $    645      $     --

See Notes 2, 4, 6, and 7 for other non-cash financing activities
</Table>


See accompanying notes to consolidated financial statements.


                                      F-5
<PAGE>

UNITED STATES DATA CORPORATION

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 provider of industrial
automation software and services. The Company's products consist of real-time
component-based application software tools for automation and application
software products for manufacturing. These products and services are designed to
help customers manage their business in real time, reduce operating costs,
shorten cycle times and improve quality in their manufacturing operations. 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 in 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 provide a powerful set of
software tools and applications designed for users who are technically competent
but who may not be experienced software programmers.

LIQUIDITY

         As a result of the Company's recurring losses from operations and
resulting negative cash flow, the Company implemented a restructuring plan to
reduce its cost structure by reducing its workforce and other operating
expenses. Included in the Company's revised operating plan were the operations
of the Company's subsidiary eMake Corporation, Inc. ("eMake"). The revised
operating plan included curtailing or abandoning certain business activities of
eMake and USDATA as of the fourth quarter of 2000. In February 2001, the Company
adopted a plan to terminate the operations of eMake due to the market adoption
rate of the technology around eMake not progressing in a manner to support the
resources needed to continue eMake's revised operating plan (see Note 2). To
facilitate USDATA in executing its revised operating plan, the Company entered
into a Note Agreement, dated December 15, 2000, that provides for up to $3.0
million revolving credit availability through January 15, 2002. This credit
facility was renewed on January 15, 2002 and is available through January 31,
2003, subject to certain debt covenants and a borrowing base calculation (see
Note 4). In addition, on March 30, 2001, the Company secured an equity financing
of $1.5 million through the issuance of 37,500 shares of Series C-1 Preferred
Stock of the Company and a commitment from the holder to purchase an additional
37,500 shares at a purchase price of $40 per share or $1.5 million (see Note 8).
As of December 31, 2001, $850,000 was available under the equity financing.
There can be no assurance that the Company's current debt and equity financing
arrangements will be sufficient to satisfy its operating cash needs for the
foreseeable future and that the Company will be able to obtain any additional
debt or equity funding on terms acceptable to the Company, if at all. If
necessary, the Company will delay certain operations and capital expenditures
until adequate financing is obtained. In the event the Company is unable to
secure sufficient debt or equity financing, the Company's operations would be
materially adversely affected.

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.

RECLASSIFICATIONS

         Certain reclassifications have been made to 2000 and 1999 to conform
to the presentation in 2001.

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.


                                      F-6
<PAGE>
UNITED STATES DATA CORPORATION

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

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 selling and product materials, 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 2001, 2000 and 1999 were $1.3 million, $2.3 million (net of a write-off of
$1.8 million), and $2.5 million, respectively. The total costs amortized and
charged to operations for 2001, 2000 and 1999 were $2.3 million, $1.1 million,
and $0, respectively. Accumulated amortization at December 31, 2001 and 2000 was
$3.3 million and $3.1 million, respectively. In December 2001, $2.1 million of
fully amortized capitalized software development costs were netted against
computer software development costs.

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
five years. Total costs amortized and charged to operations for all software
held for resale were $398 thousand, $480 thousand and $237 thousand for 2001,
2000 and 1999, respectively.

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 recognized in
accordance with Statement of Position 97-2, Software Revenue Recognition ("SOP
97-2"), as amended by SOP 98-9, and the Company generally recognizes revenue
when all of the following criteria are met as set forth in paragraph 8 of SOP
97-2: (1) persuasive evidence of an arrangement exists; (2) delivery has
occurred; (3) the fee is fixed or determinable; and (4) collectibility is
probable. Each of these four criteria above is defined as follows:

         Persuasive evidence of an arrangement exists. It is the Company's
customary practice to have a written contract, which is signed by both the
customer and the Company or, in situations where a contract is not required, a
customer purchase order has been received.

         Delivery has occurred. The Company's software may be either physically
or electronically delivered to the customer. Delivery is deemed to have occurred
upon the delivery of the electronic code or the shipment of the physical product
based on standard contractual committed shipping terms, whereby risk of loss
passes to customer when shipment is picked up by the carrier. If undelivered
products or services exist in an arrangement that are essential to the
functionality of the delivered product, delivery is not considered to have
occurred until these products or services are delivered as described above.

         The fee is fixed or determinable. The Company's customers generally pay
a per-license fee that is based on the number of servers on which the software
is installed, the size of the application that they will develop for the
software, the options provided for those servers, and the number of client
workstations that access the server. Additional license fees are due when the
total number of subscribers using our products increases beyond the specified
number for which a license was purchased or when additional options are added.
License fees are generally due within 30-45 days from product delivery in the
United States and within 30 - 60 days from product delivery internationally.

         Collectibility is probable. Collectibility is assessed on a
customer-by-customer basis. The Company typically sells to customers with high
credit ratings and solid payment practices. New customers are subjected to a
credit review process, in which we evaluate the customers' financial position
and ultimately their ability to pay. If it is determined from the outset of an
arrangement that collectibility is not probable based upon our credit review
process, revenue is recognized as cash payments are received.


                                      F-7
<PAGE>
UNITED STATES DATA CORPORATION

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

          Revenue from software support maintenance agreements is recognized
ratably over the contract term, generally not exceeding one year.

STOCK-BASED COMPENSATION

         The Company applies the intrinsic value method of accounting prescribed
by Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees" ("APB 25") and related interpretations, in accounting for stock
options and other stock based awards under its stock option plan.

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 and revolving line of credit
at December 31, 2001 and 2000 approximates fair value as these notes payable
bear 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 to
the results of continuing operations.

         Options to purchase 294,000 and 301,000 shares of common stock for 2001
and 2000, 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 loss in
stockholders' equity. Gains and losses resulting from foreign currency
transactions are included in the statements of operations and such amounts have
not been significant.

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, 2001, the Company had two customers
with outstanding accounts receivable balances of approximately $0.6 million and
$0.3 million, respectively. These customers represented approximately 21% and
7%, respectively, of the Company's revenues for 2001. At December 31, 2000, the
Company had two customers with outstanding accounts receivable balances of
approximately $0.7 million and $0.6 million, respectively. These customers
represented approximately 24% and 6%, respectively, of the Company's revenues
for 2000.

                                      F-8
<PAGE>
UNITED STATES DATA CORPORATION

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

2.       DISCONTINUED OPERATION

         In February 2001, management of the Company determined that the market
adoption rate of the technology around the Company's eMake subsidiary was not
progressing in a manner to support the resources needed to continue eMake's
newly developed operating plan. As a result, the Company's Board of Directors
approved a plan on February 26, 2001 to terminate the operations of eMake as of
March 31, 2001 as part of a strategy to commit the Company's resources to its
core business. At December 31, 2000, the Company recorded an estimated loss on
disposal of $1.2 million, including operating losses of $360 thousand expected
to be incurred through the disposal date of March 31, 2001. eMake is reported as
a discontinued operation, and the consolidated financial statements have been
reclassified to segregate the net assets and operating results of the business.
Prior year consolidated financial statements have been restated to present eMake
as a discontinued operation. Summarized financial data of the discontinued
operation are as follows:

<Table>
<Caption>
(in thousands)                                                2001          2000
                                                            --------      --------
<S>                                                         <C>           <C>
Financial position:
  Current assets                                            $     --      $     26
  Total liabilities                                             (339)       (2,439)
                                                            --------      --------
  Net liabilities of discontinued
    operation                                               $   (339)     $ (2,413)
                                                            ========      ========
</Table>

<Table>
<Caption>
(in thousands)                                                2001          2000          1999
                                                            --------      --------      --------
<S>                                                         <C>           <C>           <C>
Discontinued operation:
  Revenues                                                  $     --      $  1,075      $  1,411
                                                            --------      --------      --------
  Operating (income) expense before severance and
    other restructuring and acquisition related charges           --        18,087         4,864
  Severance and other restructuring charges(b)                  (182)        1,861            --
  Non-cash stock compensation(a)                                  --         1,278           659
  Amortization of intangible assets(a)                            --         1,078           595
  Asset impairment charge(c)                                      --         7,095            --
  Purchased in process research and development(a)                --            --           476
                                                            --------      --------      --------
  Income (loss) from discontinued operation                 $    182      $(28,324)     $ (5,183)
                                                            ========      ========      ========
</Table>

(a)      Acquisition of Smart Shop

         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 $0.2
million. The eMake segment operations were built around the Smart Shop
operations and assets acquired. This acquisition was accounted for under the
purchase method of accounting. The excess purchase price over the estimated fair
value of net tangible assets was 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 were being amortized to
expense on a 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. The acquired intangible assets were written off in 2000 (See (c) below).

         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 were held in escrow as
collateral for performance under the purchase agreement to 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


                                      F-9
<PAGE>
UNITED STATES DATA CORPORATION

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

$1.9 million was recorded in stockholders' equity in 1999. The deferred stock
compensation was recognized as compensation expense over 36 months, as the
restrictions lapsed. The Company recorded a non-cash stock compensation charge
of $659 thousand for the period ended December 31, 1999 related to the initial
amortization of this compensation charge. During 2000, the remaining shares were
released from escrow due to the severance arrangements described in (b) below.
As a result, the Company accelerated the amortization of the compensation charge
in full and recorded a non-cash stock compensation charge of $1.3 million for
the period ended December 31, 2000.

(b)      Severance and Other Restructuring Charges

         During the year 2000, the Company implemented a restructuring plan
designed to reduce the Company's and eMake's cost structure by reducing its
workforce and other operating expenses. The Company recorded a one-time charge
for eMake of $1.9 million primarily consisting of employee severance and other
employee-related costs of $1.2 million. Other charges included in the $1.9
million are early lease termination and facility shutdown costs of $112
thousand, write-downs of redundant property and equipment of $308 thousand,
lease costs associated with vacated office space of $242 thousand and $10
thousand for legal and other related costs.

         Severance costs were determined based upon employees' years of service
as well as level within the organization. The reduction in workforce included
approximately 93 employees, or approximately 67%, and affected all functions of
eMake. Of the total amount charged to expense for the year ended December 31,
2000, approximately $603 thousand was paid during 2000 and the remaining $549
thousand was paid during 2001. All affected employees were terminated as of
December 31, 2000.

         Of the total lease termination and facility shutdown costs charged to
expense for the year 2000 of $354 thousand, $54 thousand were paid by December
31, 2000 and $168 thousand were paid by December 31, 2001. The Company settled
the remaining $132 thousand accrual related to lease costs associated with
vacated office space and reversed this accrual in 2001. The reversal is included
in income from discontinued operation in the consolidated statement of
operations, in addition to $50 thousand related to a royalty agreement with
eMake and one of its competitors, for the year ended December 31, 2001. $10
thousand was paid related to legal and other costs through December 31, 2000.

         In addition, as a result of the restructuring plan, the Company
released shares from escrow, in accordance with the Smart Shop Software, Inc.
purchase agreement, which were held as collateral for certain employment-related
performance requirements. $610 thousand in non-cash compensation related to this
accelerated release of shares is included in loss from discontinued operations
for the year ended December 31, 2000.

         At December 31, 2000, $563 thousand in employee severance costs and
other employee related costs, $58 thousand in early lease termination and
facility shutdown costs and $242 thousand in vacated office space costs are
included in accrued liabilities. At December 31, 2001, $14 thousand other
employee-related costs remain in accrued liabilities which is expected to be
paid during the first quarter of 2002.

(c)      Asset Impairment Charge

         In conjunction with the Company's restructuring plan described above
and in Note 6, the Company re-evaluated eMake's business model during the fourth
quarter of 2000. A revised operating plan was developed to restructure and
stabilize the business. Based on the forecasted undiscounted cash flows from the
revised operating plan, the Company deemed that certain intangible assets of
eMake were impaired and recorded an asset impairment charge of $7.1 million. The
amount of the impairment was measured based upon projected discounted future
cash flows from the revised operating plan. The asset impairment charge includes
a write-off of goodwill and intangible assets of $4.0 million, net and $1.5
million, net, respectively. Also included in the impairment charge are
capitalized website development costs and capitalized software costs of $1.2
million, net and $365 thousand, net, respectively.


                                      F-10
<PAGE>
UNITED STATES DATA CORPORATION

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

3.       PROPERTY AND EQUIPMENT

         The components of property and equipment at December 31, 2001 and 2000
were as follows:

<Table>
<Caption>
(in thousands)                          2001         2000
                                      -------      -------
<S>                                   <C>          <C>
Equipment                             $ 2,083      $ 2,183
Purchased software                      1,301        1,245
Furniture and fixtures                    381          130
Leasehold improvements                     83           84
Vehicles                                   --           16
Assets under capital leases               605        1,014
                                      -------      -------
                                        4,453        4,672
Accumulated depreciation
  and amortization                     (3,241)      (2,456)
                                      -------      -------

Net property and equipment            $ 1,212      $ 2,216
                                      =======      =======
</Table>

4.       DEBT

         The Company's borrowings at December 31, 2001 and 2000 consisted of:

<Table>
<Caption>
(in thousands)                          2001         2000
                                      -------      -------
<S>                                   <C>          <C>
Revolving line of credit              $ 1,145      $   750
Bank promissory note                      143          218
Non-interest bearing note payable         174          174
Capital leases                            414          577
Note payable                              468           --
Financed insurance                         83           --
                                      -------      -------
  Total debt                            2,427        1,719
Less current portion                    1,837        1,165
                                      -------      -------
                                      $   590      $   554
                                      =======      =======
</Table>

         In December 2000, two wholly-owned subsidiaries of the Company entered
into a Note Agreement ("Note") with JPMorgan Chase Bank, formerly known as The
Chase Manhattan Bank, that provides for a $3.0 million revolving credit
availability through January 15, 2002. The Note bears interest at prime rate
plus 1.5%, or 11% at December 31, 2000 and 6.25% at December 31, 2001. The Note
has a commitment fee of 1.25% per annum on the total commitment of up to $3.0
million. The Note is collateralized by certain foreign accounts receivable of
the Company's and is guaranteed by the Company, a wholly-owned subsidiary of the
Company and Export-Import Bank of the United States for 90% of principal and
interest. On January 15, 2002, the Note was amended to extend the Note to
January 31, 2003, delete references to eMake as a borrower, and increase the
commitment fee to 1.50% per annum. At December 31, 2001 and 2000, $1.1 million
and $750 thousand, respectively, was drawn under the Note Agreement and is
included in current liabilities. Based on the qualifying borrowing base
arrangement under the Note, total remaining availability at December 31, 2001
and 2000 was $309 thousand and $924 thousand, respectively. Due to the nature of
the qualifying borrowing base arrangement, the Company's borrowing capability
varies each month depending on billings and cash collections.

         At March 31, 2001, the Company was not in compliance with the tangible
net worth debt covenant under its revolving credit facility and subsequently
received a waiver from the lending bank for this covenant. As of May 3, 2001,
the credit facility was amended to ease compliance with this covenant
retroactively to December 2000 and for the remainder of the agreement ending
January 15, 2002. At December 31, 2001, the Company was in compliance with all
debt covenants.

         In conjunction with the Smart Shop acquisition, the Company, through
its wholly owned subsidiary, assumed a promissory note with a bank in the amount
of $297 thousand of which $143 thousand and $218 thousand was outstanding at
December 31, 2001 and 2000, respectively. The note agreement requires monthly
installments of $7 thousand including interest at the bank prime rate plus 1.5%,
or 6.25% at December 31, 2001 and 11% for the same period in 2000. 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


                                      F-11
<PAGE>
UNITED STATES DATA CORPORATION

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

August 2003. Interest paid in 2001, 2000 and 1999 totaled $17 thousand, $24
thousand and $10 thousand, respectively.

         Also, in connection with the 1999 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, 2002.

         In December 2000, the Company entered into a development and
commercialization agreement with an original equipment manufacturer ("OEM") and
customer of the Company. On May 11, 2001, the agreement was amended to include a
loan agreement ("Loan") between the Company and the OEM in connection with a
co-coordinated development program to co-develop the next major release of the
Company's software product FactoryLink(R). During 2001, the OEM advanced the
Company $467,500 in three separate advances. The Loan bears interest at 10.5%
per annum and is repayable in eight equal quarterly installments of principal
and interest with the first installment due on April 15, 2002.

         In November 2001, the Company renewed its Directors and Officers
Liability insurance. The Company financed the $125 thousand premium under a
premium finance agreement which bears interest at 5.74% per annum. The Company
pays monthly installments of $12 thousand and $83 thousand was outstanding at
December 31, 2001.

5.       INCOME TAXES

         Income (loss) from continuing operations before income taxes and
dividends on preferred stock, preferred stock warrant and beneficial conversion
was ($2.1) million, ($14.3) million and $3.5 million for the years ended
December 31, 2001, 2000 and 1999, respectively.

         The components of income tax benefit (expense) for the years ended
December 31, 2001, 2000 and 1999 are as follows:

<Table>
<Caption>
(in thousands)                       2001          2000          1999
                                   --------      --------      --------
<S>                                <C>           <C>           <C>
Current:
Federal                            $     --      $     --      $     --
State                                    --            --            --
Foreign                                  --            --          (175)
                                   --------      --------      --------
                                         --            --          (175)
                                   --------      --------      --------
Deferred:
Federal                                  --            --          (484)
State                                    --            --           (49)
                                   --------      --------      --------
                                         --            --          (533)
                                   --------      --------      --------
Income tax (expense) benefit       $     --      $     --      $   (708)
                                   ========      ========      ========
</Table>

         Benefit (provision) for income taxes differed from the amounts computed
by applying the U.S. Federal statutory income tax rate of 34% to income (loss)
before taxes as a result of the following for the years ended December 31, 2001,
2000 and 1999:

<Table>
<Caption>
(in thousands)                       2001          2000          1999
                                   --------      --------      --------
<S>                                <C>           <C>           <C>
Expected tax benefit (expense)     $    703      $  5,071      $ (1,181)
Research and development
credit                                   --            --            --
State taxes, net of federal
benefit                                  --            --            --
Change in valuation allowance          (246)      (15,323)       (1,024)
Change in prior year estimate          (377)           --          (175)
Discontinued operations                 (62)       10,036         1,762
Other                                   (18)          216           (90)
                                   --------      --------      --------
Income tax (provision) benefit     $     --      $     --      $   (708)
                                   ========      ========      ========
</Table>


                                      F-12
<PAGE>
UNITED STATES DATA CORPORATION

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

The components of deferred taxes at December 31, 2001 and 2000 were as follows:

<Table>
<Caption>
(in thousands)                        2001         2000
                                    --------     --------
<S>                                 <C>          <C>
Deferred tax assets:
Net operating loss                  $ 15,835     $ 16,053
Impairment and restructuring           4,024        3,733
Allowance for doubtful accounts          104           84
Accrued benefits                          74           40
Credits                                1,075          506
Intangible assets                        155          559
Compensation                             247          725
Other                                    666          525
Valuation allowance                  (18,114)     (17,868)
                                    --------     --------
                                    $  4,066     $  4,357
                                    ========     ========
Deferred tax liabilities:
Depreciation                             851          649
Capitalized software                   2,920        3,646
Other                                    295           62
                                    --------     --------
                                    $  4,066     $  4,357
                                    ========     ========
</Table>

         At December 31, 2001, the Company had net operating loss carryforwards
of approximately $46.6 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.

         The Company believes as a result of common stock issuances in 2001,
the Company has undergone an ownership change within the meaning of Section 382
of the Internal Revenue Code ("IRC"). As a result, the Company's ability to
utilize its operating loss carryforwards incurred prior to the ownership
changes are limited on an annual basis to the amount equal to the value of the
Company, as defined by the IRC, as of the date of change in ownership,
multiplied by the long-term tax exempt bond rate.

6.      SEVERANCE AND OTHER RESTRUCTURING CHARGES

        During the year 2000, the Company implemented a restructuring plan
designed to reduce the Company's cost structure by reducing its workforce and
other operating expenses. The Company recorded a charge of $2.5 million
primarily consisting of employee severance and other employee-related costs of
$1.1 million. This charge excludes the restructuring associated with eMake. See
Note 2 for discussion on eMake. Severance costs were determined based upon
employees' years of service as well as level within the organization. The
reduction in workforce included approximately 56 employees, or approximately 41%
of the workforce, and affected all functions of the Company. All affected
employees were terminated as of December 31, 2000. Other charges included in the
$2.5 million are early lease termination and facility shutdown costs of $200
thousand, write-downs of redundant property, plant and equipment of $81
thousand, lease costs associated with vacated office space of $1.0 million and
$91 thousand for legal and other related costs. These charges provide for future
streamlining of operations related to cost reduction initiatives.

        The continuing deterioration of the real estate market has affected the
Company's ability to sublease approximately 44,400 square feet of excess office
space at the Company's headquarter facilities. As a result, the Company accrued
an additional $1.1 million in restructuring charges related to lease costs
associated with vacated office space in the third quarter of 2001, representing
an estimated one full year of lease costs associated with the excess office
space. In October 2001, the Company initiated negotiations with the landlord
whereby the landlord would remove the 44,400 square feet of excess office space
under the facility lease. See Note 15.


                                      F-13
<PAGE>
UNITED STATES DATA CORPORATION

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

         The following tables summarize by category the accrued liability
balances at December 31, 2001 and 2000 related to the Company's 2000
restructuring plans.

<Table>
<Caption>
                                                                             Severance
                                                            Amount           and Other           2001               Amount
                                                          Accrued at       Restructuring         Cash             Accrued at
(in thousands)                                             12/31/00           charges           Payments           12/31/01
                                                        -------------      -------------      -------------      -------------
<S>                                                     <C>                <C>                <C>                <C>
Employee severance and other employee-related costs     $         410      $          --      $        (351)     $          59
Early lease termination and facility shutdown costs               141                 --               (141)                --
Lease costs associated with vacated office space                  988              1,068               (942)             1,114
Legal and other related costs                                      68                 --                (51)                17
                                                        =============      =============      =============      =============
                                                        $       1,607      $       1,068      $      (1,485)     $       1,190
                                                        =============      =============      =============      =============
</Table>

<Table>
<Caption>
                                                          Severance
                                                          and Other            2000               Amount
                                                        Restructuring          Cash             Accrued at
(in thousands)                                             charges           Payments            12/31/00
                                                        -------------      -------------      -------------
<S>                                                     <C>                <C>                <C>
Employee severance and other employee-related costs     $       1,102      $        (692)     $         410
Early lease termination and facility shutdown costs               200                (59)               141
Lease costs associated with vacated office space                1,044                (56)               988
Legal and other related costs                                      91                (23)                68
                                                        -------------      -------------      -------------
                                                                2,437               (830)             1,607
Non-cash write-down of redundant PP&E                              81                 --                 --
                                                        =============      =============      =============
                                                        $       2,518      $        (830)     $       1,607
                                                        =============      =============      =============
</Table>

         The severance and restructuring accrued liabilities are included in
accrued compensation and benefits and other accrued liabilities in the
accompanying consolidated balance sheets. All severance and other restructuring
costs will be paid in full by December 31, 2002.

7.       WRITE OFF OF CAPITALIZED SOFTWARE

         As a result of strategy changes from two of the Company's suppliers,
the Company determined that the carrying amount of capitalized software
development costs related to two of its software products were not recoverable
and as a result deemed to be impaired during the third quarter of 2001. The
Company wrote off $355 thousand related to its Analyzer software product and $36
thousand related to its Connector software product, totaling $391 thousand.

         In 2000, the Company wrote-off $1.8 million of capitalized software
costs due to impairment of certain software products.

8.       STOCKHOLDERS' EQUITY AND REDEEMABLE CONVERTIBLE PREFERRED STOCK

STOCK SPLIT

         On July 10, 2001, the Company's board of directors approved and
recommended that the stockholders approve an amendment to the Company's
Certificate of Incorporation to effect a one-for-five reverse stock split (the
"Reverse Split") of the Company's issued and outstanding common stock (the
"Existing Common"). On July 10, 2001, the holders of a majority of the
outstanding shares of Existing Common approved the amendment by written consent.
Approval by the board of directors and by the holders of a majority of the
outstanding shares of common stock is required under Delaware law to effect the
amendment. The amendment became effective upon the filing of the amendment to
the Company's Certificate of Incorporation with the Delaware Secretary of State
on August 20, 2001. The Reverse Split became effective August 21, 2001 the
("Effective Date").

         Pursuant to the terms of the Reverse Split, each five shares of
Existing Common outstanding immediately prior to the Effective Date was
reclassified as, and exchanged for, one share of newly issued common stock, par
value $0.01 per share ("New Common"). No fractional shares of New Common were
issued. If the conversion resulted in a fraction of a share, then the Company
rounded up such fraction of a share and the holder received a whole share for
such fraction. The per share amounts reported herein have been adjusted to give
effect to the Reverse Split.


                                      F-14
<PAGE>
UNITED STATES DATA CORPORATION

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

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
preferred stock as Series A Convertible Preferred Stock, of which 50,000 shares
are issued and outstanding at December 31, 2001 and 2000. In September 2000, the
Company executed an amendment to the Certificate of Designation for the
Company's Preferred Stock which changed the terms of the Series A Preferred
Stock and designated 800,000 shares of authorized preferred stock as Series B
Convertible Preferred Stock, of which 265,000 shares are issued and outstanding
at December 31, 2001. The amended terms included that neither the Series A
Preferred Stock nor Series B Preferred Stock are redeemable and that the
cumulative dividends are no longer interest bearing. In March 2001, the Company
executed a Certificate of Designation for Series C-1 Preferred Stock and Series
C-2 Preferred Stock which designated 125,000 shares of authorized preferred
stock as Series C-1 Preferred Stock and designated 125,000 shares of authorized
but unissued preferred stock as Series C-2 Preferred Stock. As of December 31,
2001, 53,750 shares of Series C-1 Preferred Stock are issued and outstanding.

SERIES A 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"), one of the Company's primary stockholders. The Series A Preferred
Stock has a par value of $.01 per share and a liquidation preference of $100 per
share, plus cumulative dividends. Dividends on the Series A Preferred Stock are
cumulative and payable in additional shares of Series A Preferred Stock or in
cash at a rate of $8.00 per share per annum and in preference to any dividends
on the Company's common stock. The preferred stock is Convertible at any time
into shares of common stock of the Company at a conversion rate of $23.25 per
share of common stock. The preferred stock is also convertible into shares of
common stock of any majority owned subsidiary of the Company through the
earliest of the following events: (a) June 1, 2006; (b) the commencement of the
liquidation or winding up of the business of eMake; (c) the sale of all or
substantially all of the assets and properties of eMake; (d) a merger,
consolidation or other similar transaction involving eMake in which eMake is not
the surviving entity or eMake is the surviving entity but after which the
holders of the outstanding voting securities of eMake before the transaction
hold less than 50% of eMake's outstanding voting securities after the
transaction; (e) the sale by eMake of its securities in a public offering; or
(f) a decrease in the ownership percentage of the Company's voting securities of
eMake to the extent that eMake would cease to be a consolidated subsidiary of
the Company. The Series A Preferred Stock was mandatorily redeemable according
to the original terms, however in September 2000, the Series A designation was
amended to remove the mandatory redemption provision. At December 31, 2001 and
2000, the aggregate liquidation preference was $5.968 million and $5.568
million, including cumulative dividends of $968 thousand and $568 thousand,
respectively. The holders of the Series A Convertible Preferred Stock are
subordinated to the holders of the Series B and Series C Convertible Preferred
Stock. Dividends of $400 thousand, $401 thousand and $167 thousand have been
recorded for the years ended December 31, 2001, 2000 and 1999, respectively.

SERIES A-1 AND A-2 REDEEMABLE CONVERTIBLE PREFERRED STOCK OF EMAKE

         On August 7, 2000, the Company and eMake executed a Securities Purchase
Agreement to provide $26.5 million in financing in the form of eMake preferred
stock. The transaction was approved by the Company's stockholders on September
11, 2000 and the transaction was completed on September 12, 2000.

         On September 12, 2000, SCP Private Equity Partners II, L.P. ("SCP") and
Safeguard each purchased through a private placement 5,300,000 shares, for a
total of 10,600,000 shares, of eMake Series A-1 Preferred Stock and Series A-2
Preferred Stock (collectively referred to as the "Series A Preferred") and
warrants to purchase up to an additional 5,300,000 shares each of eMake Series
A-1 and Series A-2 preferred stock, respectively. The aggregate purchase price
of $26,500,000 was comprised of $6,936,754 in cash and cancellation of
$19,250,000 of the notes payable described in Note 11 and the related accrued
interest of $313,246.

         On January 31, 2001, SCP elected to exercise its right to acquire
132,500 shares of Series B Convertible Preferred Stock of the Company in
exchange for 5,300,000 shares of Series A-1 Redeemable Convertible Preferred
Stock of eMake . In addition, a subsidiary of Safeguard elected to exercise its
right to acquire 132,500 shares of Series B Convertible Preferred Stock of the
Company in exchange for 5,300,000 shares of Series A-2 Redeemable Convertible
Preferred Stock of eMake . As of December 31, 2001, no series of eMake preferred
stock remains outstanding.

SERIES B CONVERTIBLE PREFERRED STOCK

         The Series B Convertible Preferred Stock has a par value of $.01 per
share and a liquidation preference of $100 per share, plus cumulative dividends.
Dividends on the Series B Preferred Stock are cumulative and payable in
additional shares of Series B Preferred Stock at a rate of $8.00 per share per
annum. The holders of the Series B Preferred Stock rank senior to the holders of
the Series A Preferred Stock with respect to dividend rights, rights on
liquidation, dissolution and


                                      F-15
<PAGE>
UNITED STATES DATA CORPORATION

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

winding up and preference to any dividends on the common stock. The preferred
stock is Convertible at any time into shares of common stock of the Company at a
conversion rate of $30.45 per share of common stock. At December 31, 2001, the
aggregate liquidation preference was $29.262 million, including cumulative
dividends of $2.120 million in 2001 and cumulative preferred stock dividends of
subsidiary of $642 thousand.

SERIES C CONVERTIBLE PREFERRED STOCK

         On March 30, 2001, the Company secured an equity infusion of $1.5
million from SCP through the issuance of 37,500 shares of Series C-1 Convertible
Preferred Stock of the Company ("Series C-1 Preferred") and a warrant to
purchase up to 75,000 shares of Series C-2 Convertible Preferred Stock. In
addition, SCP committed to purchase an additional 37,500 shares of Series C-1
Convertible Preferred ("Option Stock") at the purchase price of $40 per share or
$1.5 million. The Company had the right to exercise its right to sell the Option
Stock on or before the expiration of nine months after March 30, 2001 ("Closing
Date"), but not before May 30, 2001, and the Company was required to be in
compliance with specified monthly targets as defined in the Series C Preferred
Stock Agreement. As an additional condition to this equity financing, SCP and
Safeguard 2000 Capital, L.P. ("Safeguard 2000") agreed not to convert upon
exercise of eMake warrants to acquire Series A-1 and A-2 Preferred Stock,
respectively, which are convertible into the Company's Series B Convertible
Preferred Stock. SCP and Safeguard 2000 hold warrants exercisable for 5,300,000
shares and 5,300,000 shares, respectively, of eMake Series A-1 and A-2 Preferred
Stock which are convertible into a total of 265,000 shares of the Company's
Series B Convertible Preferred Stock. See Note 15.

         On July 20, 2001, the Company exercised its right to sell 16,250 shares
of the Option Stock to SCP. The Company received $635,596, net of transaction
costs, in exchange for issuing 16,250 shares of its Option Stock to SCP. As of
December 31, 2001, 53,750 shares of Series C-1 Convertible Preferred Stock are
issued and outstanding. The total proceeds were $2.1 million, net of transaction
costs, for the year ended December 31, 2001.

         The Series C-1 Convertible Preferred Stock has a par value of $.01 per
share and a liquidation preference of $80 per share, plus cumulative dividends
and interest. The preferred stock is convertible into the Company's common stock
at a conversion rate of 20 shares of common stock for each share of preferred
stock and the cumulative dividends are payable at $4.00 per share per annum in
the form of additional shares of Series C-1 Preferred. The Series C-1 Preferred
Stock ranks senior to all other classes and series of the Company's capital
stock with respect to dividend rights, rights on liquidation, dissolution and
winding up. The excess of the liquidation preference over the purchase price of
the preferred stock has been reflected as a $2.150 million dividend on preferred
stock for the year ended December 31, 2001, increasing the loss applicable to
common stockholders and decreasing additional paid-in capital. At December 31,
2001, the aggregate liquidation preference was $10.442 million, including
cumulative dividends of $142 thousand, dividends related to the beneficial
conversion feature of the liquidation preference of $2.150 million and dividend
on the Series C-2 Preferred Stock warrant of $6.0 million (see below).

WARRANT TO PURCHASE SERIES C-2 PREFERRED STOCK

         The Series C-2 Preferred Stock warrant issued to SCP by the Company
grants SCP the right to purchase up to 75,000 shares of the Company's Series C-2
Convertible Preferred Stock at a purchase price of $40 per share. The Series C-2
Preferred Stock has a par value of $.01 per share and a liquidation preference
of $120 per share, plus cumulative dividends and interest, and is convertible
into the Company's common stock at a conversion rate of 20 shares of common
stock for each share of preferred stock. The right to purchase the shares of
Series C-2 Convertible Preferred Stock under the warrant are exercisable on any
business day on or before March 30, 2011, with the exception of 50,500 shares,
which may not be exercisable until the earlier of stockholder approval of the
transactions under the warrant or May 31, 2001. On exercise, the warrant
provides the holder a liquidation preference of three times the exercise price
per share. The excess of the liquidation preference of the Series C-2 Preferred
Stock to be acquired on warrant exercise over the warrant exercise price of $3.0
million has been reflected as additional return to the Series C-1 preferred
stockholder, increasing loss applicable to common stockholders for the year
ended December 31, 2001 and decreasing additional paid-in capital by $6.0
million.

WARRANTS TO PURCHASE SERIES A-1 AND A-2 PREFERRED STOCK

         The eMake Series A-1 and eMake Series A-2 preferred stock warrants
issued to SCP and Safeguard, respectively, grant to the holders the right to
purchase up to an additional 5,300,000 shares of eMake Series A-1 Convertible
preferred stock and up to an additional 5,300,000 shares of eMake Series A-2
Convertible preferred stock, respectively, at an exercise price of $.01 per
share. The amount of eMake Series A Preferred Stock that can be acquired upon
exercise is based on the number of users licensed to use eMake's software from a
server or client workstation as of June 30, 2001 and varies from zero to a total
of 5,300,000 shares of eMake Series A-1 Preferred Stock and 5,300,000 shares of
eMake Series A-2 Preferred Stock. The warrants are exercisable any time after
June 30, 2001 through the earliest of the following events: (a) June 1, 2006;
(b) the commencement of the liquidation or winding up of the business of eMake;
(c) the sale of all or substantially all of the assets and properties of eMake;
(d) a merger, consolidation or other similar transaction involving eMake in
which eMake is not the surviving entity or eMake is the surviving entity but
after which the holders of the outstanding voting securities of eMake before the
transaction hold less than 50% of eMake's outstanding voting securities after
the transaction; (e) the sale by eMake of its securities in a public offering;
(f) a decrease in the ownership percentage of the Company's


                                      F-16
<PAGE>
UNITED STATES DATA CORPORATION

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

voting securities of eMake to the extent that eMake would cease to be a
consolidated subsidiary of the Company; or (g) the exercise by SCP or Safeguard
of its right to exchange the last outstanding Series A share for shares of
USDATA's Series B preferred stock. SCP and Safeguard 2000 agreed not to convert
upon exercise of eMake warrants to acquire Series A-1 and A-2 Preferred Stock,
respectively, which are convertible into the Company's Series B Convertible
Preferred Stock. These warrants expire on June 30, 2006.

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. In December 1999,
the director exercised his warrant to purchase 77,582 shares of the Company's
common stock and in June 2000 Safeguard exercised its warrant to purchase
698,238 shares of the Company's common stock for $2.1 million in cash.

         The changes in the number of issued and outstanding shares of the
Company's preferred and common stock are summarized as follows:

<Table>
<Caption>
                                                                Common Stock
                                                    ---------------------------------------
                                      Preferred                   Held In
                                     Stock Issued    Issued       Treasury      Outstanding
                                     ------------   ---------     ---------     -----------
<S>                                  <C>            <C>           <C>           <C>
BALANCE AT DECEMBER 31, 1998                 --     2,868,744       621,237      2,247,507
Common shares issued or purchased            --       256,480      (130,774)       387,254
                                      ---------     ---------     ---------      ---------
BALANCE AT DECEMBER 31, 1999                 --     3,125,224       490,463      2,634,761
Series A Preferred Stock                 50,000            --            --             --
Common shares issued or purchased            --       139,648       (27,061)       166,709
                                      ---------     ---------     ---------      ---------
BALANCE AT DECEMBER 31, 2000             50,000     3,264,872       463,402      2,801,470
Series B Preferred Stock                265,000            --            --             --
Series C-1 Preferred Stock               53,750
Common shares issued or purchased            --            --       (25,155)        25,155
                                      ---------     ---------     ---------      ---------
BALANCE AT DECEMBER 31, 2001            368,750     3,264,872       438,247      2,826,625
                                      =========     =========     =========      =========
</Table>

9.       EQUITY COMPENSATION PLAN

         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 2000 to
provide for the issuance of up to 600,000 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 4,000 shares of common stock to certain
eligible directors upon initial election to the board of directors and a further
grant of options to purchase 1,000 shares of common stock as an annual service
grant, which fully vest as of the grant date. Options granted to directors have
an eight-year term and vest over four years. At December 31, 2001, there were
168,000 shares available for future grant under the 1994 Plan. All share and per
share amounts have been adjusted to reflect the one for five reverse stock split
effective August 21, 2001.

         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
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 as reflected in the following
pro forma amounts for the years ended December 31, 2001, 2000 and 1999:


                                      F-17
<PAGE>
UNITED STATES DATA CORPORATION

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

<Table>
<Caption>
(in thousands, except per share data)                              2001        2000       1999
                                                                --------    --------    -------
<S>                                              <C>            <C>         <C>         <C>
Net loss applicable to common stockholders       As reported    $(12,697)   $(44,834)   $(2,583)
                                                 Pro forma       (12,837)    (45,990)    (3,405)

Basic net loss per common share                  As reported       (4.50)     (16.39)     (1.09)
                                                 Pro forma         (4.55)     (16.82)     (1.44)

Diluted net loss per common share                As reported       (4.50)     (16.39)     (0.96)
                                                 Proforma          (4.55)     (16.82)     (1.26)
                                                                --------    --------    -------
</Table>

         The grant date per share weighted average fair value of stock options
granted by the Company during the years ended December 31, 2001, 2000 and 1999
was $18.76, $24.45 and $20.10, 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>
                                   2001            2000            1999
                                ------------    ------------    ------------
<S>                             <C>             <C>             <C>
Dividend yield                        0               0               0
Expected volatility                 100%            121%             95%
Risk-free rate of return        4.7% to 6.0%    5.0% to 6.3%    5.3% to 6.6%
Expected option life              5 years         5 years         5 years
                                ------------    ------------    ------------
</Table>

Option activity under the Company's 1994 Plan is summarized as follows:

<Table>
<Caption>
(in thousands, except share prices)               2001                       2000                      1999
                                           ------------------         ------------------        -------------------
                                                     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          301      $  24.45          330      $  20.10          232      $  21.15
Options granted                              80          3.09           85         53.95          115         17.85
Options exercised                            --            --          (19)        20.65          (10)        18.85
Options forfeited                           (87)        29.61          (95)        35.60           (7)        25.25
                                           ----      --------         ----      --------        -----      --------
Outstanding at end of period                294      $  18.76          301      $  24.45          330      $  20.10
                                           ----      --------         ----      --------        -----      --------
Options exercisable at year-end             164      $  20.86          166      $  20.15          101      $  20.70
Shares available for future grant           168                        161                         51
                                           ----      --------         ----      --------        -----      --------
</Table>

The following summarizes information about the Company's stock options
outstanding at December 31, 2001 (in thousands, except share prices):


                                      F-18
<PAGE>
UNITED STATES DATA CORPORATION

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

<Table>
<Caption>
                                           Options Outstanding                          Options Exercisable
                             --------------------------------------------------    ----------------------------
                                              Weighted Avg.
                                               Remaining
                                Number      Contractual Life      Weighted Avg.       Number      Weighted Avg.
Range of Exercise Prices     Outstanding       (in years)        Exercise Price    Exercisable   Exercise Price
------------------------     -----------    ----------------     --------------    -----------   --------------
<S>                          <C>            <C>                  <C>               <C>           <C>
$  2.50  - $ 4.69                80               7.5                $  3.44              3          $   0.83
$ 12.50  - $17.50                56               5.1                  15.73             35             15.73
$ 18.44  - $22.50               127               5.0                  20.08            114             20.08
$ 28.13  - $44.38                18               5.0                  34.53              8             34.53
$ 55.00  - $85.00                13               6.0                  68.91              4             68.91
                               ----                                                    ----
                                294               5.3                $ 18.76            164           $ 20.86
                               ----                                                    ----
</Table>

10.      RETIREMENT PLAN

         The Company maintains a discretionary defined contribution plan
covering substantially all employees. During the years ended December 31, 2001,
2000 and 1999, the Company made contributions of approximately $62 thousand,
$200 thousand and $100 thousand, respectively, to this plan.

11.      RELATED PARTY TRANSACTIONS

         On March 30, 2001, the Company secured an equity infusion of $1.5
million from SCP through the issuance of 37,500 shares of Series C-1 Convertible
Preferred Stock of the Company and a warrant to purchase up to 75,000 shares of
Series C-2 Convertible Preferred Stock. In addition, SCP has committed to
purchase an additional 37,500 shares of Series C-1 Convertible Preferred at the
purchase price of $40 per share or $1.5 million. See Note 8 for further details.
As of December 31, 2001, SCP owns approximately 44% of the Company's outstanding
common stock on a fully diluted basis.

         Safeguard owns approximately 25% 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 was
renewed annually on a year-to-year basis. The agreement was terminated as of
March 31, 2000. General and administrative expense on the consolidated
statements of operations includes $0.1 million and $0.4 million of such
administrative service fees for the years ended December 31, 2000 and 1999.
Additionally, in 1999 the Company paid $48 thousand for legal fees to Safeguard,
which was not covered by this agreement.

         On February 8, 2000 and March 24, 2000, the Company, through its
wholly-owned subsidiary eMake, entered into two convertible promissory note
agreements with a subsidiary of Safeguard for $2.5 million each, totaling $5.0
million in borrowings. The promissory notes had interest rates of 12% per annum
and were due in full on February 8, 2001 and March 24, 2001, respectively. The
terms of the notes payable included a clause that if the notes payable were paid
in full at maturity, interest would be forgiven. The notes were paid in full on
September 12, 2000, as described below, and accrued interest of $322 thousand
was forgiven.

         At various times throughout 2000, a subsidiary of Safeguard provided
$10.75 million in financings to the Company or to eMake in exchange for four
demand notes ranging from $1.5 million to $5.0 million. Each demand note was due
the earlier of one year from the date of the note or 60 days following the date
of demand for payment. The notes had an interest rate based on a specified bank
prime rate plus one percent.

         On August 14, 2000, SCP provided $6.0 million in financing to the
Company's eMake subsidiary in exchange for a demand note due the earlier of one
year from the date of the note or 60 days following the date of demand for
payment. The note had an interest rate based on a specified bank prime rate plus
one percent. Concurrently, the Company repaid the $2.5 million demand note dated
July 28, 2000 to Safeguard plus accrued interest of $13 thousand with proceeds
from this demand note payable.

         On September 12, 2000, the Company and eMake secured $26.5 million in
financing from Safeguard and SCP through the issuance of preferred stock (See
Note 8). In connection with this transaction, the Company received $6,936,754 in
cash and Safeguard and SCP cancelled the then outstanding notes payable balance
due them of $19,250,000 plus accrued interest of $313,246.


                                      F-19
<PAGE>
UNITED STATES DATA CORPORATION

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

         In March 2000, the Company, through its wholly-owned subsidiary, eMake,
entered into a master agreement with CompuCom Systems, Inc. ("CompuCom"), a
Safeguard partnership company. The master agreement engaged CompuCom to assist
the Company with the planning, development, implementation and support of eMake.
This agreement was subsequently terminated in December 2000 due to the Company's
restructuring. Total payments to CompuCom during 2000 were approximately $1.0
million.

         In August 1999, the Company issued through a private placement
240,964 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.

         The manager of the Company's European operations was also the managing
director of the Company's largest distributor in the United Kingdom for the
first six months of 2000 and for the year ended 1999. 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
include approximately $1.4 million and $1.3 million of sales to this distributor
for the years ended December 31, 2000 and 1999, respectively. Accounts
receivable from this customer were $223 thousand and $291 thousand at December
31, 2000 and 1999, respectively. The Company has also entered into a shared
facility arrangement, in which certain office space and equipment were shared
between the distributor and the Company's European Headquarters. The shared
facility arrangement was terminated in September 2000.

12.      COMMITMENTS AND CONTINGENCIES

LEASES

         The Company leases office space, office furniture, 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 were $.6 million and $1.0 million at December 31, 2001 and 2000,
respectively, and the related accumulated amortization was $231 thousand and $98
thousand at December 31, 2001 and 2000, respectively. Amortization of capital
lease assets of $158 thousand and $73 thousand was included in depreciation
expense for the years ended December 31, 2001 and 2000, respectively.

         Future minimum lease payments at December 31, 2001 under capital and
operating leases were as follows (in thousands):

<Table>
<Caption>
                                                     Capital     Operating
                                                     Leases       Leases
                                                     -------     ---------
<S>                                                  <C>          <C>
2002                                                 $  198       $ 1,709
2003                                                    138         1,656
2004                                                     66         1,627
2005                                                     44         1,640
2006                                                     --         1,672
2007 and thereafter                                      --         6,114
                                                     ------       -------
Total minimum lease commitments                         446       $14,418
                                                     ======       =======
Less amounts representing interest                       32
                                                     ------       -------
Present value of net minimum lease payments             414
Less current portion                                    177
                                                     ------       -------
                                                     $  237
                                                     ======       =======
</Table>

         Total rent expense was approximately $0.8 million, $1.1 million and
$1.1 million during the years ended December 31, 2001, 2000 and 1999,
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.


                                      F-20
<PAGE>
UNITED STATES DATA CORPORATION

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

13.          OTHER ACCRUED LIABILITIES

         Other accrued liabilities were comprised of the following components at
December 31, 2001 and 2000:

<Table>
<Caption>
(in thousands)                     2001       2000
                                  ------     ------
<S>                               <C>        <C>
Accrued restructuring charges
  (see Note 6)                    $1,131     $1,197
Professional services                110        672
Other accrued expenses               461        886
                                  ------     ------
                                  $1,702     $2,755
                                  ======     ======
</Table>

14.      SEGMENT AND GEOGRAPHIC DATA

         The Company operates predominantly in one line of business: the
development, marketing and supporting of component-based software products for
customers requiring enterprise-wide, open systems solutions for the
manufacturing and production markets. The following table presents the pertinent
data relating to foreign operations:

<Table>
<Caption>
                                        Year Ended December 31,
                                    -------------------------------
(in thousands)                       2001        2000        1999
                                    -------     -------     -------
<S>                                 <C>         <C>         <C>
Revenues to external customers:
    United States                   $ 4,479     $ 5,230     $10,494
    France                            2,852       3,235       3,916
    United Kingdom                      950       1,450       1,512
    Italy                               814         802       1,299
    Canada                              948         703       1,430
    Others                            3,529       4,614       6,983
                                    -------     -------     -------
                                    $13,572     $16,034     $25,634
                                    =======     =======     =======
</Table>

         The basis for grouping revenues from external customers is based on the
physical location of the customer. Long-lived assets, primarily property and
equipment and capitalized computer software development costs, are principally
located in the United States.

15.      SUBSEQUENT EVENTS

         The Company and SCP entered into a First Amendment to the Series C
Preferred Stock Purchase Agreement (the "Agreement"). The Agreement amends that
certain Series C Preferred Stock Purchase Agreement dated March 30, 2001 (the
"Original Agreement") to extend the Company's right to sell the remaining 21,250
shares of its Series C-1 Convertible Preferred Stock ("Remaining Option
Preferred Stock") at $40 per share or $850,000 to December 31, 2002. In
addition, the Agreement provides SCP with warrant coverage for 50% of the
Remaining Option Preferred Stock issued if the Company exercises its right to
sell the Remaining Option Preferred Stock, or up to 10,625 shares. The Agreement
deleted the provision that the Company had to be in compliance with specified
monthly targets in order to exercise its right to sell the Remaining Option
Preferred Stock. On March 8, 2002, the Agreement was unanimously approved by the
disinterested members of its Board of Directors. See Note 8.

         The Company is party to an Office Lease Agreement, as amended (the
"Lease"), under which the Company is the tenant of approximately 79,382 rentable
square feet. On March 19, 2002, the Company and Crescent Real Estate Funding
VIII, L.P. (the "Landlord") entered into a Fourth Amendment to the Lease (the
"Fourth Amendment") which provides for the Landlord taking back possession of
approximately 44,400 rentable square feet, leaving the Company with 34,982
rentable square feet ("Existing Premises"). The Fourth Amendment provides a cash
savings for the Company of approximately $1.0 million per year over the
remaining term of the Lease. The Fourth Amendment extended the lease term four
months to December 31, 2010, and increased the base rental rate per square foot
on the Existing Premises by $1.00 each year beginning in 2003 and ending in
2005. In year 2006, the base rental rate per square foot increases by $1.75 from
year 2005 and remains constant through year 2010. In addition, the Company owed
$444 thousand at March 31, 2001 to the Landlord representing rents due on the
excess leased space for five months. The Landlord will waive any claim to such
amount owed contingent upon timely payment of all rent required to be paid on
the Existing Premises. The $444 thousand will be reduced by $51 thousand per
year over the remaining term of the lease. The Company also gave its right,
title and interest of excess office furniture, with a carrying value of
approximately $127 thousand at December 31, 2001, to the Landlord. In connection
with the Fourth Amendment, the Company issued a Warrant, dated March 19, 2002,
to the


                                      F-21
<PAGE>
UNITED STATES DATA CORPORATION

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

Landlord for the purchase of up to 243,902 shares of the Company's common stock
at an exercise price per share of $2.05, the closing market price on the date of
the Warrant. The Warrant is exercisable by the Landlord, in whole or in part, at
any time commencing on March 19, 2002 and ending on March 18, 2007. In addition,
under the Fourth Amendment, the Company gave up certain rights, such as its
right to terminate the Lease in 2005, certain preferential rights to lease
additional space and the right to extend the lease.

16.          QUARTERLY FINANCIAL INFORMATION (UNAUDITED)

<Table>
<Caption>
(in thousands, except per share data)
                                                    FIRST        SECOND         THIRD        FOURTH
2001                                               QUARTER       QUARTER       QUARTER       QUARTER
                                                   --------      --------      --------      --------
<S>                                                <C>           <C>           <C>           <C>
Revenues                                           $  3,468      $  3,843      $  3,261      $  3,000
                                                   --------      --------      --------      --------
Income (loss) from continuing operations               (539)           31        (1,771)          212
Income from discontinued operation                       --            --           132            50
                                                   --------      --------      --------      --------
Net loss                                               (539)           31        (1,639)          262
Dividends on preferred stock                         (8,130)         (668)       (1,330)         (684)
                                                   --------      --------      --------      --------
  Net loss applicable to common stockholders       $ (8,669)     $   (637)     $ (2,969)     $   (422)
                                                   ========      ========      ========      ========

Net loss per common share (Basic and Diluted):
  Loss from continuing operations                  $  (3.08)     $  (0.23)     $  (1.10)     $  (0.17)
  Income from discontinued operation                     --            --          0.05          0.03
                                                   --------      --------      --------      --------
Net loss per common share                          $  (3.08)     $  (0.23)     $  (1.05)     $  (0.14)
                                                   ========      ========      ========      ========
Weighted average shares outstanding:
  Basic and diluted                                   2,814         2,815         2,826         2,826
                                                   ========      ========      ========      ========
</Table>

<Table>
<Caption>
(in thousands, except per share data)
                                                    FIRST        SECOND         THIRD        FOURTH
2000                                               QUARTER       QUARTER       QUARTER       QUARTER
                                                   --------      --------      --------      --------
<S>                                                <C>           <C>           <C>           <C>
Revenues                                           $  3,545      $  3,761      $  4,275      $  4,453
                                                   --------      --------      --------      --------
Loss from continuing operations                      (2,626)       (5,321)       (3,583)       (3,386)
Loss from discontinued operations                    (4,438)       (7,254)       (5,848)      (10,784)
Loss on disposal of discontinued operation               --            --            --        (1,193)
                                                   --------      --------      --------      --------
Net loss                                             (7,064)      (12,575)       (9,431)      (15,363)
Dividends on preferred stock                           (108)         (108)         (108)          (77)
                                                   --------      --------      --------      --------
  Net loss applicable to common stockholders       $ (7,172)     $(12,683)     $ (9,539)     $(15,440)
                                                   ========      ========      ========      ========

Net loss per common share (Basic and Diluted):
  Loss from continuing operations                  $  (1.06)     $  (1.97)     $  (1.33)     $  (1.24)
  Loss from discontinued operation                    (1.73)        (2.65)        (2.13)        (4.28)
                                                   --------      --------      --------      --------
Net loss per common share                          $  (2.79)     $  (4.62)     $  (3.46)     $  (5.52)
                                                   ========      ========      ========      ========

Weighted average shares outstanding:
  Basic and diluted                                   2,558         2,739         2,747         2,801
                                                   ========      ========      ========      ========
</Table>

         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-22
<PAGE>
USDATA Corporation and Subsidiaries
Schedule II - Valuation and Qualifying Accounts
For the Years Ended December 31, 2001, 2000 and 1999


<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, 2001
Allowance for doubtful accounts       $   224,000     $ 55,000       $       --      $ 279,000

December 31, 2000
Allowance for doubtful accounts       $   453,000     $  6,000       $ (235,000)     $ 224,000

December 31, 1999
Allowance for doubtful accounts       $ 1,150,000     $ 36,000       $ (733,000)     $ 453,000
</Table>


<PAGE>

SIGNATURES

         Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized, in the City of
Richardson, State of Texas, on the 1st day of April, 2002.

                                               USDATA Corporation
                                               By: /s/ ROBERT A. MERRY
                                                  ------------------------------
                                               Robert A. Merry
                                               President, Chief Executive
                                               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, as our true and lawful
attorney, with full power to him 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

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

Signature

<Table>
<S>                                      <C>                                        <C>
/s/ ROBERT A. MERRY                      President, Chief Executive
---------------------------------        Officer (Principal Executive Officer),
Robert A. Merry                          Secretary, Treasurer and Director          April 1, 2002


/s/ JENNIFER P. DOOLEY                   Chief Financial Officer
---------------------------------        (Principal Financial and Accounting
Jennifer P. Dooley                       Officer)                                   April 1, 2002


/s/ WINSTON J. CHURCHILL                 Chairman of the Board                      April 1, 2002
---------------------------------
Winston J. Churchill


/s/ CHRISTOPHER J. DAVIS                 Director                                   April 1, 2002
---------------------------------
Christopher J. Davis


/s/ JAMES W. DIXON                       Director                                   April 1, 2002
---------------------------------
James W. Dixon


/s/ JACK L. MESSMAN                      Director                                   April 1, 2002
---------------------------------
Jack L. Messman


/s/ ARTHUR R. SPECTOR                    Director                                   April 1, 2002
---------------------------------
Arthur R. Spector
</Table>
<PAGE>
                               INDEX TO EXHIBITS


<Table>
<Caption>
        Exhibit No.     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.*

           10.5        Employee Stock Purchase Plan.###

           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.*****

           10.12       Convertible Promissory Note dated February 8, 2000.******

           10.13       Convertible Promissory Note dated March 24, 2000.******

           10.14       Demand Note dated April 26, 2000.******

           10.15       Demand Note dated June 29, 2000.*******

           10.16       Demand Note dated July 13, 2000.********

           10.17       Demand Note dated July 28, 2000.********

           10.18       Demand Noted dated August 14, 2000.********

           10.19       Securities Purchase Agreement, dated as of August 4,
                       2000, by and among eMake Corporation, USDATA Corporation,
                       Safeguard 2000 Capital, L.P. and SCP Private Equity
                       Partners II, L.P.********

           10.20       Amended and Restated Investors' Rights Agreement, dated
                       as of September 12, 2000, by and among USDATA
                       Corporation, Safeguard Delaware, Inc., Safeguard 2000
                       Capital, L.P., SCP Private Equity Partners II, L.P. and
                       Safeguard Scientifics, Inc.********

           10.21       Exchange Agreement, dated as of September 12, 2000, by
                       and between USDATA Corporation and SCP Private Equity
                       Partners II, L.P.********

           10.22       Export Loan Agreement.**********

           10.23       Guaranty.**********

           10.24       First Amendment to the Series C Preferred Stock Purchase
                       Agreement.#

           10.25       Fourth Amendment to Office Lease Agreement.#

            21.1       Subsidiaries of the Registrant.*

            23.1       Consent of KPMG LLP.#

            23.2       Power of Attorney (included on signature page).
</Table>

----------

#          Filed herewith

##         Compensatory plan or arrangement required to be filed or incorporated
           as an exhibit.

###        Filed on April 29, 1999 as Appendix A to the Company's Definitive
           Proxy Statement on Form 14A.

*          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.

*****      Filed on March 29, 2000 as an exhibit to the Company's Annual Report
           on Form 10-K for the fiscal year ended December 31, 1999.

******     Filed on May 15, 2000 as an exhibit to the Company's Form 10-Q for
           the quarterly period ended March 31, 2000.

*******    Filed on August 14, 2000 as an exhibit to the Company's Form 10-Q for
           the quarterly period ended June 30, 2000.

********   Filed on November 14, 2000 as an exhibit to the Company's Form 10-Q
           for the quarterly period ended September 30, 2000.

*********  Filed on March 31, 2000 as an exhibit to the Company's Annual Report
           on Form 10-K for the fiscal year ended December 31, 1999.

********** Filed on March 30, 2001 as an exhibit to the Company's Annual Report
           on Form 10-K for the fiscal year ended December 31, 2000.