SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                    Form 10-K

                                   (Mark One)
  [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
                           ACT OF 1934 [FEE REQUIRED]
                  For the fiscal year ended: December 31, 1996

                                       OR

 [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES 
                     EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
                  For the transition period from _____ to _____

                         Commission File Number: 0-22044

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

        Delaware                                            33-03046777
(State or other jurisdiction of             (I.R.S. employer identification no.)
incorporation or organization)    

100 Technology Drive Irvine, CA 92618                      714) 727-3200
(Address of principal executive offices,         (Registrant's telephone number,
         including Zip code)                             including area code)

          None                                    Common Stock, $.001 par value
(Securities registered pursuant                 (Securities registered pursuant 
  to Section 12(b) of the Act)                     to Section 12(g) of the Act)

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 the voting stock held by  non-affiliates  of the
Registrant  as of February  28, 1997 was  $131,029,000,  based on the last sales
price on that date as reported on the NASDAQ National Market System.*

As of February 28, 1997, there were 14,013,438 shares of the Registrant's Common
Stock outstanding.

                       Documents Incorporated by Reference
                        (to the extent indicated herein)

Proxy Statement for Annual Meeting of Stockholders 
to be held May 12, 1997                                                 Part III
                                                                       


*    Excludes  60,795  shares of Common Stock held by directors and officers and
     stockholders  whose beneficial  ownership exceeds ten percent of the shares
     outstanding  at February 28,  1997.  Exclusion of shares held by any person
     should not be construed to indicate  that such person  possesses the power,
     direct or indirect,  to direct or cause the direction of the  management or
     policies of the  Registrant,  or that such person is controlled by or under
     common control with the Registrant.





                                       1
<PAGE>

         This Annual  Report on Form 10-K  contains  forward-looking  statements
that involve risks and  uncertainties.  The actual future  results of Wonderware
Corporation  ("Wonderware" or the "Company") could differ  materially from those
statements.  Factors that could cause or contribute to such differences include,
but are not limited to,  those  factors  discussed  in Item 1,  "Business - Risk
Factors," Item 7, "Management's  Discussion and Analysis of Financial  Condition
and Results of Operations" and elsewhere in this Report.

                                     PART I

Item 1.  Business

         Wonderware supplies Microsoft  Windows-based  software products for the
industrial automation market. The Company's object-oriented software development
tools enable customers to rapidly develop personal  computer  applications  that
provide dynamic,  graphical  representations of physical processes in a factory.
These   applications   gather  and  display   information   about  an  automated
manufacturing process and can interact with and control that process. Wonderware
has offered  industrial  automation  software  development tools since 1989 that
feature  ease-of-use  and an  intuitive  operator  interface  typical of Windows
applications.  The Company's products enable customers to reduce operating costs
and  improve  product  quality  by  providing  access to  real-time  information
throughout a manufacturing enterprise.

         The Company has shipped its Wonderware InTouch products to a wide range
of  industries,   including  chemical,   oil  and  gas,  food,  public  utility,
pharmaceutical,    pulp   and   paper,   automobile,   aerospace,   electronics,
telecommunications,   water   treatment,   transportation   and  numerous  other
industries.  End user customers include Anheuser Busch, AT&T, Boeing, Coca-Cola,
Ford, Lockheed,  Mercedes Benz, Nestle,  Philip Morris,  Procter & Gamble, Shell
Oil, Texaco and Weyerhaeuser.

         Wonderware   was  formed  as  a  partnership  in  April  1987  and  was
incorporated  in  California  in June 1988 as  Wonderware  Software  Development
Corporation. The Company reincorporated in Delaware in July 1993.

Background

         In  the  1960s,  electronic  equipment  and  computers  were  generally
believed to be unsuitable for the manufacturing  environment,  primarily because
of their insufficient reliability for mission-critical production management and
control  tasks.  Pneumatic  controls  and  electromechanical  devices  were  the
preferred methods for controlling production equipment. However, as improvements
were made in the capability and  reliability of analog and digital  electronics,
production  control tasks were  increasingly  assumed by  controllers  employing
integrated  circuits and early  microprocessors.  In the 1970s, the programmable
logic  controller  (PLC) was  introduced.  PLCs were  thought  of as "hard  hat"
computers,  designed to function in the hostile environment of the factory floor
and to be programmed by electricians.  PLCs found early acceptance in "discrete"
manufacturing  segments,  such as the automotive industry. In parallel with this
trend,  distributed  control  systems  (DCSs)  evolved to  provide  computerized
control  capabilities  for  "continuous"  processes  such  as oil  refining  and
chemical  production.  Both PLCs and DCSs were based on proprietary hardware and
software technology.  Today, these and other computer-based  control systems are
widely used  throughout both the discrete and continuous  process  manufacturing
industries.

         Initially,  the operator  interface  for PLCs was provided by dedicated
panels of buttons, lights and indicators known as operator interface panels. For
DCSs,  this  interface  capability  was  typically  provided by special  purpose
devices or proprietary graphics consoles supplied by the DCS vendor.  Because of
their proprietary, closed architectures and primitive operator interfaces, these
approaches were generally expensive,  inflexible,  difficult to program, limited
in capability and unable to communicate easily with other systems.

         On the  plant  management  side of  manufacturing,  computers  began to
replace the manual  recording of production  data and other hand written reports
in the 1960s. In the 1970s,  vendors of mainframe and  minicomputers  identified
manufacturing  industries as potentially  significant markets for their hardware
and software products. These companies developed applications, such as materials
resource planning, cost accounting, inventory control and production scheduling,
that  offered  improved  functionality  but were  closed and tedious to program,
cumbersome to use 

                                       2
<PAGE>

and difficult to integrate with other systems.  Also, these applications did not
address  the problem of  tracking  and  allocating  factory  resources,  such as
materials,  equipment  and labor,  nor did they  address the tracking of work in
process inventory.

         As PLCs, DCSs and computer systems became increasingly prevalent in the
manufacturing  environment throughout the 1980s, several serious problems became
apparent.  Most of these systems were  proprietary  and built on platforms  that
lacked the ability to communicate  outside their own  environment.  For example,
PLCs, while greatly improving control of individual processes,  created multiple
"islands of information" that were generally unable to communicate or share data
with other  systems  throughout  the  manufacturing  enterprise.  Software for a
manufacturing  operation  typically had to be developed or customized to satisfy
the unique  requirements  for that operation.  In addition,  mastery of multiple
proprietary   programming   languages   was  required  to  modify  and  maintain
applications  once  developed.  As a result,  high initial cost and high cost of
ownership have  characterized  the application of computer hardware and software
to each facet of the manufacturing enterprise.

         Manufacturers  have also become aware of the importance of accurate and
timely data capture on the factory  floor and the value of the data for decision
making throughout the manufacturing enterprise.  Manufacturers increasingly need
cost-effective  mechanisms  to connect the  "islands of  information"  that have
characterized  manufacturing  automation  throughout  the 1980s and early 1990s.
With the advent of low-cost,  high-performance,  standard personal computers and
open operating  environments,  such as Microsoft  Windows,  the economics of the
mass  market  can now be  brought  to the  factory  floor to solve the  problems
inherent in the traditional automation solutions.

         Personal  computers have become the platform of choice for  man-machine
interface and other manufacturing  automation  functions,  including PLC and DCS
capabilities.  However,  low-cost,  standard  platforms alone do not address the
problem of delivering cost-effective solutions to complex industrial process and
control problems.  Manufacturers are increasingly seeking software products that
allow the rapid  development  and  deployment  of  automation  systems  built on
standard hardware, operating system and networking platforms.

Strategy

         The  Company's  overall  business  strategy  is to offer  manufacturing
enterprises  innovative,  easy-to-use  and open software  solutions that exploit
advances in hardware, software and communications technologies. The key elements
of this strategy are as follows:

  Offer easy-to-use tools for developing industrial automation applications.

         Since  1989,   Wonderware  has  offered   intuitive,   object-oriented,
graphical  software  tools for the  industrial  automation  market.  The Company
believes  that  the   substantial   improvements   in  application   development
productivity  resulting  from the use of the  Company's  products  will  lead to
increased acceptance of its products.

  Focus on Microsoft Windows.

         Recognizing  the  strategic  importance of Microsoft  Windows,  in 1987
Wonderware chose Windows as the primary operating platform for its products. The
Company   believes  that  the  subsequent   proliferation   of  Windows  in  the
manufacturing  environment  has  fueled  the  Company's  recent  growth  and has
favorably positioned Wonderware as Windows continues to penetrate the industrial
automation  market. Its early commitment to and focus on Windows has enabled the
Company  to  develop  a  high  degree  of   expertise  in   developing   Windows
applications.  For example,  recognizing  a need for easy  communications  among
Windows  applications on networks,  Wonderware developed its NetDDE connectivity
products.  This  technology  has been  licensed to  Microsoft  for  inclusion in
Windows,  Windows NT and  Windows  95. The  Company  believes  that  Microsoft's
licensing of NetDDE has enhanced the Company's  reputation  among  end-users and
has  established  NetDDE as a de facto  standard for dynamic data  exchange over
networks.


                                       3
<PAGE>



  Exploit emerging client/server technologies.

         The  acceptance of the  client/server  architecture  in the  industrial
automation market creates additional  opportunities for the Company.  Wonderware
believes that the growing acceptance of Microsoft Windows NT will accelerate the
migration in the industrial  automation market from systems based on proprietary
architectures to open  client/server  architectures  based on personal computers
and standard networking technologies.  The Company also believes that Windows NT
offers personal  computer users  operating  system  functionality  comparable to
mini- or mainframe  computers with the ease-of-use and economics  typical of the
desktop  marketplace.  Wonderware  intends to capitalize  on this  transition to
client/server   architectures  and  its  leadership   position  in  the  Windows
environment  to expand into  additional  segments of the  industrial  automation
market.  Through a series of acquisitions  during 1995,  Wonderware acquired the
rights to an object-oriented, client/server application software product for the
manufacturing execution systems market, an object-oriented,  client/server batch
processing software product, and a client/server-based, real-time data historian
software  product  that  enhances  the  performance  of  Microsoft's  SQL Server
database software to meet the real-time data demands of manufacturing processes.

  Provide enterprise-oriented solutions.

         The  Company  believes  that  its  commitment  to an open  architecture
provides its customers with the flexibility to integrate the Company's  products
into  enterprise-wide  information systems. To this end, the Company continually
evaluates  new  technologies  for  inclusion in its  products.  Since  Microsoft
platforms  continue to dominate the Company's market and Microsoft  technologies
have become de facto industry standards,  special attention is directed to these
technologies. Current product offerings by the Company exploit technologies such
as  the  Open  Data  Base  Connectivity   (ODBC)  standard,   Object  Linking  &
Embedding/Common Object Model (OLE/COM) technology and the Dynamic Data Exchange
(DDE) protocol. As an example, the Wonderware InTrack product uses both ODBC and
OLE Automation to perform production  tracking functions with popular relational
data base management  systems (RDBMS) such as Microsoft SQL Server and Oracle 7.
The  company  continues  to  build  upon  the  Microsoft  technologies.  The new
Wonderware  IndustrialSQL Server product adds extensions to Microsoft SQL Server
to make it acceptable  for  industrial  applications  where high speed and large
volumes of information are required.

  Maintain high levels of customer satisfaction.

         Wonderware  generally sells its products through  distributors to large
manufacturing  organizations,  each of  which  has  the  potential  to  purchase
significant  quantities of the Company's products over time. As a result, repeat
business is a very important factor in the Company's  growth.  Wonderware's goal
is to achieve  extremely  high levels of customer  satisfaction,  and  therefore
repeat business,  by delivering high quality products and support at competitive
prices. In addition,  the Company strives to maintain application  compatibility
from its entry-level to its high-end  products and from one release of a product
to the next as it continually improves the capabilities and performance of those
products.  The Company believes that the scalability and compatibility  provided
by Wonderware  products have not traditionally  been available in the industrial
automation market.

  Leverage worldwide network of distributors.

         The Company sells its products worldwide through a network of more than
135 technically skilled,  independent  distributor offices specializing in sales
of industrial  automation products.  Many of these distributors  represent other
lines of products,  some of which are competitive  with the Company's  products,
and the Company's  distributors are not obligated to purchase  products from the
Company.  However,  the Company's products  contribute a substantial  portion of
revenues for a number of these  distributors.  The Company believes that because
these  distributors  are  highly  focused on sales of its  products,  this sales
channel represents a significant  competitive advantage for the Company.  During
1996 this  channel was upgraded to provide  sales and support for  client/server
application  tools.  The  Company  believes  that it has the  only  distribution
channel in the industrial automation market with this high level of capability.

         In December 1996, the Company  completed the  acquisition of all of the
shares of ICT-Wonderware Gmbh which it did not already own.  ICT-Wonderware Gmbh
is the distributor of the Company's products in Germany (see 



                                       4
<PAGE>

Note 12 of Notes to Consoldiated  Financial  Statements).  This  transaction may
serve as a model for future investments in other distributors.

         As of December 31, 1996, the Company had a 212 person sales,  marketing
and  technical  support   organization   that,  among  other   responsibilities,
supplements the selling efforts of the Company's distributors by targeting large
end-user  customers,  system integrators and OEMs.  Furthermore,  the Company is
pursuing  additional OEM agreements to broaden the  distribution of its products
to new market segments. The Company believes that for certain types of end-users
and markets,  this  complementary  sales effort  enhances the  Company's  market
penetration.  In 1996 the  Company  invested  in this  organization  to  provide
support for client/server products.

Products

         Wonderware  supplies  easy-to-use  application  development  tools  and
connectivity products, rather than finished applications. The Company's products
incorporate object-oriented,  graphical user interface concepts, support popular
communication standards, and run on low-cost, high-performance personal computer
hardware.  Each new release of a  Wonderware  product is  typically  designed to
offer  users  application  compatibility  with  all  prior  releases,  providing
continuity as the capabilities  and performance of the product are improved.  In
addition,  the Company's product families are scalable from entry-level  through
high-end products,  permitting end-users to upgrade easily as their requirements
increase.

  Wonderware InTouch

         Wonderware InTouch is a man-machine  interface  application  generator.
Applications  developed using Wonderware InTouch allow personal computers to act
as   "dashboards"   that  are  used  by   operators   to   monitor   and  manage
computer-controlled  processes.  With  Wonderware  InTouch,  a developer uses an
object-oriented graphics editor to create an animated,  graphical representation
of a manufacturing  process.  Changes in data values cause immediate  changes in
the appearance of the graphics images. The size, color,  location,  orientation,
or other  attributes of objects,  such as tanks,  gauges or pumps, may change in
response to changes in the data values acquired via DDE. Objects can also act as
"buttons"  or  "sliders"  that cause data  values to change when the objects are
pressed or moved with a mouse or touchscreen.  Wonderware  InTouch also includes
features such as distributed trending, alarming and security:

                  Real-time and historical  trending.  Trend objects graphically
         display  historical  data.  Each graph can track up to four  parameters
         with  variable  size,  shape,  background  and  color.  Numerous  trend
         displays  may be  configured  on a single  Wonderware  InTouch  screen.
         Historical data may be logged to disk or printed.

                  Alarms.  Wonderware  InTouch  provides for up to 999 levels of
         alarm  priority  which  may  be  configured  by  the  end-users.  Alarm
         conditions  and alarm  summaries  are displayed as alarm objects on the
         screen.  These alarm  objects can be grouped in alarm  hierarchies  and
         include color  changes for various alarm states.  Alarm points may also
         be logged to a disk file or printed.

                  Security.  Wonderware  InTouch  provides built-in application
         security.  Up  to  9,999 access levels may be assigned to restrict 
         access.

         Wonderware  also  offers  add-in  modules  that  complement  Wonderware
         InTouch:

                  SPC module.  The  statistical  process  control  (SPC)  add-in
         module  enables  Wonderware  InTouch  to  provide  statistical  process
         control  functionality at both the plant operation and plant management
         levels. The module allows the Wonderware InTouch application to compare
         actual process performance  against  statistical  standards to maintain
         the  desired  quality  of the end  product.  The  module  collects  and
         analyzes  SPC data,  which can then be  displayed  using any of several
         standard SPC charts.  The module's alarm feature alerts the operator if
         a process exceeds statistically normal bounds. The module also includes
         reporting and historical  review features which enhance its value in an
         enterprise's total quality management program.

                                       5
<PAGE>


                  SQL Access module.  The structured query language (SQL) add-in
         module  enables  Wonderware  InTouch to create and modify tables in any
         ODBC-compliant   relational   database,   including   Oracle,   Sybase,
         Microsoft's  SQL Server and  Microsoft  Access.  The module  allows the
         Wonderware  InTouch  application  to  down-load  data  from an SQL data
         source to the  application  or to  up-load  run-time,  alarm  status or
         historical trend data from Wonderware InTouch to the SQL database.

                  Recipe module. The Recipe add-in module for Wonderware InTouch
         makes  it  easy to set up,  modify  and  download  recipes  of  process
         variables from within the Wonderware InTouch application.  The module's
         recipe  manager  program  allows the user to easily create recipe files
         specifying  ingredients,  quantities  and other  variables.  The recipe
         files can then be accessed from Wonderware  InTouch via recipe function
         calls.

                  InSupport. The InSupport module is a complete support solution
         that integrates expert diagnostics,  on-line documentation and training
         in an easy-to-use  package.  InSupport  utilizes advanced expert system
         technology and the latest in multimedia  capabilities  in a system that
         not  only   quickly   identifies   problems   but  also   interactively
         demonstrates   solutions  using  video,  text,  schematics  and  sound.
         Technicians  can  quickly  pinpoint   problems  and  apply  user-proven
         solutions   on  a  24-hour  a  day   basis,   all  via   Windows-based,
         point-and-click  interaction.   InSupport  integrates  with  Wonderware
         InTouch  to  provide  an ideal  response  mechanism  to  system  alarms
         generated within a Wonderware InTouch application.

         The IDEA (InTouch  Database  External Access) software  development kit
allows users to adapt their existing  software modules or develop new modules to
manipulate data in the Wonderware  InTouch runtime  database.  In a DOS program,
users can work in C, FORTRAN, Turbo Pascal or QuickBASIC. In a Microsoft Windows
program, users can work in C, Visual Basic or Turbo Pascal.

  I/O servers

         I/O servers are input/output drivers that provide seamless data sharing
among Wonderware InTouch, other Windows-based  programs (e.g.,  spreadsheets and
word  processing  programs),  and more  than 250 PLCs,  DCSs and  other  control
devices used in process  automation.  These  devices can then be  configured  as
servers in a  client/server  architecture.  The need to support a broad range of
controllers in the industrial  automation market has been a significant  barrier
to entry to providers of general  purpose  application  development  tools.  The
Company  believes that its ability to develop,  acquire and support such a broad
range of controllers is a significant competitive advantage.

  I/O server toolkit

         The Wonderware I/O server  toolkit is a software  development  kit that
enables  programmers  to quickly  and easily  develop  their own I/O  servers to
connect Wonderware InTouch with custom equipment or communications protocols not
served by the  Company's  line of I/O servers.  The  toolkit,  which is the same
toolkit  Wonderware  uses  to  develop  all of the  Company's  I/O  servers  for
Wonderware  InTouch,  consists of a set of libraries,  utilities and source code
examples.

  NetDDE

         NetDDE  is a family  of  network  connectivity  products  that  extends
data-sharing  capabilities  over networks of computers and  workstations and can
support  protocols such as NetBIOS,  DECnet,  TCP/IP,  IPX and serial links, and
multiple operating environments,  such as Windows, Windows NT, UNIX and VAX/VMS.
The Company  licensed  NetDDE to Microsoft for inclusion in Windows,  Windows NT
and Windows 95. NetDDE  toolkits for VAX/VMS and UNIX allow software  developers
to add DDE  functionality  to  applications  running  on the  VAX/VMS  and  UNIX
operating systems, respectively. These applications are then able to communicate
with Wonderware InTouch or any other DDE-aware application connected via NetDDE.



                                       6
<PAGE>

  Wonderware InTrack

         Wonderware   InTrack(TM)  is  a  production   management  and  tracking
application  generator.  Applications  developed using Wonderware  InTrack allow
client/server architectures to model computer-controlled manufacturing processes
and then track  material  flow and  resource  usage  through that  process.  The
Wonderware  InTouch graphical user interface  provides operators with a "window"
into the  manufacturing  process  at each work  station.  Information  collected
provides a production history of events, such as yields,  material consumed, and
actual process conditions, for each operation.

         The  Wonderware   InTrack  graphical   build-time  module  uses  object
technology  to model the  manufacturing  process.  Objects are used to represent
process variables such as raw materials,  work-in-process,  operations, bills of
materials,   equipment,   operators,  finished  goods,  and  quality  data.  The
build-time  module  also  creates  all files,  tables  and data in a  relational
database  that  resides on the  server.  The  graphical  interface  that  allows
operators  and the process  controllers  to interact with the model is developed
using Wonderware InTouch.

  Wonderware InBatch

         Wonderware   InBatch  is  flexible,   sustainable  and  scalable  batch
management  software  designed  specifically  for the modeling and automation of
batch-oriented production processes, such as in the chemical, pharmaceutical and
food  processing  industries.  Wonderware  InBatch  applications  provide recipe
control, equipment modeling, sequence control and scheduling of batch processes.

  Wonderware FactorySuite

         In January 1996, the Company  announced the integration of its complete
family  of  industrial  automation  software  products  into  two new  packages,
Wonderware  FactorySuite and Wonderware FactorySuite Plus, that provide multiple
application  development  tools at  cost-effective  new pricing.  The Wonderware
FactorySuite  is  intended  to  provide  core  technology  modules  for  process
visualization,  PC-based  machine  and  process  control,  real-time  plant data
management,  Internet/Intranet  data viewing capabilities and a complete library
of I/O servers. The Wonderware FactorySuite will include the following modules:

       * Wonderware InTouch
       * Wonderware InControl, a PC-based real-time control system;
       * Wonderware  IndustrialSQL Server, a PC-based real-time plant data
         manager, which incorporates Microsoft SQL server;
       * the Scout family of  visualization  tools for remote viewing of plant  
         applications via the Internet or corporate Intranets;
       * and all Wonderware I/O servers for interfacing to factory equipment
         and processes.

         The  Wonderware  Factory Suite Plus will  incorporate  all of the above
technologies and will add modules for production  management and work-in-process
tracking  (Wonderware   InTrack)  and  flexible  batch  management   (Wonderware
InBatch).

         The Company  expects to begin  shipping  the  FactorySuite  products in
April 1997. The Wonderware  FactorySuite will be sold at a greatly reduced price
when  compared  to the  cost of  buying  each  of the  components  of the  suite
separately.   The  large  discount   available  to  customers  when  buying  the
FactorySuite  packages is designed to produce  additional volume, but could have
an adverse effect on the Company's  future revenues for other products.  Further
it is expected that some of the Company's  competitiors,  some of whom have much
greater resources than the Company, will offer similar suites of products. There
can be no assurance that the FactorySuite will gain acceptance in the industrial
automation market.
                                       7
<PAGE>

Technology

         To meet its  users'  complex  and  evolving  needs  and to  maintain  a
leadership  position in its markets,  Wonderware  intends to exploit and improve
upon three core  competencies:  man-machine  interface  development  technology,
connectivity technology and data acquisition  technology.  Wonderware's products
are  designed to run on Microsoft  Windows,  Windows 95 and Windows NT operating
systems, and to interface with any other DDE-aware software.  Wonderware InTrack
runs on Microsoft  Windows  clients and  interfaces to any database  server that
supports Windows clients. Key technology features include:

  Man-Machine Interface Technology

                  Object-oriented graphics.  Devices or industrial controls such
         as pumps,  gauges and levers can be graphically  represented as objects
         on a computer screen. Unlike  character-based  graphics,  these objects
         can be moved, re-sized, animated and manipulated in many ways. They can
         be  re-used  in  other  applications  and used at any  resolution.  The
         resulting impact on development cost, time, and application quality can
         be significant.

                  Simple-to-use  graphics  development  toolbox.  The Wonderware
         InTouch toolbox supplies  powerful drawing and editing tools that allow
         developers to complete designs rapidly with precision and creativity.

                  Wonderware  InTouch real-time  database.  This is a repository
         for system data around which all system  functions are  organized.  For
         example,  the "run/stop"  status of a process might be monitored by the
         Wonderware InTouch server for the real-time control device and assigned
         to a "tagname" (i.e., a real number, integer or string variable) in the
         database.  An object on the  viewing  screen  might then have its color
         attribute  linked  directly  to this  tagname.  When the real status is
         "run," the object could appear green.  When it has stopped,  the object
         could appear red. The Wonderware  InTouch  database  accommodates  over
         32,000 tagnames.

                  Animation   links.   Wonderware   InTouch  provides  easy  and
         intuitive  procedures  for  linking  the  color  attributes,  position,
         orientation,  visibility  and size of screen objects with values in the
         database.  These  values  may  reflect  real  factory  status or may be
         manipulated by the application developer. These animation links provide
         the  ability  to  easily  achieve   numerous   animation   effects  for
         communicating status to operators and system users.

                  Powerful and extensible scripting language. Wonderware InTouch
         scripts allow rapid  development  of  calculation  routines,  animation
         sequences and logic required for automated processes. These scripts can
         be driven by  events,  by  variable  status  or by other  scripts.  For
         example,  the touching of a "button" object on the screen might cause a
         calculation to be performed on selected  values in the database.  These
         recalculated  values  might then be  displayed  within  another  screen
         object or passed on to yet another object/device for further action.

  Connectivity Technology

                  Dynamic data exchange.  Wonderware  InTouch  applications  can
         share data with any  DDE-aware  Windows  application.  This enables the
         user to employ a powerful,  yet low cost  application  like Microsoft's
         Excel spreadsheet program as a means to display,  manipulate and report
         changing manufacturing data in real time.

                  NetDDE.  NetDDE was  developed by Wonderware to extend the DDE
         protocol to  networks.  NetDDE was licensed  directly to Microsoft  for
         inclusion in Windows,  Windows NT and Windows 95.  Wonderware  believes
         that  Microsoft's  adoption  of NetDDE has  established  NetDDE as a de
         facto standard for dynamic data exchange over networks.

                  OLE/COM.  Wonderware  makes use  wherever  possible of new  
         Microsoft connectivity technologies such as OLE/COM to provide the most
         advanced open architecture capabilities to its customers.


                                       8
<PAGE>

  Data Acquisition Technology

                  FastDDE.  Wonderware's  products support  FastDDE,  which is a
         proprietary  technology  providing enhanced data transfer rates between
         DDE-aware applications.

                  Automatically  optimized  polling.  Wonderware  has  developed
         technology  to  optimize  system  performance.  Whenever  a  window  is
         displayed in Wonderware InTouch, the DDE server automatically  acquires
         only the data needed to be displayed on that  particular  window.  This
         feature eliminates the need for users to specify poll lists manually in
         advance for each window displayed.

Marketing, Sales and Distribution

         Wonderware's  products  are sold in more  than 55  countries  through a
network  of  more  than  80  technically   skilled,   independent   distributors
specializing in industrial automation products.  Except for Wonderware GmbH, the
Company's  German  distributor,  the Company's  distributors  are not within the
control of the  Company and are not  obligated  to  purchase  products  from the
Company.  However,  sales of the  Company's  products  constitute a  substantial
portion of revenues  for a number of these  distributors.  The Company  believes
that its relationships with its distributors represent a significant competitive
advantage for the Company.

         Many of these distributors  represent other lines of products,  some of
which  compete with the Company's  products.  While the Company  encourages  its
distributors  to focus  primarily  on the  promotion  and sale of the  Company's
products, there can be no assurance that these distributors will not give higher
priority to the sale of other products, including products developed by existing
or potential  competitors.  A reduction in sales  efforts or  discontinuance  of
sales of the Company's  products by its distributors could lead to reduced sales
and could  adversely  affect the Company's  operating  results.  There can be no
assurance as to the continued  viability or financial stability of the Company's
distributors,  the Company's ability to retain its existing  distributors or the
Company's  ability to add new  distributors  in the future.  In  addition,  as a
result of new product introductions or pricing actions by the Company or others,
the Company's  distributors  or end-users may alter the expected timing of their
product  purchases,   thereby  exacerbating  the  possible  variability  of  the
Company's quarterly operating results.

         Wonderware  maintains  a 212  person  sales,  marketing  and  technical
support  organization to support the distribution  channel.  The Company's sales
staff also targets large  end-user  customers,  system  integrators  and OEMs to
complement  the  selling  efforts of the  Company's  distributors.  The  Company
believes that, for certain customers and markets, this supplemental sales effort
enhances  the  Company's  penetration.  The  Company  has a sales  office at its
headquarters  in Irvine,  California and six domestic field offices.  To enhance
its presence in international  markets,  the Company maintains several sales and
support offices throughout Europe,  Asia and Latin America.  International sales
accounted  for  42%,  43% and 38% of total  revenues  in  1996,  1995 and  1994,
respectively. See Note 6 of Notes to Consolidated Financial Statements.

         Wonderware  seeks to  establish  relationships  with OEM  providers  of
industrial  automation solutions to broaden the distribution of its products and
to pursue additional market segments. The Company has established  relationships
with several OEMs, including Motorola, Yokogawa, Moore Products, Hewlett Packard
and Philips Weighing. Motorola bundles Wonderware InTouch with Motorola's remote
monitoring and control terminals.  Yokogawa purchases Wonderware InTouch for use
in their Darwin product which is part of their line of chart recorders.  Hewlett
Packard  licenses  NetDDE for  resale  with its  computers  and  systems.  Moore
Products and Philips Weighing both use the InBatch product as the batch software
in process  systems  which they sell.  The  Company is pursuing  additional  OEM
relationships  to  broaden  the  distribution  of its  products  to  new  market
segments.

         Supplying  premium  quality  product  support  to every  customer  is a
primary  Wonderware  objective.  The Company  offers  several  customer  support
services including the Wonderware Information Exchange, a bulletin board service
designed to facilitate  communications with and among end-users.  Users who dial
into the bulletin board can leave or retrieve messages or files and can access a
library of "How To Notes."  The  Company  maintains a World Wide 

                                       9
<PAGE>

Web site on the Internet that offers  hundreds of pages of corporate,  marketing
and product  information to any interested browser around the world. The Company
offers six to eighteen month  comprehensive  support  agreements to its end-user
customers  entitling  them to software  upgrades  and  numerous  other  benefits
distributed  via  CD-ROM.  The  Company  also  supports  a user  group  that has
established  a  Program  Information  Exchange  to allow  users  to share  their
evaluations of third-party hardware and software devices for use with Wonderware
InTouch.  The user group is led by an Advisory  Board of Directors  comprised of
representatives  from a number of Wonderware end-user customers including Philip
Morris, Lockheed Missiles & Space, Texaco,  Weyerhaeuser and Nestle.  Wonderware
has a  comprehensive  training  department  that  offers a number  of  different
courses covering each of the Company's products and communications technologies.

Backlog

         The Company  typically  ships its  products  within a very short period
after acceptance of purchase orders from distributors.  Accordingly, the Company
typically does not have a material backlog of unfilled  orders,  and revenues in
any quarter are  substantially  dependent on orders booked in that 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.

Product Development

         The Company  believes that its success will depend in large part on its
ability to maintain and enhance its current product line,  develop new products,
maintain  technological  competitiveness and meet an expanding range of customer
requirements.  In 1995, the Company acquired EnaTec Software  Systems,  Inc. and
Soft Systems Engineering, Inc. and established development centers in Cupertino,
California and York, Pennsylvania,  respectively to maintain and further develop
the technologies  acquired in those transactions.  In February 1997, the Company
closed its Cupertino  development  center and consolidated the development of it
production  management  products in the York development  center (see Note 13 of
Notes to  Consolidated  Financial  Statements).  The  Company  also  maintains a
product  development  and research  facility in Johnson  City,  Tennessee  where
employees  focus on the  development  of software  products  for the  industrial
controls market. As of December 31, 1996, the Company's research and development
group consisted of 152 full-time employees. During 1996, 1995 and 1994, research
and development  expenses were  approximately  $18.9 million,  $10.6 million and
$6.2 million,  respectively.  The Company  anticipates  that it will continue to
commit substantial resources to research and development in the future. See Note
2 of  Notes  to  Consolidated  Financial  Statements  for a  discussion  of  the
Company's policy regarding capitalization of software development expenses.

Competition

         The market for  industrial  automation  and  process  control  software
products is  intensely  competitive  and is  characterized  by rapid  changes in
technology and frequent introductions of new platforms and features. To maintain
or improve its position in this  industry,  the Company must continue to enhance
its current products and develop new products in a timely fashion.

         The Company  competes  generally  on the basis of product  features and
functions,  product  architecture,  the  ability to run on a variety of industry
standard platforms,  local technical support and other related services, ease of
product    integration    with   third   party    applications    software   and
price/performance.  The Company  competes with a number of independent  software
suppliers  as well as large PLC and DCS  manufacturers  that  provide  interface
software along with their hardware products.  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  may also have  greater name  recognition  and a
larger installed base than the Company.  The Company's  competitors could in the
future introduce products 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. The Company
expects  competition  to increase and the Company's  market share may decline as
other   companies   introduce   additional   and  more   competitive   Microsoft
Windows-based  products  in this  emerging  market  segment.  As the  market for
industrial  automation and process control software products develops,  a 

                                       10
<PAGE>

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. There can be no assurance
that the Company will be able to compete successfully in the future.

Proprietary Rights

         The Company regards its software as proprietary and attempts to protect
it  with  copyrights,   trademarks,   trade  secret  laws  and  restrictions  on
disclosure,  copying and transferring title. However, the Company has no patents
and existing  copyright  laws afford only limited  practical  protection for its
software.  Furthermore,  the laws of some  foreign  countries do not protect the
Company's  proprietary  rights  to the same  extent  as the  laws of the  United
States.  The Company licenses its products primarily under "shrink wrap" license
agreements  that are not signed by licensees and therefore may be  unenforceable
under the laws of certain foreign jurisdictions.  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.  Accordingly,  despite
precautions  taken by the  Company,  it may be possible for  unauthorized  third
parties to copy certain portions of the Company's  products or to obtain and use
information that the Company regards as proprietary.

         The Company  believes that, due to the rapid pace of innovation  within
its  industry,  factors such as the  technological  and  creative  skills of its
personnel  are more  important  to  establishing  and  maintaining  a technology
leadership position within the industry than are the various legal protection of
its technology. As the number of software products in the industry increases and
the functionality of these products further overlaps,  the Company believes that
its software will become  increasingly  the subject of claims that such software
infringes the rights of others.  See Note 9 of Notes to  Consolidated  Financial
Statements  for  a  description  of  legal  proceedings  involving  the  Company
pertaining to proprietary rights and the Company's intellectual property.

Employees

         As of December 31, 1996, the Company employed 443 full-time  employees,
of which 212 were  engaged in sales,  marketing  and  technical  support,  35 in
general management,  administration and finance, 144 in software development and
engineering and 52 in operations.  None of the Company's employees is subject to
a collective bargaining agreement,  and the Company has not experienced any work
stoppage. The Company believes that its employee relations are good.

Executive Officers

         Roy H.  Slavin,  51,  has  served  as  Chairman,  President  and  Chief
Executive  Officer  since  December  1995.  From July 1995 to November  1995, he
served as President  and Chief  Operating  Officer of the Company.  From October
1993 to June  1995,  he was  President  and Chief  Executive  Officer of Siemens
Industrial Automation,  Inc., a manufacturer of industrial automation components
and systems.  From January 1986 to September  1993,  he was  President and Chief
Executive  Officer  of  Potter  and  Brumfield,  Inc.  (A  Siemens  Company),  a
manufacturer of electronic components.

         Sam M.  Auriemma,  44, has served as Vice  President of Finance,  Chief
Financial  Officer and Secretary  since April 1996. From September 1990 to March
1996,  he served as Vice  President  of Finance and Chief  Financial  Officer of
Locus Computing Corporation, a software and software services company.

         Joe L.  Cowan,  47, has served as Vice  President  of  Marketing  since
December,  1995.  From December 1993 to November 1995, he held various sales and
marketing  positions  with the Company.  From April 1992 to November  1993,  Mr.
Cowan was Director of Automation  Business for Lanex, Inc., a system integration
company for industrial automation.  From January 1989 to March 1992, he was Vice
President of Systems for Eurotherm, Inc., a process control company.

                                       11
<PAGE>

Risk Factors

         In  addition to the other  information  set forth in this  Report,  the
following risk factors should be considered  carefully in evaluating the Company
and its business.

Short Operating History; Fluctuations in Quarterly Operating Results

         The Company has a limited  operating  history and, although the Company
has experienced  significant growth in recent periods, such growth rates are not
sustainable  and are not  indicative of future  operating  results.  The Company
expects to experience  significant  fluctuations in future  quarterly  operating
results that may be caused by many factors,  including,  among others: delays in
introduction of products or product enhancements by the Company, its competitors
or other  providers of  hardware,  software and  components  for the  industrial
automation market; costs associated with product or technology acquisitions; the
size and timing of individual  orders;  software "bugs" or other product quality
problems;  competition  and pricing in the  software  industry;  seasonality  of
revenues;  customer  order  deferrals in  anticipation  of new products;  market
acceptance  of new  products;  reductions  in demand for  existing  products and
shortening  of product  life  cycles as a result of new  product  introductions;
changes in operating expenses;  changes in Company strategy;  personnel changes;
foreign  currency  exchange  rates;  regulatory  requirements  and political and
economic  instability  in foreign  markets;  mix of products  sold;  and general
economic  conditions.  As a result,  the Company believes that  period-to-period
comparisons  of its results of operations  are not  necessarily  meaningful  and
should not be relied upon as indications of future performance.

         Because the Company ships software products within a short period after
receipt of an order,  the Company  typically does not have a material backlog of
unfilled  orders,  and  revenues in any quarter are  substantially  dependent on
orders booked in that quarter. The Company's expense levels are based in part on
its  expectations  as to future revenues and the Company may be unable to adjust
spending  in  a  timely  manner  to  compensate   for  any  revenue   shortfall.
Accordingly,  operating  results  would be adversely  affected by a reduction in
revenues in that quarter since the majority of the Company's expenses are fixed.
Any  significant  weakening  in demand  would have an almost  immediate  adverse
impact on the  Company's  operating  results  and on the  Company's  ability  to
achieve  profitability.  Fluctuations  in  operating  results may also result in
volatility in the price of the Company's Common Stock.

Product Concentration

         Although the Company has introduced  several new products over the last
year,  the  bulk  of  the  Company's  revenues  are  still  concentrated  in the
Wonderware  InTouch family of products for industrial  automation  applications.
The Company introduced the initial version of Wonderware InTouch in August 1989.
Revenues from the  Wonderware  InTouch family of products have grown rapidly and
represented  over 85% of the Company's  total  revenues  since 1990. The Company
expects  that  revenues  from these  products  will  continue  to account  for a
substantial portion of the Company's revenues.  The life cycles of the Company's
products are difficult to estimate due in large measure to the recent  emergence
some of the  Company's  market,  the future effect of product  enhancements  and
future competition.  Declines in demand for these products,  whether as a result
of competition,  technological  change or otherwise,  or price  reductions would
have a material adverse effect on the Company's operating results.

Competition

         The market for the  Company's  products is intensely  competitive.  The
Company  expects  competition  to increase  and the  Company's  market  share to
decline as other companies introduce  additional and more competitive  Microsoft
Windows-based  products in this emerging market segment.  This trend is expected
to  accelerate  with the release by  Microsoft of Windows 95 and Windows NT 4.0.
Many of the Company's  present or  anticipated  competitors  have  substantially
greater  financial,  technical,  marketing and sales resources than the Company.
There can be no assurance that the Company will be able to compete  successfully
in the future.

                                       12
<PAGE>

Dependence on Microsoft Windows

         The  Company's  software  development  tools are  designed for use with
personal computers running in the Microsoft Windows operating  environment,  and
future sales of the  Company's  products are  dependent  upon  continued  use of
Windows and Windows NT. In addition,  changes to Windows (such as the release of
Windows  95) or Windows NT  require  the  Company  to  continually  upgrade  its
products.  Any inability to produce  upgrades or any material  delay in doing so
would  adversely  affect  the  Company's   operating  results.   The  successful
introduction  of new operating  systems or  improvements  of existing  operating
systems  that compete  with  Windows or Windows NT also could  adversely  affect
sales of the  Company's  products  and have a  material  adverse  effect  on the
Company's operating results.

Rapid Technological Change

         The  market  for the  Company's  products  is  characterized  by  rapid
technological  advances,  evolving  industry  standards,   changes  in  end-user
requirements and frequent new product introductions and enhancements.  While the
Company to date has been  committed  to the  Microsoft  Windows  and  Windows NT
platforms,  the  introduction  of products  embodying new  technologies  and the
emergence of new industry standards could render the Company's existing products
and  products  currently  under  development  obsolete  and  unmarketable.   The
Company's  future  success  will  depend upon its ability to enhance its current
products  and to  develop  and  introduce  new  products  that  keep  pace  with
technological  developments,  respond  to  evolving  end-user  requirements  and
achieve market  acceptance.  Any failure by the Company to anticipate or respond
adequately  to  technological  developments  or  end-user  requirements,  or any
significant  delays in product  development or  introduction,  could result in a
loss of  competitiveness  or  revenues.  In the past,  the Company  occasionally
experienced delays in the introduction of new products and product enhancements.
There can be no assurance  that the Company will be successful in developing and
marketing  new  products or product  enhancements  on a timely basis or that the
Company will not experience significant delays in the future, which could have a
material  adverse effect on the Company's  results of  operations.  In addition,
there can be no assurance that new products or product enhancements developed by
the Company will achieve market acceptance.

Integration of Recent Acquisition

         In December  1996,  the Company  purchased  all  outstanding  shares of
ICT-Wonderware GmbH not already owned by the Company. ICT-Wonderware GmbH is the
distributor  of  the  Company's   products  in  Germany.   The   acquisition  of
ICT-Wonderware GmbH will divert some of the Company's  management  resources for
an indefinite  period of time. There can be no assurance that  difficulties will
not arise in  integrating  the  operations  of ICT  Wonderware  GmbH or that the
Company  will  realize  increased  revenues  as a result of the  acquisition  of
ICT-Wonderware  GmbH.  The  failure  to  accomplish  any of the  goals  of  this
acquisition  or  the  failure  to  successfully   integrate  the  operations  of
ICT-Wonderware  GmbH  would  have a  material  adverse  effect on the  Company's
operating results and financial condition.

Non-Recurring Charges

         As a result of the  acquisition  of  ICT-Wonderware  GmbH,  the Company
incurred a charge in fiscal 1996 of  approximately  $1.3  million to reflect the
write-off of purchased  in-process  research and development costs. There can be
no assurance that the Company would not incur  additional  charges in subsequent
periods to reflect costs associated with this acquisition. All of such costs may
adversely affect the market price of the Common Stock.

Management of Growth

         The  Company has  recently  experienced  rapid  growth in the number of
employees,  the scope of its operating and financial  systems and the geographic
area of its operations.  This growth has resulted in an increase in the level of
responsibility  for both existing and new  management  personnel.  To manage its
growth  effectively,  the Company will be required to continue to implement  and
improve its operating and financial systems and to expand,  train and manage its
employee base. There can be no assurance that the management  skills and systems
currently  in place will be  adequate  if the  Company  continues  to grow.  The
Company may make additional acquisitions in the future. The 


                                       13
<PAGE>

Company's  management  has only  limited  experience  with  acquisitions,  which
involve  numerous  risks,  including  difficulties  in the  assimilation  of the
operations and products of the acquired companies, the diversion of management's
attention from other  business  concerns and the potential loss of key employees
of the acquired companies.

Key Employees

         The Company's  continued success will depend upon its ability to retain
a number of key employees, most of whom are not subject to employment agreements
or agreements that restrict their ability to compete with the Company  following
the termination of their employment.  In addition, the Company believes that its
future  success  will  depend in large part on its ability to attract and retain
highly skilled technical,  managerial and marketing  personnel.  Competition for
such  personnel is intense,  and there can be no assurance that the Company will
be successful in attracting  and retaining such  personnel.  The loss of certain
key employees or the Company's  inability to attract and retain other  qualified
employees could have a material adverse effect on the Company's business.

Reliance upon Distribution Channel

         The Company has relied and  expects to  continue to rely  primarily  on
independent  distributors  for the marketing and  distribution  of its products.
These distributors may also represent other lines of products, some of which may
be complementary to or competitive  with the Company's  products.  The Company's
distributors  are not within the control of the Company and are not obligated to
purchase   products  from  the  Company.   While  the  Company   encourages  its
distributors  to focus  primarily  on the  promotion  and sale of the  Company's
products, there can be no assurance that these distributors will not give higher
priority to the sale of other products, including products developed by existing
or potential  competitors.  A reduction in sales  efforts or  discontinuance  of
sales of the Company's  products by its distributors could lead to reduced sales
and could  adversely  affect the Company's  operating  results.  There can be no
assurance as to the continued  viability or financial stability of the Company's
distributors,  the Company's ability to retain its existing  distributors or the
Company's  ability to add new  distributors  in the future.  In  addition,  as a
result of new product introductions or pricing actions by the Company or others,
the Company's  distributors  or end-users may alter the expected timing of their
product  purchases,   thereby  exacerbating  the  possible  variability  of  the
Company's quarterly operating results.

Dependence on General Economic Conditions

         Based in part on the growth in the overall market for and the Company's
penetration  of the  industrial  automation  software  market,  as  well  as the
geographic  and  industry  diversity  of the  Company's  customers,  the Company
believes that general economic conditions have not had a material adverse effect
on the  Company's  results  of  operation  to date.  There can be no  assurance,
however, that economic conditions will not have a material adverse effect on the
Company in the future.

International Sales

         The Company  derived  approximately  $27.0  million  (42%) of its total
revenues  from  international  sales  during  1996.  The  Company  expects  that
international  sales will continue to represent a significant  percentage of its
total revenues.  The Company's  international  operations are subject to various
risks,  including exposure to currency  fluctuations,  regulatory  requirements,
political and economic instability and trade restrictions.  With the acquisition
of  ICT-Wonderware  GmbH,  the Company now  operates  directly in Germany is now
exposed to the risks of fluctuations in the deutsch mark relative to the dollar.
Although the Company's sales in other  international  markets are typically made
in U.S. dollars, a weakening in the value of foreign currencies  relative to the
U.S. dollar could have an adverse impact on the effective price of the Company's
products in its international  markets. In addition,  the Company's business may
be adversely  affected by lower sales levels in Europe,  which  typically  occur
during the summer months.

Dependence on Proprietary Rights

         The Company regards its software as proprietary and attempts to protect
it  with  copyrights,   trademarks,   trade  secret  laws  and  restrictions  on
disclosure, copying and transferring title. However, the Company has no patents,
and

                                       14
<PAGE>

existing  copyright  laws  afford  only  limited  practical  protection  for the
Company's  software.  In  addition,  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.  The Company  licenses its products  primarily  under "shrink
wrap" license  agreements  that are not signed by licensees and therefore may be
unenforceable under the laws of certain foreign  jurisdictions.  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.
Accordingly,  despite  precautions taken by the Company,  it may be possible for
unauthorized third parties to copy certain portions of the Company's products or
to obtain and use information  that the Company  regards as proprietary.  As the
number of software  products in the industry  increases and the functionality of
these products  further  overlaps,  the Company believes that such software will
become  increasingly  the subject of claims  that such  software  infringes  the
rights of others.

         Although the Company does not believe that its products infringe on the
rights of third  parties,  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 intellectual  property rights of such parties.  In addition,  there
can be no assurance that such licenses will be available on reasonable terms, or
at  all.  See  Note  9 of  Notes  to  Consolidated  Financial  Statements  for a
description of litigation involving the Company pertaining to proprietary rights
and the Company's intellectual property.

Potential Volatility of Stock Price

         The Company believes factors such as quarterly  fluctuations in results
of  operations  and  announcements  of new  products  by the  Company  or by its
competitors may cause the market price of the Common Stock to fluctuate, perhaps
substantially. In addition, in recent years the stock market in general, and the
shares of technology  companies in particular,  have  experienced  extreme price
fluctuations.  These broad market and industry fluctuations may adversely affect
the market price of the Company's Common Stock.


Anti-Takeover Effects of Certain Charter Provisions, Unissued Preferred Stock 
and Delaware Law

         The Company's  Board of Directors has the authority,  without action by
the  stockholders,  to fix the rights and  preferences of and to issue shares of
Preferred  Stock.  In February 1996, the Board of Directors  adopted a Preferred
Share Purchase Rights Plan (commonly  known as a "poison pill"),  which may have
the effect of delaying or  preventing  a change in control of the  Company.  The
Company is also subject to the  anti-takeover  provisions  of Section 203 of the
Delaware  General  Corporation  Law.  Furthermore,  certain  provisions  of  the
Company's  Certificate of Incorporation and Bylaws may discourage  certain types
of  transactions  involving  an actual or  potential  change in  control  of the
Company,  including  transactions  in which  the  stockholders  might  otherwise
receive a premium for their shares over then current  prices,  and may limit the
ability  of the  stockholders  to approve  transactions  that they deem to be in
their best interests.


Item 2.  Properties

         The  Company's   principal   sales,   marketing,   technical   support,
administration,  product  development and support facilities occupy an aggregate
of 100,000 square feet in four office buildings in Irvine, California. The lease
agreements with respect to such space expire between July 1998 and January 2002.
In addition,  the Company leases sales office space in the metropolitan areas of
several cities. The Company also leases office space for its development centers
in York,  Pennsylvania;  and Johnson City, Tennessee.  The Company considers its
leased real property adequate for its current and reasonably foreseeable needs.


Item 3.  Legal Proceedings

         In July 1995,  The Foxboro  Company  ("Foxboro")  initiated  litigation
against SSE in the U.S.  District  Court for the  District of  Massachusetts  to
delay  the  acquisition  of SSE by the  Company  and  subsequently  amended  its

                                       15
<PAGE>

complaint  to assert  additional  claims  with  respect to  Foxboro's  ownership
interest in certain  software  developed by SSE,  which interest is subject to a
repurchase right in favor of SSE. Following the completion of the acquisition of
SSE by the Company,  Foxboro withdrew its initial claims related directly to the
acquisition. SSE has tendered payment to Foxboro for the repurchase of Foxboro's
asserted ownership interest in the subject software, which Foxboro has rejected.
In January  1996 SSE filed its  answer and  counterclaim  to  Foxboro's  amended
complaint, seeking damages based upon SSE's allegation that Foxboro breached its
contractual  obligation to sell its interest in the subject software. In January
1997,  the parties  negotiated  an agreement for the mutual  dismissal,  without
prejudice, of the claims asserted in the litigation.  Further proceedings in the
litigation  have been  stayed  pending  execution  of the written  agreement  of
dismissal.

In December 1995,  RWT  Corporation  (RWT) filed an action in the U.S.  District
Court for the Northern  District of Illinois  against the Company  alleging that
the Company's use of the term "INTRACK" violated RWT's alleged federal trademark
and related  rights to the term  "ONTRACK."  In its answer,  the Company  denied
RWT's  allegations  and  asserted  a  counterclaim  seeking  that the  "ONTRACK"
trademark  be declared  invalid.  In October  1996,  the parties  entered into a
settlement of these  proceedings,  the specific terms of which are confidential,
and the action was dismissed with prejudice.

In July 1996,  the Company filed a complaint in the Superior Court of California
for the County of Orange against  Constantin S. Delivanis and Vladimir Preysman,
formerly the Vice President and Vice President-Engineering, respectively, of the
Company's Cupertino Development Center. This complaint alleges fraud,  negligent
misrepresentation,  duress,  securities fraud, breach of the implied covenant of
good  faith and fair  dealing,  and breach of  fiduciary  duty  against  Messrs.
Delivanis and Preysman. The Cupertino Development Center was established in 1995
upon the  Company's  acquisition  of EnaTec  Software  Systems,  Inc.,  in which
Messrs.  Delivanis and Preysman owned a substantial  majority of the stock.  The
Company is seeking compensatory and punitive damages with respect to its claims,
as well as the costs  incurred in pursuing these claims.  Mr.  Delivanis and Mr.
Preysman's  employment with the Company was terminated.  Both Mr.  Delivanis and
Mr.  Preysman  answered  the  complaint  and asserted  cross-claims  against the
Company, alleging breach of contract, termination in violation of public policy,
defamation  (slander per se),  intentional  infliction  of  emotional  distress,
negligent  infliction of emotional  distress,  negligence,  common law fraud and
deceit, and civil conspiracy.  Both requested relief in the form of compensatory
and  punitive   damages  as  well  as  the  costs  incurred  in  pursuing  their
cross-claims.  In addition, in September 1996, Mr. Delivanis,  Mr. Preysman, and
the  Delivanis  Family  Trust filed a complaint  for  declaratory  judgment  and
specific  performance,  seeking registration of certain Wonderware common stock.
The Company intends to file an answer and cross-complaint in response.  Further,
in December 1996, Mr. Delivanis,  Mr. Preysman and the Delivanis-Kibrick  Family
Trust filed a complaint in the United States District Court,  Northern  District
of California. This complaint was served on the Company in late January 1997 and
alleges   securities   law   violations,   fraud  and  deceit,   and   negligent
misrepresentation.   The   Company   also   intends   to  file  an  answer   and
cross-complaint  in this action.  The Company  intends to vigorously  defend the
allegations  made against it; however,  it is too early to determine the impact,
if any, of these  proceedings  on the Company,  its  financial  condition or the
results of the Company's operations.

In October 1996,  the Company filed a complaint in the U.S.  District  Court for
the  Central  District  of  California  against  Cyberlogic  Technologies,  Inc.
(Cyberlogic) and Intellution,  Inc.  (Intellution).  The complaint  alleges that
Cyberlogic and Intellution have infringed the copyright in a particular software
program which Cyberlogic originally developed under contract for the Company and
seeks preliminary and permanent injunctive relief as well as actual and punitive
damages  and  attorneys  fees.  In October  1996,  the Court  issued a temporary
restraining  order  against  Cyberlogic  and  Intellution,  and  pursuant to the
Court's order,  U.S. Marshals seized and copied certain materials at the offices
of  Cyberlogic  and  Intellution.   In  January  1997,  the  Court  entered  its
preliminary  injunction  which generally bars  Cyberlogic and  Intellution  from
marketing  or  otherwise  distributing  any  infringing  copies of the  computer
software at issue in the  proceeding.  In February 1997,  Intellution  filed its
appeal of the preliminary  injunction to the U.S. Court of Appeals for the Ninth
Circuit,  and the Court denied the  defendants'  requests to stay the injunction
pending  appeal.  Although  Intellution  has filed its  answer to the  Company's
complaint in this  proceeding,  Cyberlogic has yet to file an answer.  It is too
early to determine the impact,  if any, of this  proceeding on the Company,  its
financial condition or the results of the Company's operations.

                                       16
<PAGE>


In  December  1996,  Cyberlogic  submitted  a  demand  for  arbitration  of  the
underlying  contractual  issues  involved  in  these  proceedings.  Cyberlogic's
arbitration  demand  purports to seek damages and attorneys' fees in unspecified
amounts and injunctive  relief.  The Company has generally  agreed to proceed to
arbitration  based  upon the  current  status  of these  proceedings.  Dates for
hearing the  arbitration  and other  related  events have not yet been set.  The
Company  believes  the  allegations  in  Cyberlogic's  arbitration  demand to be
without merit and intend to vigorously defend itself against these claims. It is
too early to determine  the impact,  if any, of this  proceeding on the Company,
its financial condition or the results of the Company's operations.

In January 1997,  the Company  received a copy of a complaint  which  Cyberlogic
filed in the U.S.  District  Court for the Eastern  District of Michigan.  Among
other claims,  this complaint purports to claim damages in excess of $40 million
and injunctive relief for the Company's alleged infringement of certain software
programs  which  Cyberlogic  contends it owns. The Company has not yet filed its
formal  response to this  complaint.  The Company  believes the  allegations  in
Cyberlogic's  complaint  to be without  merit and intends to  vigorously  defend
itself  against these claims.  Further,  the Company  believes that these claims
arise out of or relate to the proceeding  pending in the U.S.  District Court of
the Central District of California and the anticipated  arbitration  proceeding,
where they should be  adjudicated.  It is too early to determine the impact,  if
any, of this proceeding on the Company,  its financial  condition or the results
of the Company's operations.

In December  1996,  the Company was notified  that a complaint had been filed in
the U.S.  District  Court for the Eastern  District of  Pennsylvania  by Otto M.
Voit,  III. In the  complaint,  Mr. Voit  purports to be acting on behalf of all
former  holders of common stock,  or options to acquire  common  stock,  of SSE,
which was  acquired by the Company in a  stock-for-stock  merger in August 1995.
Mr. Voit alleges in the  complaint  that the Company and certain of its officers
who have also been named as  defendants  in the action made or caused to be made
materially false and misleading statements and concealed material information in
connection  with the  acquisition of SSE by the Company.  In the complaint,  Mr.
Voit claims  that these  alleged  misrepresentations  and  omissions  constitute
violations  of the  Securities  Exchange  Act of 1934,  as  amended,  Rule 10b-5
thereunder  and  various  state  securities  laws,  common law fraud,  negligent
misrepresentation, fraudulent inducement to enter into a contract and inducement
to enter into a contract by material misrepresentation and request relief in the
form of  compensatory  and  punitive  damages as well as the costs  incurred  in
pursuing his claims.  In January 1997, the Company filed a motion to dismiss the
complaint on several  grounds.  No hearing date has been set on the motion.  The
case is in a preliminary stage, and no discovery has been conducted to date. The
Company  believes  the  allegations  in the  complaint  to be without  merit and
intends to vigorously defend itself and the other  defendants,  each of whom has
been previously  indemnified by the Company in connection with his employment as
an officer of the Company, against the claims stated in the complaint. It is too
early to determine the impact,  if any, of this  proceeding on the Company,  its
financial condition or the results of the Company's operations.



Item 4.  Submission of Matters to a Vote of Security Holders

         No matter  was  submitted  to a vote of  security  holders  during  the
quarter ended December 31, 1996.

                                       17
<PAGE>


                                     PART II

Item 5.  Market for Registrant's Common Equity and Related Stockholder Matters

         The Company's  common stock trades on the NASDAQ National Market System
under the  symbol  "WNDR."  The  following  table  sets  forth  for the  periods
indicated  the high and low sale  prices for the common  stock  reported  by the
NASDAQ  National  Market  System.  These prices do not include  retail  markups,
markdowns or commissions.

         1996                 High              Low
         ----                ------            -----
Fourth Quarter              $11 1/4           $ 7
Third Quarter               $19 3/8           $ 7 7/8
Second Quarter              $24 5/8           $17 7/8
First Quarter               $24 3/4           $14 1/4

         1995                 High              Low
         ----                ------            -----
Fourth Quarter              $39 1/4           $12 3/4
Third Quarter               $42 1/4           $33 3/4
Second Quarter              $42 3/4           $27 1/2
First Quarter               $33 1/2           $26 1/4

         1994                 High              Low
         ----                ------            -----
Fourth Quarter              $35 1/2           $20 1/2
Third Quarter               $23               $13 1/4
Second Quarter              $17 3/4           $12
First Quarter               $23 3/4           $16

There  were  approximately  303  holders  of  record of the  common  stock as of
February 28, 1997.  The Company has never declared or paid any cash dividends on
its capital stock.  The Company  currently  intends to retain future earnings to
finance the growth and  development  of its business  and,  therefore,  does not
anticipate paying any cash dividends in the foreseeable future. In addition, the
Company's  bank line of credit  prohibits the Company from paying cash dividends
without  the  bank's  prior  approval.  See  Note 10 of  Notes  to  Consolidated
Financial Statements.

The Company  believes  factors such as quarterly  fluctuations in the results of
operations  and  announcements  of  new  products  by  the  Company  or  by  its
competitors may cause the market price of the common stock to fluctuate, perhaps
substantially.  In  addition,  the stock  market in  general,  and the shares of
technology  stocks in particular,  have historically  experienced  extreme price
fluctuations.  These broad market and industry fluctuations may adversely affect
the market price of the Company's common stock.


                                       18
<PAGE>

Item 6.  Selected Financial Data

         The  following  information  should  be read in  conjunction  with  the
consolidated financial statements and related notes.
<TABLE>
<CAPTION>

(In thousands, except per share data)                       1996             1995             1994           1993            1992
------------------------------------------------------------------------------------------------------------------------------------
<S>                                                       <C>              <C>              <C>             <C>             <C>
For the year ended December 31
Total revenues ...................................        $ 64,924         $ 55,011         $ 35,705        $ 21,328        $ 11,329
Operating income (loss) before
    acquired in-process research
    and development costs ........................          (8,940)          11,388            9,772           5,603           2,702
Operating income (loss) ..........................         (10,240)         (21,703)           9,772           5,603           2,702
Net income (loss) ................................          (6,121)         (14,302)           7,575           3,823           1,642
Net income (loss) per share (1) ..................        $  (0.45)        $  (1.13)        $   0.58        $   0.36        $   0.17
Weighted average common shares (1) ...............          13,658           12,650           13,131          10,695           9,625
Cash generated from operations ...................        $    358         $  5,528         $  8,825        $  4,000        $  2,054


As of December 31
Cash and short-term investments ..................        $ 52,169         $ 66,925         $ 58,482        $ 36,359        $  2,720
Working capital ..................................          55,545           71,393           59,532          37,274           2,933
Total assets .....................................          93,689           91,362           71,613          42,000           6,449
Long-term obligations ............................                                                                                61
Stockholders' equity (2) .........................          78,606           81,841           65,749          39,433           3,655

<FN>

(1)  See Note 2 of Notes to Consolidated  Financial Statements for a description
     of shares used in calculating net income (loss) per share.
(2)  Includes amounts attributable to preferred stock outstanding through 1992.
</FN>
</TABLE>

                                       19
<PAGE>

Item 7.  Management's Discussion and Analysis of Financial Condition and Results
 of Operations

         The  following  discussion  for  Wonderware  Corporation  (the Company)
contains  forward-looking  statements that involve risks and uncertainties.  The
Company's   actual   future   results   could  differ   materially   from  those
forward-looking  statements.  Factors  that could  cause or  contribute  to such
differences include, but are not limited to, those discussed in this section, as
well as elsewhere in this Report.

Results of Operations

The following  table sets forth the percentage of total revenues  represented by
certain consolidated statement of operations data for the periods indicated:
<TABLE>
<CAPTION>

                                                           Year Ended December 31,
                                                          1996      1995      1994
                                                        ----------------------------
<S>                                                        <C>       <C>       <C> 
Total revenues                                             100%      100%      100%
Cost of sales                                                7%        5%        6%
                                                        ----------------------------
    Gross profit                                            93%       95%       94%
Operating expenses:
Research and development                                    29%       19%       17%
Selling, general and administrative                         74%       53%       50%
Restructuring and severance costs                            3%        2%
                                                        ----------------------------
Operating income (loss) before acquired in-process 
    research and development costs                         -13%       21%       27%
Acquired in-process research and development costs           2%       60%
                                                        ----------------------------
    Operating income (loss)                                -15%      -39%       27%
Other income, net                                            4%        5%        5%
                                                        ----------------------------
    Income (loss) before provision for income taxes        -11%      -34%       32%
Provision (benefit) for income taxes                        -2%        8%       11%
                                                        ----------------------------
    Net income (loss)                                       -9%      -26%       21%
                                                        ============================
</TABLE>

Comparison of 1996 to 1995

         Total revenues.  Total revenues include sales of software  licenses and
services,  less promotional  discounts and sales returns. The Company's revenues
for 1996 increased 18 percent to $64.9 million from $55.0 million in 1995.  This
increase resulted  primarily from increased unit sales of the Wonderware InTouch
product line. The revenue  increase also reflected to a lesser extent  increased
sales of the  Wonderware  InTrack  products and the  introduction  of Wonderware
InBatch.   Revenues  also   increased   slightly  due  to  the   acquisition  of
ICT-Wonderware  GmbH  (ICT-Wonderware),  the Company's  distributor  in Germany.
Revenues subsequent to the close of the acquisition in mid-December 1996 reflect
higher  unit sales  prices  because  there is no longer a  distributor  markdown
associated with such sales.

         Revenues  from  the  Wonderware   InTouch   product  line   represented
approximately  85 percent of the Company's total sales in 1996 as compared to 90
percent in 1995.  The Company  expects that  revenues  from these  products will
continue to account for a substantial  portion of the  Company's  total sales in
future periods,  but that the share of revenues derived from other products will
increase if new products introduced by the Company gain market acceptance.

         International  sales  increased  to $27.0  million  in 1996 from  $23.6
million in 1995.  Despite  overall  growth in  international  sales during 1996,
international  sales growth has slowed relative to total sales,  contributing 42
percent of total  revenues  for 1996 as  compared  to 43  percent  in 1995.  The
decline  in  international  sales  growth  is  primarily  due to  the  increased
competitive  pressures and a recessionary economy in Europe. The Company expects
that international sales will continue to represent a significant portion of its
total revenues.  The Company's  international  operations are subject to various
risks, including seasonality,  regulatory  requirements,  political and 

                                       20
<PAGE>

economic  instability and trade restrictions.  Although the Company's sales have
been  typically  made in US dollars,  the  Company's  recently  acquired  German
operation  conducts its business in German  marks.  Therefore,  a portion of the
Company's revenues are now directly subject to the risk of currency fluctuations
in that  market.  In addition,  a weakening  in the value of foreign  currencies
relative to the US dollar could have an adverse impact on the effective price of
the Company's products in other international  markets. The Company expects that
it will  increasingly  be required to transact in local  currencies  in order to
further its growth  internationally and will become more directly exposed to the
risk of foreign currency fluctuations.

         The life cycles of the Company's products are difficult to estimate due
in large measure to the recent emergence of some of the Company's  markets,  the
future effect of product enhancements and future competition. Declines in demand
for these products,  whether as a result of competition,  technological  change,
price  reductions  or  otherwise  would  have a material  adverse  effect on the
Company's  operating  results.  There  can be no  assurance  that the  Company's
historical growth rates or operating margins will resume or, if resumed, will be
sustained in the future.

         During  1997,  the Company  plans to begin  shipment of the  Wonderware
FactorySuite.  There will be two versions of the FactorySuite. These suites will
bundle together the development  versions of most of the Company's products into
a single package. The Wonderware Factory Suite will be sold at a greatly reduced
price when compared to buying each of the Company's current products separately.
The  large  discount  available  to the  customer  when  buying  the  Wonderware
FactorySuite  could have an adverse impact on the Company's future revenues from
its other products. Also, it is expected that some of the Company's competitors,
some of whom have greater resources than the Company,  will offer similar suites
of products.  There can also be no assurance  that the  Wonderware  FactorySuite
will gain market acceptance.

         Gross profit.  Cost of sales  includes the costs of manuals,  diskettes
and  duplication,  packaging  materials,  assembly,  paper  goods,  third  party
royalties and shipping.  Cost of sales for the years ended December 31, 1996 and
1995 include the  amortization of developed  technology  acquired as part of the
acquisition of Soft Systems Engineering, Inc. (SSE) in 1995 (see Note 2 of Notes
to Consolidated  Financial  Statements).  All internal costs related to research
and development of software  products and enhancements to existing  products are
expensed as incurred.

         The  Company's  gross  margin  decreased  to 93 percent in 1996 from 95
percent in 1995.  The decrease  was  primarily  due to  increased  documentation
included  with  recent   releases  of  the  Company's   products.   The  product
documentation  is being  converted  to an  electronic  format,  and the  Company
anticipates  that  this  will  result  in  cost  savings,  contingent  upon  the
acceptance of the electronic documentation format by its customers. Gross margin
is expected to decline over the next fiscal year as new  products  incorporating
additional third party software royalties begin shipping. Gross profit increased
16 percent to $60.6 million in 1996 from $52.4 million in 1995  primarily due to
increased revenues.

         Research and development  expenses.  Research and development  expenses
consist  primarily  of personnel  and  equipment  costs  required to conduct the
Company's  development  effort.  Research  and  development  expenses  for  1996
increased 77 percent to $18.8 million in 1996,  from $10.6 million in 1995,  and
increased  as  a  percentage   of  revenues  to  29  percent  from  19  percent.
Approximately half of the increase in cost is attributable to operating expenses
of entities  acquired during the latter half of 1995. The remaining  increase is
primarily  due to the  addition of  development  personnel  associated  with the
Company's  core product line, as well as other  products.  The Company  believes
that  the  introduction  of new  technologies  and  products  to the  industrial
automation  market  in  a  timely  manner  is  crucial  to  its  success.  As  a
consequence,  the  Company  has  increased  the  amount of its  expenditures  on
research and development.  For the foreseeable  future, the Company  anticipates
that it will continue to increase  spending in absolute  dollars on research and
development  for both the enhancement of current  products,  the addition of new
product  capabilities and the integration efforts associated with the Wonderware
FactorySuite.

         Costs incurred in the research and development of new software products
and  enhancements to existing  software  products are expensed as incurred until
technological feasibility has been established.  After technological feasibility
is  established,  any additional  costs would be capitalized in accordance  with
Statement of Financial

                                       21
<PAGE>

Accounting Standards No. 86, Accounting for the Costs of Computer Software to Be
Sold,  Leased or  Otherwise  Marketed.  Because  the Company  believes  that its
current process for developing  software is essentially  completed  concurrently
with the  establishment  of  technological  feasibility,  no  internal  software
development  costs were  capitalized  as of December 31, 1996.  Significant  new
products  developed  in the future may  require the  capitalization  of internal
software development expenses.

         Selling,  general and  administrative  expenses.  Selling,  general and
administrative   expenses   consist   primarily   of   compensation   costs   of
administrative,  sales and  marketing  personnel;  advertising  and  promotional
expenses; and customer service and technical support costs. Selling, general and
administrative expenses increased 66 percent to $48.4 million in 1996 from $29.1
million in 1995,  and increased as a percentage of revenue to 74 percent from 53
percent.   The   increase  in  the  dollar   amount  of  selling,   general  and
administrative  expenses was primarily  due to the  increased  staffing in field
sales and marketing  required to further  penetrate  current and new markets for
the  Company's  products;  increased  staffing in  technical  support to provide
service to the Company's new product lines;  increased  staffing and other costs
in  administrative  functions to support the overall growth of the Company;  and
operating  costs  associated  with the  entities  acquired in the second half of
1995.  The  Company  expects  that such  expenses  will  continue to increase in
absolute  dollars as it expands its worldwide  sales  distribution  and customer
support network to penetrate new markets for its production management products,
as well as to increase  worldwide market  penetration for its Wonderware InTouch
product line.

         Restructuring  and severance costs.  During the fourth quarter of 1996,
the Company recorded a charge of $2.4 million for restructuring costs associated
with the  closure  of its  Cupertino,  California,  development  center  and the
consolidation  of its  Manufacturing  Business  Systems group into the Company's
York,  Pennsylvania,  development  center.  The  charge  includes  accruals  for
severance, real property lease termination,  transition bonuses and the costs of
transferring  development of the Wonderware  InTrack product line from Cupertino
to York.

         During the fourth quarter of 1995, the Company accrued  severance costs
totaling $1.3 million,  including compensation and benefits expense, incurred in
conjunction with the resignation of seven former executives of the Company.

         Acquired  in-process research and development costs. As a result of the
acquisition  of  ICT-Wonderware  in  December  1996,  the  Company  incurred  an
after-tax  charge of $1.3 million related to the allocation of purchase price to
in-process  research and  development  costs acquired in the  transaction.  As a
result of the acquisitions of EnaTec Software Systems,  Inc. (EnaTec) and SSE in
July and  August  1995,  respectively,  the  Company  incurred  charges of $23.4
million  ($33.1  million,  net of  taxes  of $9.7  million)  to  reflect  direct
transaction  costs and the allocation of purchase  price to in-process  research
and development costs.

         Provision for income taxes. The Company recognized had an effective tax
rate of 19 percent in 1996. The change in the rate for 1996 from 1995, exclusive
of  the  tax  effect  related  to  the  write-off  on  in-process  research  and
development  costs, was due to an increase in the valuation  allowance  recorded
against  the  Company's  deferred  tax  assets  based  on an  evaluation  of the
recoverability of such deferred tax assets. Any tax benefits not realized by the
Company in 1996 may be recoverable  in future years should the Company  generate
taxable income in those years.

         Net  loss.  Due to the  increasing  level of  spending  in the areas of
research and development,  and in selling,  general and administrative functions
as discussed above, the Company  anticipates that when the Company's  operations
return to  profitability,  net income as a  percentage  of total  revenues  will
continue to be lower than  historical  levels.  There can be no  assurance as to
when, if ever, the Company will resume profitable operations.

Comparison of 1995 to 1994

         Total revenues. The Company's revenues for 1995 increased 54 percent to
$55.0  million from $35.7  million in 1994.  The  increase in revenues  resulted
primarily from increased unit sales of the Wonderware  InTouch product line, due
in part  to  investments  in the  Company's  worldwide  sales  distribution  and
customer  support

                                       22
<PAGE>

network.   Revenues  from  the  Wonderware   InTouch  product  line  represented
approximately 90 percent of the Company's total sales.

         International  sales  were  $23.6  million,  or  43  percent  of  total
revenues,  in 1995 and $13.7 million, or 38 percent of total revenues,  in 1994.
The  growth  in   international   sales  was  the  result  of  increased  market
penetration,  as well as expansion of the Company's  presence in both Europe and
Asia.

         The strategic acquisitions completed during the second half of 1995 did
not result in significant additional revenue streams in 1995.

         Gross  profit.  The Company's  gross margin  increased to 95 percent in
1995 from 94 percent in 1994.  The  increase was  primarily  due to cost control
measures  implemented  in  the  area  of  inventory  purchasing,  including  the
execution of volume purchase  agreements.  Gross profit  increased 56 percent to
$52.4  million in 1995 from $33.7  million in 1994  primarily  due to  increased
revenues.

         Research and development  expenses.  Research and development  expenses
increased 72 percent to $10.6  million in 1995,  from $6.2 million in 1994,  and
increased as a percentage of revenues to 19 percent from 17 percent. The Company
believes  that  the  introduction  of  new  technologies  and  products  to  the
industrial  automation market in a timely manner is crucial to its success. As a
consequence,  the Company  increased the amount of its  expenditures on research
and  development  in  1995,  primarily  through  the  employment  of  additional
development personnel.

         Selling,  general and  administrative  expenses.  Selling,  general and
administrative expenses increased 64 percent to $29.1 million in 1995 from $17.8
million in 1994,  and increased as a percentage of revenue to 53 percent from 50
percent.   The   increase  in  the  dollar   amount  of  selling,   general  and
administrative  expenses was primarily  due to the  increased  staffing in field
sales and marketing and  administrative  functions to support the overall growth
of the Company, as well as the operating costs associated with the acquisitions.

         Acquired  in-process research and development costs. As a result of the
acquisitions  of EnaTec and SSE the  Company  incurred  an  aggregate  after-tax
charges of $23.4  million in 1995 to reflect  direct  transaction  costs and the
allocation of purchase  price to acquired  in-process  research and  development
costs.

         Provision for income taxes. The Company  recognized  income tax benefit
at an effective rate of 24 percent in 1995, as compared to income tax expense at
an effective  rate of 34 percent in 1994.  The change in the rate was due to the
tax effect of in-process research and development costs.

Fluctuations in Quarterly Operating Results

         Many software  companies  experience  seasonal  variations in revenues,
with soft domestic  sales in the first  quarter and soft  European  sales in the
third quarter.  Although the significant  growth in the Company's total revenues
over the past several years may have masked seasonal variations in the Company's
operating  results,  the Company  believes  that its results of  operations  are
subject to similar quarterly variations.

         The Company has experienced  significant  fluctuations in its quarterly
operating  results in the  current  year.  The  Company  expects  to  experience
significant  fluctuations  in future  quarterly  operating  results  that may be
caused by many factors,  including,  among  others:  delays in  introduction  of
products or product  enhancements by the Company,  the Company's  competitors or
other  providers  of  hardware,  software  and  components  for  the  industrial
automation market; costs associated with product or technology acquisitions; the
size and timing of individual  orders;  software "bugs" or other product quality
problems;  competition  and pricing in the  software  industry;  seasonality  of
revenues;  customer  order  deferrals in  anticipation  of new products;  market
acceptance  of new  products;  reductions  in demand for  existing  products and
shortening  of product  life  cycles as a result of new  product  introductions;
changes in  distributors'  ordering  patterns;  changes in  operating  expenses;
changes in Company strategy; personnel changes; foreign currency exchange rates;
regulatory  requirements  and  political  and  economic  instability  in foreign
markets; mix of products sold; and general economic conditions. As a result, the
Company

                                       23
<PAGE>

believes that period-to-period  comparisons of its results of operations are not
necessarily  meaningful  and should not be relied upon as  indications of future
performance.

         Because the Company ships software  within a short period after receipt
of an order, the Company  typically does not have a material backlog of unfilled
orders and revenues in any quarter are substantially  dependent on orders booked
in  that  quarter.  The  Company's  expense  levels  are  based  in  part on its
expectations  as to  future  revenues  and the  Company  may be unable to adjust
spending  in  a  timely  manner  to  compensate   for  any  revenue   shortfall.
Accordingly,  operating  results  would be adversely  affected by a reduction in
revenues in that quarter since the majority of the Company's expenses are fixed.
Any  significant  weakening  in demand  would have an almost  immediate  adverse
impact on the  Company's  operating  results  and on the  Company's  ability  to
achieve  profitability.  Fluctuations  in  operating  results may also result in
volatility in the price of the Company's common stock.

         Based  in part  on the  growth  in the  overall  industrial  automation
software  market and the Company's  penetration  of that market,  as well as the
geographic  and  industry  diversity  of the  Company's  customers,  the Company
believes that general economic conditions have not had a material adverse effect
on the  Company's  results of  operations  to date.  There can be no  assurance,
however, that economic conditions will not have a material adverse effect on the
Company in the future.

Liquidity and Capital Resources

         The  Company  currently  finances  its  operations  (including  capital
expenditures)  primarily  through cash flow from operations and its current cash
and short-term investment balances. The short-term investments consist of highly
rated,  taxable,  short-term  securities  selected  to  maximize  the  Company's
after-tax  return on its excess funds at a relatively  low risk level.  In 1996,
operating  activities  provided  cash  totaling  $358,000  primarily  related to
depreciation and amortization  expense,  an increase in accounts payable and the
write-off  of acquired  in-process  research  and  development  costs  offset by
operating losses and increases in deferred taxes, other assets and inventory. In
1995, operating activities provided cash totaling $5.5 million primarily related
to operating income before acquired  in-process  research and development costs,
depreciation and amortization expense and increases in accrued expenses,  offset
by increases in deferred taxes,  accounts receivable,  and other assets. The net
loss in 1995  resulted from the  write-off of acquired  in-process  research and
development costs. As these were non-cash transactions,  the Company's liquidity
was not  impacted.  In 1994,  operating  activities  provided cash totaling $8.8
million  primarily  related  to net  income and  depreciation  and  amortization
expense and  increases  in  accounts  payable,  accrued  expenses  and  deferred
revenues,  offset by an  increase  in accounts  receivable  due to higher  sales
levels. At December 31, 1996, the Company's cash, cash equivalent and short-term
investment balances totaled $52.2 million.

         During  1996,  the Company  generated  cash from  investing  activities
totaling  $2.1  million.  Net proceeds  from sales and  maturities of short-term
investments  generated  approximately  $18.4 million in cash. This was offset by
$11.5  million used for the purchase of property and  equipment and $4.8 million
used for the purchase of the outstanding  shares of ICT-Wonderware  (see Note 12
of Notes to Consolidated  Financial  Statements).  During 1995, the Company used
cash in investing  activities  totaling  $11.0  million.  Of this  amount,  $4.8
million  was used to  purchase  property  and  equipment,  $555,000  was used in
acquisitions   and  $5.7  million  was  used  for  the  purchase  of  short-term
investments. During 1994, the Company used cash in investing activities totaling
$38.2  million.  Of this amount,  $32.8 million was used to purchase  short-term
investments,  $2 million was  invested in EnaTec and  $800,000  was  invested in
ICT-Wonderware.  The  remaining  cash used in investing  activities  in 1994 was
primarily for the purchase of property and equipment.

         During 1996, the Company  generated  cash from financing  activities of
$1.4  million,  primarily  from funds  generated  through the  exercise of stock
options and sale of stock through the employee  stock  purchase  plan.  This was
offset by  payments of  approximately  $1.0  million  against the credit line of
ICT-Wonderware.   During  1995,  the  Company   generated  cash  from  financing
activities  of $8.0  million,  including tax benefits from the exercise of stock
options  totaling $6.0  million.  The  remaining  cash was  generated  primarily
through the exercise of stock  options and the sale of common stock  through the
employee  stock  purchase  plan.  During 1994,  the Company  generated cash from
financing  activities of $18.8 million,  primarily from the sale of common stock
in its public offering  completed

                                       24
<PAGE>

in February 1994.  Also, the Company realized tax benefits in 1994 totaling $2.9
million related to the exercise of stock options.

         The Company  maintains an unsecured bank line of credit with a domestic
bank expiring in May 1997 that  provides for  borrowings up to $5 million at the
bank's prime rate. No borrowings  were  outstanding  under the line of credit at
December  31,  1996.  The  Company  plans to renew  the line of  credit at terms
comparable  to the  current  agreement.  The  Company's  new  German  subsidiary
maintains  a separate  bank line of credit in Germany  which  expires in October
1997.  This line of credit  provides for maximum  borrowings of DM900,000 at the
German  bank's  prime rate.  Approximately  $289,000 of  borrowings  against the
German credit line were outstanding as of December 31, 1996.

         The Company's  principal  commitments as of December 31, 1996 consisted
primarily of leases on its headquarters and other facilities,  and there were no
material commitments for capital expenditures.

         The Company believes that its cash and short-term  investment  balances
and  availability  under its bank lines of credit as of December 31,  1996,  and
cash flow from  operations  will be sufficient  to meet its working  capital and
capital expenditure requirements for at least the next twelve months.


Item 8.  Financial Statements and Supplementary Data

The following financial statements are filed as part of this Annual Report:

                                                                          Page

Independent Auditors' Report                                               26 
Consolidated Balance Sheets as of December 31, 1996 and 1995               27
Consolidated  Statements  of Operations  for the years ended 
  December 31, 1996, 1995 and 1994                                         28
Consolidated Statements of Cash Flows for the years ended 
  December 31, 1996, 1995 and 1994                                         29
Consolidated  Statements of Stockholders' Equity for the
  years ended  December 31, 1996,  1995 and 1994                           30
Notes to  Consolidated  Financial Statements                               31


                                       25
<PAGE>




                          INDEPENDENT AUDITORS' REPORT

The Board of Directors
Wonderware Corporation
Irvine, California

         We  have  audited  the  accompanying  consolidated  balance  sheets  of
Wonderware  Corporation  and its  subsidiaries as of December 31, 1996 and 1995,
and the related consolidated statements of operations,  stockholders' equity and
cash flows for each of the three years in the period ended December 31,1996. Our
audits also included the  financial  statement  schedule  listed in the index at
Item 8. These  financial  statements  and financial  statement  schedule are the
responsibility of the Company's management.  Our responsibility is to express an
opinion on these financial statements based on our audits.

         We conducted our audits in accordance with generally  accepted auditing
standards.  Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free 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 that our audits provide a reasonable basis for our opinion.

         In our opinion, such consolidated  financial statements present fairly,
in all material respects,  the financial position of Wonderware  Corporation and
its  subsidiaries  as of December  31,  1996 and 1995,  and the results of their
operations  and their cash flows for each of the three years in the period ended
December 31, 1996, in conformity with generally accepted accounting  principles.
Also, in our opinion,  such financial  statement  schedule,  when  considered in
relation to the financial  statements taken as a whole,  present fairly,  in all
material respects, the information set forth therein.


/s/ DELOITTE & TOUCHE LLP

Costa Mesa, California
January 30, 1997




                                       26
<PAGE>



<TABLE>

<CAPTION>
                           CONSOLIDATED BALANCE SHEETS

                                                                               December 31,
                                                                   ------------------------------------
                                                                         1996                1995
                                                                   -----------------    ---------------

                                     ASSETS                           
<S>                                                                    <C>                <C>                                
Current assets:
    Cash and cash equivalents ....................................     $ 26,487,553       $ 22,637,986
    Short-term investments .......................................       25,681,766         44,287,316
    Accounts receivable,  less allowance for
        doubtful accounts of $1,132,010 and
        $903,839 at December 31, 1996 and 1995 ...................       12,377,041          7,402,071
    Accounts receivable from a related party .....................                           3,037,108
    Inventories ..................................................        1,100,056            460,663
    Deferred tax assets ..........................................        2,184,687          2,139,690
    Prepaid expenses and other current assets ....................        2,796,136            948,387
                                                                       ------------       ------------
        Total current assets .....................................       70,627,239         80,913,221

Property and equipment, net ......................................       13,395,833          6,272,399
Investments ......................................................                             800,000
Goodwill, net ....................................................        4,829,792
Noncurrent deferred tax assets ...................................        3,736,296          1,967,711
Other assets .....................................................        1,099,703          1,408,265
                                                                       ------------       ------------
        Total assets .............................................     $ 93,688,863       $ 91,361,596
                                                                       ============       ============


                      LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
    Bank line of credit ..........................................     $    289,446
    Accounts payable .............................................        5,210,079       $  1,532,721
    Accrued employee incentive compensation ......................          977,793            833,627
    Accrued commissions ..........................................          309,845            450,287
    Income taxes payable .........................................           80,247            438,548
    Accrued payroll and related liabilities ......................        2,845,333          2,939,677
    Other accrued liabilities ....................................        3,728,163          2,090,756
    Deferred revenue .............................................        1,641,605          1,234,640
                                                                       ------------       ------------
        Total current liabilities ................................       15,082,511          9,520,256
Commitments
Stockholders' equity:
    Preferred stock, $.001 par value; 10,000,000
        shares authorized; no shares  issued or
        outstanding  as of December  31, 1996 and 1995
    Common stock, $.001 par value; 50,000,000 shares
        authorized; 13,865,896 and 13,247,610 shares
        issued and outstanding at December 31, 1996 and 1995 .....           13,866             13,248
    Additional paid-in capital ...................................       86,424,172         83,331,383
    Unrealized gain (loss) on short-term investments .............          (14,905)           192,698
    Accumulated deficit ..........................................       (7,816,781)        (1,695,989)
                                                                       ------------       ------------
        Net stockholders' equity .................................       78,606,352         81,841,340
                                                                       ------------       ------------
        Total liabilities and stockholders' equity ...............     $ 93,688,863       $ 91,361,596
                                                                       ============       ============
</TABLE>


See accompanying notes to consolidated financial statements.



                                       27
<PAGE>

<TABLE>


<CAPTION>

                      CONSOLIDATED STATEMENTS OF OPERATIONS

                                                                               Year Ended December 31,
                                                               ----------------------------------------------------
                                                                    1996              1995              1994
                                                               ----------------  ----------------  ----------------
<S>                                                             <C>                <C>               <C>    
Revenues:
Product and license revenue ...........................         $ 59,392,416       $ 46,339,271      $32,809,231
Product and license revenue from a related party ......            2,472,834          6,697,668        2,042,548
Service contract revenue ..............................            3,059,092          1,973,994          853,501
                                                                ------------       ------------      -----------
    Total revenues ....................................           64,924,342         55,010,933       35,705,280
Cost of sales .........................................            4,298,174          2,581,032        2,022,042
                                                                ------------       ------------      -----------
    Gross profit ......................................           60,626,168         52,429,901       33,683,238
Operating expenses:
Research and development ..............................           18,788,930         10,607,252        6,155,473
Selling, general and administrative ...................           48,427,057         29,114,618       17,755,308
Restructuring and severance costs .....................            2,350,000          1,319,624
                                                                ------------       ------------      -----------
    Operating income (loss) before acquired
    in-process research and development costs .........           (8,939,819)        11,388,407        9,772,457
Acquired in-process research and development costs ....            1,300,000         33,091,626
                                                                ------------       ------------      -----------
    Operating income (loss) ...........................          (10,239,819)       (21,703,219)       9,772,457
Other income, net .....................................            2,713,807          2,815,232        1,627,611
                                                                ------------       ------------      -----------
    Income (loss) before provision for income taxes ...           (7,526,012)       (18,887,987)      11,400,068
Provision (benefit) for income taxes ..................           (1,405,220)        (4,586,320)       3,824,731
                                                                ------------       ------------      -----------
    Net income (loss) .................................         $ (6,120,792)      $(14,301,667)     $ 7,575,337
                                                                ============       ============      ===========

Net income (loss) per common and common
    equivalent share ..................................                (0.45)             (1.13)            0.58

Weighted average common and common
    equivalent shares .................................           13,658,344         12,650,347       13,131,448


</TABLE>



















See accompanying notes to consolidated financial statements.



                                       28
<PAGE>


<TABLE>
<CAPTION>


                      CONSOLIDATED STATEMENTS OF CASH FLOWS

                                                                                             Year Ended December 31,
                                                                              ------------------------------------------------------
                                                                                   1996               1995                1994
                                                                              ----------------   ----------------    ---------------
<S>                                                                            <C>                 <C>                 <C>  
Cash flows from operating activities:
    Net income (loss) ..................................................       $ (6,120,792)       $(14,301,667)       $  7,575,337

    Adjustments to reconcile net income (loss) to net
        cash provided by operating activities:
        Depreciation and amortization ..................................          5,326,483           2,214,285             979,166
        Provision for doubtful accounts ................................            241,302             558,306             224,539
        Deferred taxes .................................................         (1,813,582)        (10,940,515)           (413,712)
        Compensation costs related to stock options ....................            636,177             283,485             149,027
        Acquired in-process research and development costs .............          1,300,000          33,091,626
        Changes in operating assets and liabilities, net of
        the effect of acquisitions:
            Accounts receivable ........................................           (318,700)         (5,637,205)         (3,019,642)
            Income tax refund receivable ...............................                                                    248,255
            Inventories ................................................           (519,248)            (82,316)           (219,687)
            Prepaid expenses and other current assets ..................           (597,856)         (1,778,372)           (279,506)
            Accounts payable ...........................................          1,540,929             315,174             688,061
            Accrued employee incentive compensation ....................             (6,979)              5,136               4,895
            Accrued commissions ........................................           (140,442)             71,245             162,508
            Income taxes payable .......................................           (353,788)            185,693             247,275
            Accrued payroll and other accrued liabilities ..............            777,049           1,225,011           1,839,778
            Deferred revenue ...........................................            406,965             318,235             638,426
                                                                               ------------        ------------        ------------
            Net cash provided by operating activities ..................            357,518           5,528,121           8,824,720
Cash flows from investing activities:
    Purchases of property and equipment ................................        (11,536,732)         (4,787,285)         (2,351,729)
    Investment in affiliate ............................................                                                 (2,800,000)
    Net effect of pooling of interests .................................                                                   (243,320)
    Cash paid for acquisitions, net of cash acquired ...................         (4,808,388)           (554,533)
    Sales and maturities of short-term investments .....................         94,685,231          67,855,628          13,962,055
    Purchases of short-term investments ................................        (76,287,284)        (73,544,027)        (46,768,274)
                                                                               ------------        ------------        ------------
            Net cash provided by (used in) investing activities ........          2,052,827         (11,030,217)        (38,201,268)
Cash flows from financing activities:
    Proceeds from exercise of stock options ............................            875,853           1,621,552             167,998
    Tax benefit related to exercise of stock options ...................                              5,994,301           2,904,143
    Payments on bank line of credit ....................................         (1,018,008)           (592,989)
    Repayment of loan payable to employee ..............................                                                   (283,418)
    Deferred offering costs ............................................                                                    142,302
    Net proceeds from issuance of common stock .........................          1,581,377             969,470          15,834,434
                                                                               ------------        ------------        ------------
           Net cash provided by financing activities ...................          1,439,222           7,992,334          18,765,459
                                                                               ------------        ------------        ------------
Net increase (decrease) in cash and cash equivalents ...................          3,849,567           2,490,238         (10,611,089)
Cash and cash equivalents, beginning of period .........................         22,637,986          20,147,748          30,758,837
                                                                               ------------        ------------        ------------
Cash and cash equivalents, end of period ...............................       $ 26,487,553        $ 22,637,986        $ 20,147,748
                                                                               ============        ============        ============

Supplemental cash flow information:
    Interest paid ......................................................       $      7,931        $      1,830        $     33,334
    Income taxes paid ..................................................       $    748,625        $    215,712        $    813,759


Detail of businesses acquired in purchase business
    combinations:
    Acquired in-process research and development costs .................       $  1,300,000        $ 33,091,626
    Goodwill ...........................................................          4,850,000
    Fair value of assets acquired (net of previous
    investment) ........................................................          3,132,171             645,632
    Common stock issued in acquisitions ................................                             21,260,477
    Cash paid for acquisitions, net of cash acquired ...................          4,808,388             554,533
    Liabilities assumed or created .....................................          4,473,783          11,922,248
</TABLE>







See accompanying notes to consolidated financial statements.



                                       29
<PAGE>


<TABLE>
<CAPTION>


                 CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY

                                                                                         
                                                                                         Unrealized
                                                  Common stock            Additional     Gain (Loss)     Retained         Net 
                                              -----------------------       Paid-in      Short-term      Earnings    Stockholders'
                                              Shares           Amount       Capital      Investments     (Deficit)       Equity
                                         -------------------------------------------------------------------------------------------
<S>                                      <C>             <C>             <C>            <C>            <C>             <C>         
Balance, January 1, 1994 .............     10,836,056    $     10,836    $ 34,138,908                  $  5,283,661    $ 39,433,405

Acquisition accounted for as
  pooling of interests ...............         78,137              78           9,922                      (253,320)       (243,320)
Compensation costs related to
  stock option grants ................                                        149,027                                       149,027
Stock options exercised ..............        338,405             339         167,659                                       167,998
Tax benefit related to exercise
  of stock options ...................                                      2,904,143                                     2,904,143
Proceeds from sale of common
  stock ..............................        845,576             845      15,833,589                                    15,834,434
Unrealized loss on short-term
  investments ........................                                                   $  (71,883)                        (71,883)
Net income ...........................                                                                    7,575,337       7,575,337
                                         -------------------------------------------------------------------------------------------
Balance, December 31, 1994 ...........     12,098,174          12,098      53,203,248       (71,883)     12,605,678      65,749,141

Common stock issued in
  acquisitions .......................        571,168             571      21,259,906                                    21,260,477
Compensation costs related to
 stock option grants .................                                        283,485                                       283,485
Stock options exercised ..............        527,728             528       1,621,024                                     1,621,552
Tax benefit related to exercise
  of stock options ...................                                      5,994,301                                     5,994,301
Proceeds from sale of common
  stock ..............................         50,540              51         969,419                                       969,470
Unrealized gain on short-term
    investments ......................                                                      264,581                         264,581
Net loss .............................                                                                  (14,301,667)    (14,301,667)
                                         -------------------------------------------------------------------------------------------
Balance, December 31, 1995 ...........     13,247,610          13,248      83,331,383       192,698      (1,695,989)     81,841,340

Compensation costs related to
  stock option grants ................                                        636,177                                       636,177
Stock options exercised ..............        472,640             473         875,380                                       875,853
Proceeds from sale of common
  stock ..............................        145,646             145       1,581,232                                     1,581,377
Unrealized loss on short-term
    investments ......................                                                     (207,603)                       (207,603)
Net loss .............................                                                                    (6,120,792)    (6,120,792)
                                         -------------------------------------------------------------------------------------------
Balance, December 31, 1996 ...........     13,865,896    $     13,866    $ 86,424,172   $   (14,905)    $ (7,816,781)  $ 78,606,352
                                         ===========================================================================================

</TABLE>





















See accompanying notes to consolidated financial statements.



                                       30
<PAGE>



NOTES TO  CONSOLIDATED  FINANCIAL  STATEMENTS  For The Years Ended  December 31,
1996, 1995 and 1994

1.    General

Nature of Operations - Wonderware Corporation (the Company) is primarily engaged
in the  development  and  marketing  of  microcomputer  software  for use in the
worldwide industrial  automation market. Its customers include end users, system
integrators  and  original  equipment  manufacturers.  The  Company  markets its
products  principally  through  distributors and grants credit to customers in a
wide range of industries.

Basis of  Presentation  - The  accompanying  consolidated  financial  statements
include  the  accounts  of the Company  and its  subsidiaries.  All  significant
intercompany balances and transactions have been eliminated.

Use of Estimates - The  preparation of financial  statements in conformity  with
generally accepted  accounting  principles requires management to make estimates
and assumptions  that affect the reported  amounts of assets and liabilities and
disclosure of  contingent  assets and  liabilities  at the date of the financial
statements  and the  reported  amounts  of  revenues  and  expenses  during  the
reporting period. Actual results could differ from those estimates.

2.    Significant Accounting Policies

Cash and  Equivalents  - The Company  considers  all  highly-liquid,  short-term
investments  purchased  with an original  maturity of three months or less to be
cash equivalents.

Short-term  Investments  -  The  Company's  short-term  investments,  consisting
entirely of highly  rated,  taxable debt  securities,  have been  classified  as
"available for sale" and, in accordance  with Statement of Financial  Accounting
Standards (SFAS) No. 115,  Accounting for Certain Investments in Debt and Equity
Securities,  have been  recorded at fair value as of December 31, 1996 and 1995.
Unrealized  gains or losses on such investments as of December 31, 1996 and 1995
have been recorded as a separate component of stockholders' equity (see Note 3).

Fair Value of Financial Instruments - SFAS No. 107, Disclosures About Fair Value
of Financial  Instruments,  requires  management to disclose the estimated  fair
value of certain  assets and  liabilities  defined by SFAS No. 107 as  financial
instruments. Financial instruments are generally defined by SFAS No. 107 as cash
or a contractual  obligation  that both conveys to one entity a right to receive
cash or other  financial  instruments  from another  entity,  and imposes on the
other entity the  obligation to deliver cash or other  financial  instruments to
the first entity.  At December 31, 1996, the Company  believes that the carrying
amounts of cash and cash equivalents, receivables, bank line of credit and trade
payables approximate fair value because of the short maturity of these financial
instruments.

Inventories -  Inventories,  consisting  primarily of software  program  storage
media,  related user manuals, and packaging materials are valued at the lower of
cost, determined on the first-in, first-out method, or market.

Depreciation  and  Amortization  - Property and equipment are stated at cost and
are depreciated using the  straight-line  method over the estimated useful lives
of the related assets,  ranging from three to five years. Leasehold improvements
are  amortized  using the  straight-line  method over the lesser of the economic
useful  lives of the  assets  or the  related  lease  term.  Intangible  assets,
including goodwill, are amortized over the estimated useful life of the asset.

Goodwill - Goodwill is amortized  over ten years on a straight  line basis.  The
Company will  periodically  review the value of goodwill to determine whether or
not an impairment to such value has occurred.

Other  Assets - Other  assets  include  the cost of  technology  procured in the
acquisition of Soft Systems Engineering, Inc. (SSE) in 1995, technology acquired
from  Professional  Technology  Management  (PTM)  in  1995,  and  the  cost  of
non-compete  agreements  executed with certain former  shareholders  of PTM. The
Company is amortizing these assets over an estimated useful life of three years.

                                       31
<PAGE>

Software  Development  Costs - Costs incurred in the research and development of
new  software  products  and  enhancements  to existing  software  products  are
expensed as incurred until technological feasibility has been established. After
technological  feasibility  is  established,   any  additional  costs  would  be
capitalized in accordance with SFAS No. 86, Accounting for the Costs of Computer
Software to Be Sold, Leased or Otherwise Marketed.  Because the Company believes
that its  current  process for  developing  software  is  essentially  completed
concurrently with the establishment of technological feasibility,  no internally
generated  software  development  costs have been capitalized as of December 31,
1996 or 1995.

Long-Lived  Assets - The Company  accounts for the impairment and disposition of
long-lived assets in accordance with SFAS No. 121, Accounting for the Impairment
of Long-Lived  Assets and for  Long-Lived  Assets to be Disposed.  In accordance
with SFAS 121,  long-lived  assets to be held are reviewed for events or changes
in   circumstances   which  indicate  that  their  carrying  value  may  not  be
recoverable.  The  Company  will  periodically  review  the  carrying  value  of
long-lived  assets to determine  whether or not an  impairment to such value has
occurred.

Revenue  Recognition - Revenues from the licensing of computer software products
are  recognized  upon delivery of the products to customers in  accordance  with
Statement  of  Position  91-1,  Software  Revenue  Recognition,  as there are no
significant  vendor   obligations   remaining  and  collection  of  the  related
receivable  is  probable.   The  Company  accounts  for   insignificant   vendor
obligations  and  post-contract  support  at the  time of  product  delivery  by
accruing such costs and  recognizing  them ratably on completion of performance.
The Company also offers its customers a 60-day right of return on sales (returns
over 30 days from  shipment  are subject to  restocking  charges) and records an
estimate of such  returns at the time of product  delivery  based on  historical
experience.  Revenues  related to version  support  contracts with customers are
deferred and amortized over the terms of the contracts,  which range from six to
eighteen months.

Income Taxes - The provision  for income taxes is determined in accordance  with
SFAS No. 109,  Accounting for Income Taxes.  Deferred tax assets and liabilities
arise from temporary differences between the tax basis of assets and liabilities
and their reported  amounts in the consolidated  financial  statements that will
result in taxable or deductible amounts in future years.

Translation of Foreign Currencies - Assets and liabilities of foreign operations
are  translated  into U.S.  dollars at the fiscal year end  exchange  rate.  The
related  translation  adjustments  are recorded in the  statement of  operations
because the functional  currency is considered to be U.S. dollars.  Revenues and
expenses are translated using average exchange rates prevailing during the year.
Foreign currency transaction gains and losses are included in net income (loss).
Realized  and  unrealized  foreign  currency  gains  and  losses  for the  years
presented were not material.

Net Income (Loss) Per Share - Net income  (loss) per share is computed  based on
the weighted  average  number of common shares  outstanding  each year using the
treasury  stock  method.   Outstanding  stock  options  are  excluded  from  the
calculation  of net loss per share for 1996 and 1995 as they are  anti-dilutive.
Outstanding  stock  options are  considered  common  stock  equivalents  and are
included in the calculation of net income per share for 1994.

3.    Short Term Investments

The Company's  short-term  investments  as of December 31, 1996 and 1995 consist
almost entirely of debt securities  issued by the United States or its agencies,
states of the United  States and  political  subdivisions  of the states and are
recorded  at  an  aggregate   fair  value  of   $25,681,766   and   $44,287,316,
respectively.  The amortized cost basis of these  investments was $25,696,671 at
December 31, 1996 and $44,094,618 at December 31, 1995. Gross unrealized holding
gains and losses, respectively, were $3,029 and $17,934 at December 31, 1996 and
$196,547 and $3,849 at December 31, 1995. The net unrealized holding gain (loss)
as of the end each year is included in stockholders' equity.

During  1996,   proceeds  from  the  sale  of  short-term   investments  totaled
$94,685,231.  Gross realized gains and losses from these sales were $192,341 and
$21,273,  respectively.  During  1995,  proceeds  from  the  sale of  short-term

                                       32
<PAGE>

investments  totaled  $67,855,628.  Gross  realized  gains and losses from these
sales were $53,363 and $8,203,  respectively.  The cost of the investments  sold
was determined through specific identification.

4.    Property and Equipment

The following table summarizes the components of property and equipment:

<TABLE>
<CAPTION>
                                                           December 31,
                                                   -----------------------------
                                                       1996            1995
                                                   ------------    ------------
<S>                                                <C>             <C>         
Leasehold improvements                             $  3,162,692    $  1,554,132
Data processing equipment                            14,911,819       6,211,081
Furniture, fixtures and other equipment               4,514,703       2,724,014
                                                   ------------    ------------
                                                     22,589,214      10,489,227
Less: accumulated depreciation                       (9,193,381)     (4,216,828)
                                                   ============    ============
    Property and equipment, net                    $ 13,395,833    $  6,272,399
                                                   ============    ============
</TABLE>

5.    Stockholders' Equity

Public Stock Offerings - In February 1994, the Company  completed a public stock
offering  in which it sold  800,000  shares  of its  common  stock at a price of
$20.50 per share.  The net proceeds  raised by the Company in the offering  were
approximately $15 million.

Stock-Based  Compensation  Plans- At December 31, 1996 the Company has two types
of  stock-based  compensation  plans,  which are  described  below.  The Company
accounts  for  these  plans in  accordance  with the  provisions  of  Accounting
Principles Board Opinion No. 25,  Accounting for Stock Issued to Employees,  and
related Interpretations (APB 25). Accordingly,  no compensation expense has been
recognized for its stock-based  compensation  plans other than for stock options
granted at below fair market value,  and for stock options granted in connection
with a guaranteed gain contract. Options were granted at below fair market value
to  selected  employees  at various  times from 1992 to 1995.  The  compensation
expense that has been charged against income for options granted at below market
rates was $486,703, $157,828, and $149,027 in 1996, 1995 and 1994, respectively.
In 1995 the Company  entered  into a  guaranteed  gain  contract  with the Chief
Executive Officer of the Company in connection with the grant of 200,000 options
under the  Wonderware  Corporation  1989 Stock Option Plan (1989 Plan) (see Note
7). Under the terms of the contract,  the officer will receive a minimum gain of
$1,250,000 related to the options.  The guaranteed gain amount is reduced by the
maximum total gain achieved by the vested options during the vesting period. The
compensation  expense that has been recognized in connection with the guaranteed
gain contract was $149,474 and $125,657 in 1996 and 1995, respectively. A credit
is  recorded  to  additional   paid-in  capital  to  reflect  the  stock  option
compensation expense amounts recognized. The income tax effect of any difference
between the market price of the Company's common stock at the grant date and the
market price at the exercise date is credited to additional paid-in capital.

In October 1995, the Financial  Accounting  Standards Board issued SFAS No. 123,
Accounting for Stock-Based Compensation (SFAS No. 123). As permitted by SFAS No.
123,  the  Company  has  chosen  to  continue  to  account  for its  stock-based
compensation plans under APB 25 and provide the expanded  disclosures  specified
in SFAS No. 123.

Had compensation  cost been determined using the provisions of SFAS No. 123, the
Company's  net loss and loss per share would have been  reduced to the pro forma
amounts indicated below:

                                            1996              1995
                                        -------------    -------------
Net loss              As reported       $ (6,120,792)    $(14,301,667)
                      Pro forma         $ (9,175,244)    $(16,020,383)

Loss per share        As reported       $      (0.45)    $      (1.13)
                      Pro forma         $      (0.67)    $      (1.27)
                                                          

                                       33
<PAGE>

Fixed option plans

The Company has five fixed  option  plans.  The 1989 Plan  provides for granting
incentive  stock  options  or  non-statutory  stock  options  to all  employees,
non-employee  members of the Board of Directors (the Board) and  consultants who
provide valuable services to the Company.  The 1989 Plan allows for the issuance
of options covering 4,000,000 shares of common stock. The option price per share
may not be less than 100 percent of the fair  market  value of a share of common
stock on the grant date as determined  by the Board for incentive  stock options
and 85  percent  of fair  market  value for  non-statutory  stock  options.  For
incentive stock options,  the exercise price may not be less than 110 percent of
the fair  market  value of a share of  common  stock on the  grant  date for any
individual  possessing  10 percent or more of the voting power of all classes of
stock of the Company.  The timing of exercise for individual option grants is at
the  discretion  of the Board,  and the  options  expire no later than ten years
after the grant date (five years in the case of incentive  stock options granted
to individuals  possessing 10 percent or more of the voting power of all classes
of stock of the Company).

The 1994 Non-Employee  Directors' Stock Option Plan (the Directors' Plan) allows
for the  issuance  of  options  covering  200,000  shares of common  stock.  The
Directors'  Plan  provides for the granting of stock options to directors of the
Company who are not  otherwise  employed by the Company or any  affiliate of the
Company.  Option grants under the Directors'  Plan are  non-discretionary.  Each
person who is elected a  non-employee  director of the Company after adoption of
the  Directors'  Plan is granted upon such election  options to purchase  10,000
shares of common stock. These options vest 25 percent one year after the date of
grant and 6.25 percent for each full three-month period thereafter. In addition,
on the date of each annual meeting of stockholders,  each non-employee  director
is granted options to purchase 10,000 shares of common stock.  Such options vest
25  percent  one year  from the date of grant  and 6.25  percent  for each  full
three-month period  thereafter.  The exercise price of all options granted under
the  Directors'  Plan shall be equal to 100 percent of the fair market  value of
the  Company's  common stock on the date of grant.  Unexercised  options  issued
under the Directors' Plan expire ten years from the date of grant.

In April 1993, the Company issued an option to purchase  90,000 shares of common
stock  at $1.82  per  share  outside  of the 1989  Plan to an  executive  of the
Company.  Such  option  vests at the rate of 24  percent  after 12 months  and 2
percent  per month  thereafter.  The  recipient  of this  option  resigned as an
officer  of the  Company  in  December,  1995.  Under  the  terms of the  former
officer's  separation  agreement,  the  options  will  continue  vesting  for an
additional  twelve months,  and the former officer will have until March 1997 to
exercise all vested options, subject to the terms of the separation agreement.

In connection with the acquisition of EnaTec Software Systems,  Inc. (EnaTec) in
July 1995, the Company  assumed all  outstanding  options to purchase  shares of
EnaTec stock in exchange  for options to purchase  72,882  shares of  Wonderware
Corporation  common  stock.  Such  options  are outside of the 1989 Plan and are
incentive  stock  options  which vest 25 percent one year  following the date of
grant,  with the  remaining  vesting  occurring  ratably  over the  following 36
months.  Option  grant dates  range from  February  1992 to May 1995.  There are
currently no shares available under this plan for future option grants.

In connection  with the  acquisition  of certain assets of PTM in December 1995,
options to  purchase  45,349  shares of common  stock were  issued to six of the
former  shareholders of PTM at an exercise price of $3.00 per share. The options
vest  one  third on the date of grant  and one  third on each  anniversary  date
thereafter, contingent upon continued employment with the Company.

At December 31, 1996 and 1995, 2,803,368 and 3,229,442 shares, respectively,  of
the Company's common stock were reserved for future exercise of stock options.

For purposes of estimating the compensation  cost of the Company's option grants
in accordance with SFAS 123, the fair value of each option grant is estimated on
the  date of  grant  using  the  Black-Scholes  option-pricing  model  with  the
following assumptions used for grants in the years 1996 and 1995,  respectively:
expected volatility of 74.2 and

                                       34
<PAGE>

63.9 percent and risk-free  interest rates of 5.5 and 5.9 percent.  The expected
lives of the Company's option grants range from 4.5 to 5.0 years.

A summary of the status of the Company's fixed option plans as of December 31 is
presented below:

<TABLE>
<CAPTION>

                                           1996                          1995                   1994
                                 ----------------------------  ---------------------------- -------------
                                               Weighted Avg                  Weighted Avg
         Fixed Options              Shares    Exercise Price       Shares   Exercise Price      Shares

<S>                               <C>            <C>            <C>            <C>             <C>      
Outstanding, beginning of year     1,868,315     $ 14.27         1,756,777     $  5.45         1,729,350
Granted at fair market value       1,155,100     $ 14.55           573,803     $ 31.85           556,400
Granted at less than fair
  market value                        45,349     $  3.00           140,087     $ 22.69
Exercises                           (472,640)    $  1.89          (527,728)    $  3.01          (338,405)
Canceled                            (869,560)    $ 24.06           (74,624)    $ 20.24          (190,568)
                                 ============                  ============                 =============
Balance, end of year               1,726,564     $ 11.50         1,868,315     $ 14.27         1,756,777
                                 ============                  ============                 =============

Options exercisable at year-end      509,519                       724,996                       960,413
Weighted average fair value of
    options granted during year   $     6.36                    $    14.42
                                                                
</TABLE>

The following table summarizes information about fixed stock options outstanding
at December 31, 1996:
<TABLE>
<CAPTION>

                                   Options Outstanding                        Options Exercisable
                    --------------------------------------------------- ------------------------------
     Range of                        Weighted Avg
     Exercise          Number          Remaining        Weighted Avg       Number      Weighted Avg
      Prices         Outstanding   Contractual Life    Exercise Price    Exercisable  Exercise Price

<S>                 <C>                 <C>              <C>           <C>              <C>         
   $.01 - $3.99         347,394         5.3              $  0.94           302,534      $  0.69
  $4.00 - $9.74         130,505         8.8              $  7.80            32,026      $  5.55
  $9.75 - $10.24        405,900         9.7              $  9.75
 $10.25 - $17.12        517,065         8.4              $ 14.98           143,365      $ 13.82
 $17.13 - $37.75        325,700         9.1              $ 20.88            31,594      $ 23.33
                    ============                                       ============
                      1,726,564         8.2              $ 11.50           509,519      $  6.10
                    ============                                       ============
</TABLE>

Employee Stock Purchase Plan

In May 1993, the Company  adopted the Employee Stock Purchase Plan (the Purchase
Plan) covering an aggregate of 300,000 shares of common stock. The Purchase Plan
is intended to qualify as an employee  stock purchase plan within the meaning of
Section 423 of the Internal Revenue Code. Under the Purchase Plan, the Board may
authorize  participation by eligible employees,  including officers, in periodic
six-month offerings following the commencement of the Purchase Plan. The current
offering under the Purchase Plan commenced on August 16, 1996 and will terminate
on February 15, 1997. Employees are eligible to participate in the Purchase Plan
if they are employed by the Company or a subsidiary of the Company designated by
the  Board for at least 20 hours per week and are  customarily  employed  by the
Company or a subsidiary of the Company designated by the Board for at least five
months per calendar  year.  Participating  employees  may elect to have up to 15
percent of their  earnings  withheld  pursuant to the Purchase  Plan. The amount
withheld  is then used to purchase  shares of common  stock on  specified  dates
determined by the Board.  The price of common stock purchased under the Purchase
Plan is equal to 85 percent of the lower of the fair market  value of the common
stock at the commencement  date of each offering period or the relevant purchase
date.  Employees may end their  participation in the offering at any time during
the offering  period and  participation  ends  automatically  on  termination of
employment with the Company.

                                       35
<PAGE>

In the event of a merger, reorganization, consolidation or liquidation involving
the  Company,  the Board has  discretion  to provide that each right to purchase
common stock will be assumed or an equivalent right substituted by the successor
corporation,  or the Board may shorten the  offering  period and provide for all
sums collected by payroll deductions to be applied to purchase stock immediately
prior to such merger or other  transaction.  The Purchase Plan will terminate in
May 2003.  The Board has the authority to amend or terminate the Purchase  Plan,
provided,  however,  that no such action may  adversely  affect any  outstanding
rights to purchase common stock.

At December 31, 1996,  $670,949 had been  withheld  from  employee  earnings for
stock  purchases  under the Purchase  Plan. The Company issued 145,646 shares of
common stock in 1996 in  connection  with the  semi-annual  offerings  under the
Purchase Plan and raised net proceeds of approximately $1,581,377.

For purposes of estimating the compensation  cost of employees'  purchase rights
under the  Purchase  Plan in  accordance  with SFAS 123,  the fair  value of the
purchase  rights  has been  estimated  using the  Black-Scholes  model  with the
following assumptions used for 1996 and 1995, respectively:  expected volatility
of 74.2 and 63.9 percent;  weighted average risk-free  interest rates of 5.3 and
6.4 percent; and expected lives of six months. The  weighted-average  fair value
of  those  purchase  rights  granted  in 1996  and 1995  was  $5.28  and  $8.63,
respectively.

Share  Purchase  Rights Plan - In  February  1996,  the Company  adopted a Share
Purchase  Rights  Plan (the  Rights  Plan)  designed  to protect  the  Company's
stockholders  should  the  Company  become  the  target of  coercive  and unfair
takeover  tactics.  Upon  adoption of the Rights  Plan,  the Company  declared a
dividend  distribution  of preferred  stock  purchase  rights at the rate of one
right for each share of common stock  outstanding  on February 29, 1996. A right
entitles the holder,  upon  occurrence of certain  events,  to purchase  one-one
hundredth of a share of Series A Junior  Preferred  Stock at a purchase price of
$90, subject to adjustment.  The rights,  however,  will not become  exercisable
unless and until, among other things, any person or group acquires 15 percent or
more of the  outstanding  common  stock of the  Company  or any  person or group
announces  its intent to launch a tender  offer to acquire 15 percent or more of
the Company.  Upon the  occurrence of either of these events,  the rights (other
than those held by any  defined  acquirer)  will become  exercisable  for common
stock of the  Company  having a market  value of twice the  exercise  price of a
right.  Furthermore,  if the Company is  involved in a merger or other  business
combination or sale of a specified  percentage of assets or earnings power,  the
rights (other than those held by any defined  acquirer) may be used to purchase,
for the exercise  price,  that number of shares of the  acquirer's  common stock
having a market  value of twice the  exercise  price of a right.  The rights are
redeemable  under certain  circumstances at $.001 per right and, unless redeemed
earlier, expire on February 15, 2006.

6.    Export Revenue

Product sales to customers located in Europe were  $17,146,441,  $17,585,465 and
$10,595,917   during  the  years  ended  December  31,  1996,   1995  and  1994,
respectively.  Product  sales to  customers  in other  international  geographic
locations were  $9,825,839,  $5,981,805  and  $3,097,234  during the years ended
December  31,  1996,  1995 and 1994,  respectively.  The  Company  expects  that
international  sales will continue to represent a significant  percentage of its
total revenues.

                                       36
<PAGE>

7.    Transactions With Related Parties

Chief  Executive  Officer - The Company has entered into an  agreement  with its
President and Chief Executive  Officer,  who commenced  service as President and
Chief Operating Officer in July 1995. Under the terms of the agreement,  options
to purchase  200,000  shares of the  Company's  common stock under the 1989 Plan
were granted to the officer at an exercise price of $37.75,  the market price of
the common stock as of July 31, 1995. Such options originally vested at the rate
of 24  percent  one  year  from  the  date of  grant  and 2  percent  per  month
thereafter.  On August 31,  1996,  the terms of these  options were revised such
that the  exercise  price was reduced to $9.75 (the  market  price of the common
stock on August  30,  1996) and the  vesting  schedule  was  revised  so that 50
percent of the  options  vest two years from  August 31, 1996 and 25 percent per
year  thereafter.  In  addition,  the Company has  guaranteed  the officer  will
achieve a minimum gain of $1,250,000 (the  "guaranteed  amount")  related to the
options.  The guaranteed amount is reduced by the maximum total gain achieved by
vested options during the vesting period. At the end of the vesting period,  any
remaining guaranteed amount would be due and payable.

Also under the terms of the agreement,  the officer  received a $200,000 loan to
assist in the relocation of his primary residence to Orange County,  California.
In December  1995,  the loan was  forgiven and the officer  received  additional
funds to cover the effect of payroll taxes on the forgiveness. The total cost to
the Company of $400,139 was charged to compensation expense in 1995.

Severance Protection Agreements - In August 1996, the Compensation  Committee of
the Board of Directors authorized  severance protection  agreements covering all
officers  of the  Company.  Under the  agreement  covering  the Chief  Executive
Officer of the Company,  such officer will receive 2.5 times his annual  average
salary over the last three years in the event that he is either terminated other
than for cause,  or a change of control of the Company occurs and he decides not
to continue his employment with the Company.  The agreements  covering  officers
other than the Chief  Executive  Officer have  essentially the same terms as the
agreement with the Chief  Executive  Officer except that the payment will be one
times the officers'  average annual salary over the last three years.  Under all
of the severance agreements, in the event of a change of control of the Company,
all  unvested  stock  options held by the officers  shall  immediately  vest and
become exercisable.

Ownership Interest in Major Distributor - During 1996, the Company purchased the
remaining 85 percent  interest in  ICT-Wonderware  GmbH which it did not already
own  (see  Note  12).  ICT-Wonderware  GmbH  is  the  principal  distributor  of
Wonderware's products in Germany.  Revenues derived from ICT-Wonderware GmbH for
the years  ended  December  31,  1996 and 1995  amounted to 3.8 percent and 12.2
percent of net revenues, respectively.

Major Customer - During the year ended December 31, 1994,  revenues derived from
a distribution  customer who was also a stockholder amounted to 6 percent of net
revenues.

                                       37
<PAGE>

8.    Income Taxes

The provision (benefit) for income taxes consists of the following:
<TABLE>
<CAPTION>

                                  Year Ended December 31,
                ---------------------------------------------------------------
                        1996                 1995                 1994
                        ----                 ----                 ----
<S>                <C>                  <C>                  <C>    
Current:
    Federal        $    700,792         $  4,792,001         $  3,116,778
    State               485,343            1,562,194            1,121,665
    Foreign             352,979
                ---------------------------------------------------------------
                      1,539,114            6,354,195            4,238,443

Deferred:
    Federal          (2,027,579)          (8,500,845)            (299,262)
    State              (916,755)          (2,439,670)            (114,450)
                ---------------------------------------------------------------
                     (2,944,334)         (10,940,515)            (413,712)
                ---------------------------------------------------------------

                   $ (1,405,220)        $ (4,586,320)        $  3,824,731
                                              
                ===============================================================
</TABLE>

A reconciliation  of the statutory  federal tax rate to the Company's  effective
tax rate is as follows:

<TABLE>
<CAPTION>
                                                     Year Ended December 31,
                                                  -----------------------------
                                                     1996       1995       1994
                                                     ----       ----       ----

<S>                                                  <C>        <C>         <C>
Income tax (benefit) at statutory rate               -35%       -35%        35%
State tax (benefit) net of federal effect             -4%        -3%         6%
Increase in deferred tax valuation allowance          29%
Acquired in-process research and development costs               18%
Nontaxable interest income                           -10%        -4%        -5%
Research and development credit                       -3%        -1%        -1%
Other                                                  4%         1%        -1%
                                                  ------------------------------

                                                     -19%       -24%        34%
                                                  ==============================
</TABLE>

The Company  provides  deferred income taxes for temporary  differences  between
assets  and  liabilities  recognized  for  financial  reporting  and  income tax
purposes.  The  significant  portions of the Company's net deferred tax asset of
$5,920,983  and $4,107,401 at December 31, 1996 and 1995,  respectively,  are as
follows:


                                       38
<PAGE>

<TABLE>
<CAPTION>

                                                     December 31,
                                      ------------------------------------------
                                              1996                 1995
                                              ----                 ----

<S>                                      <C>                  <C>         
Allowance for doubtful accounts          $    477,628         $    391,362
Vacation accrual                              450,796              218,951
Restructuring reserve                         866,000
State income tax                             (561,526)            (215,178)
Severance accrual                             312,567              456,710
Other reserves and allowances                 365,357              636,088
NOL carryforwards                           3,431,422            1,548,449
Credit carryforwards                        2,714,755              729,867
Depreciation and amortization               1,010,618              322,262
Other                                         337,907              201,890
                                      ------------------------------------------
                                            9,405,524            4,290,401
Valuation allowance                        (3,484,541)            (183,000)
                                      ------------------------------------------
                                         $  5,920,983         $  4,107,401
                                      ==========================================
</TABLE>

Based on the Company's  assessment of future  realizability  of certain deferred
tax assets,  a  valuation  allowance  has been  provided,  primarily  related to
acquired net operating loss  carryforwards  and credit  carryforwards,  as it is
more likely than not that  sufficient  taxable  income will not be  generated to
realize  these  temporary  differences.  Additionally,  at  December  31,  1996,
approximately  $1,131,000 of the valuation  allowance  was  attributable  to the
potential  tax  benefit of stock  option  transactions,  which will be  credited
directly to stockholders' equity if realized.

At December 31, 1996, the Company had federal net operating  loss  carryforwards
of  approximately  $8,503,000  and  federal  research  credit  carryforwards  of
approximately  $561,000,  both of which are subject to various  limitations  and
expire at various  dates  through  2011.  The  Company  also has an  alternative
minimum tax  carryforward of  approximately  $1,474,000  which has no expiration
date.

As of December 31, 1996 and 1995, the Company believes that its net deferred tax
assets will be recoverable out of future taxable income.

9.    Commitments and Contingencies

Lease   Commitments   -  The  Company   leases  its  office   facilities   under
non-cancelable  operating  leases that  expire at various  dates  through  2002.
Future  minimum  rental  payments under  non-cancelable  operating  leases as of
December 31, 1996 are summarized as follows:

Year Ended December 31,
---------------------------------------------------------

1997                                      $    2,150,635
1998                                           1,696,602
1999                                           1,253,490
2000                                           1,045,326
2001                                             832,457
Thereafter                                       150,864
                                        -----------------

                                          $    7,129,374
                                        =================

Rent expense for all operating leases totaled $2,049,571,  $997,434 and $687,203
for the years ended December 31, 1996, 1995 and 1994, respectively.

                                       39
<PAGE>

Employment  Agreements - The Company has  executed  employment  agreements  with
certain former shareholders of PTM. The aggregate potential  termination expense
under these agreements was $1.1 million at December 31, 1996.

Legal  Proceedings  -  In  1995,  The  Foxboro  Company  ("Foxboro")   initiated
litigation  against  SSE to delay  the  acquisition  of SSE by the  Company  and
subsequently  amended its complaint to assert  additional claims with respect to
Foxboro's  ownership  interest  in  certain  software  developed  by SSE,  which
interest  is  subject  to a  repurchase  right in favor  of SSE.  Following  the
completion  of the  acquisition  of SSE by the  Company,  Foxboro  withdrew  its
initial claims related directly to the acquisition.  SSE has tendered payment to
Foxboro for the  repurchase  of  Foxboro's  asserted  ownership  interest in the
subject software,  which Foxboro has rejected. In 1996, SSE filed its answer and
counterclaim to Foxboro's  amended  complaint,  seeking damages based upon SSE's
allegation that Foxboro breached its contractual obligation to sell its interest
in the subject  software.  In January 1997, the parties  negotiated an agreement
for the mutual  dismissal,  without  prejudice,  of the claims  asserted  in the
litigation.  Further  proceedings  in the  litigation  have been stayed  pending
execution of the written agreement of dismissal.

In December  1995,  RWT  Corporation  (RWT) filed an action  against the Company
alleging  that the Company's use of the term  "INTRACK"  violated  RWT's alleged
federal  trademark and related rights to the term "ONTRACK." In its answer,  the
Company denied RWT's  allegations  and asserted a counterclaim  seeking that the
"ONTRACK"  trademark be declared  invalid.  In October 1996, the parties entered
into a  settlement  of these  proceedings,  the  specific  terms  of  which  are
confidential, and the action was dismissed with prejudice.

In July 1996,  the Company filed a complaint in the Superior Court of California
for the County of Orange against  Constantin S. Delivanis and Vladimir Preysman,
formerly the Vice President and Vice President-Engineering, respectively, of the
Company's Cupertino Development Center. This complaint alleges fraud,  negligent
misrepresentation,  duress,  securities fraud, breach of the implied covenant of
good  faith and fair  dealing,  and breach of  fiduciary  duty  against  Messrs.
Delivanis and Preysman. The Cupertino Development Center was established in 1995
upon the  Company's  acquisition  of EnaTec  Software  Systems,  Inc.,  in which
Messrs.  Delivanis and Preysman owned a substantial  majority of the stock.  The
Company is seeking compensatory and punitive damages with respect to its claims,
as well as the costs  incurred in pursuing these claims.  Mr.  Delivanis and Mr.
Preysman's  employment with the Company was terminated.  Both Mr.  Delivanis and
Mr.  Preysman  answered  the  complaint  and asserted  cross-claims  against the
Company, alleging breach of contract, termination in violation of public policy,
defamation  (slander per se),  intentional  infliction  of  emotional  distress,
negligent  infliction of emotional  distress,  negligence,  common law fraud and
deceit, and civil conspiracy.  Both requested relief in the form of compensatory
and  punitive   damages  as  well  as  the  costs  incurred  in  pursuing  their
cross-claims.  In addition, in September 1996, Mr. Delivanis,  Mr. Preysman, and
the  Delivanis  Family  Trust filed a complaint  for  declaratory  judgment  and
specific  performance,  seeking registration of certain Wonderware common stock.
The Company intends to file an answer and cross-complaint in response.  Further,
in December 1996, Mr. Delivanis,  Mr. Preysman and the Delivanis-Kibrick  Family
Trust filed a complaint in the United States District Court,  Northern  District
of  California.  This  complaint was served on the Company in late January 1997,
and  alleges  securities  law  violations,   fraud  and  deceit,  and  negligent
misrepresentation.   The   Company   also   intends   to  file  an  answer   and
cross-complaint  in this action.  The Company  intends to vigorously  defend the
allegations  made against it; however,  it is too early to determine the impact,
if any, of these  proceedings  on the Company,  its  financial  condition or the
results of the Company's operations.

In October 1996,  the Company filed a complaint in the U.S.  District  Court for
the  Central  District  of  California  against  Cyberlogic  Technologies,  Inc.
(Cyberlogic) and Intellution,  Inc.  (Intellution).  The complaint  alleges that
Cyberlogic and Intellution have infringed the copyright in a particular software
program which  Cyberlogic  originally  developed under contract for the Company,
and seeks  preliminary  and  permanent  injunctive  relief as well as actual and
punitive  damages  and  attorneys  fees.  In October  1996,  the Court  issued a
temporary restraining order against Cyberlogic and Intellution,  and pursuant to
the Court's order,  U.S.  Marshals  seized and copied  certain  materials at the
offices of Cyberlogic  and  Intellution.  In January 1997, the Court entered its
preliminary  injunction  which generally bars  Cyberlogic and  Intellution  from
marketing  or  otherwise  distributing  any  infringing  copies of the  computer
software at issue in the  proceeding.  In February 1997,  Intellution  filed its
appeal of the preliminary  injunction to the U.S. Court of Appeals for the Ninth
Circuit,  and the Court denied the  defendants'  requests to stay

                                       40
<PAGE>

the injunction pending appeal.  Although Intellution has filed its answer to the
Company's complaint in this proceeding, Cyberlogic has yet to file an answer. It
is too early to determine the impact, if any, of this proceeding on the Company,
its financial condition or the results of the Company's operations.

In  December  1996,  Cyberlogic  submitted  a  demand  for  arbitration  of  the
underlying  contractual  issues  involved  in  these  proceedings.  Cyberlogic's
arbitration  demand  purports to seek damages and attorneys' fees in unspecified
amounts and injunctive  relief.  The Company has generally  agreed to proceed to
arbitration  based  upon the  current  status  of these  proceedings.  Dates for
hearing the  arbitration  and other  related  events have not yet been set.  The
Company  believes  the  allegations  in  Cyberlogic's  arbitration  demand to be
without merit and intend to vigorously defend itself against these claims. It is
too early to determine  the impact,  if any, of this  proceeding on the Company,
its financial condition or the results of the Company's operations.

In January 1997,  the Company  received a copy of a complaint  which  Cyberlogic
filed in the U.S.  District  Court for the Eastern  District of Michigan.  Among
other claims,  this complaint purports to claim damages in excess of $40 million
and injunctive relief for the Company's alleged infringement of certain software
programs  which  Cyberlogic  contends it owns. The Company has not yet filed its
formal  response to this  complaint.  The Company  believes the  allegations  in
Cyberlogic's  complaint  to be without  merit and intends to  vigorously  defend
itself  against these claims.  Further,  the Company  believes that these claims
arise out of or relate to the proceeding  pending in the U.S.  District Court of
the Central District of California and the anticipated  arbitration  proceeding,
where they should be  adjudicated.  It is too early to determine the impact,  if
any, of this proceeding on the Company,  its financial  condition or the results
of the Company's operations.

In December  1996,  the Company was notified  that a complaint had been filed in
the U.S.  District  Court for the Eastern  District of  Pennsylvania  by Otto M.
Voit,  III. In the  complaint,  Mr. Voit  purports to be acting on behalf of all
former  holders of common stock,  or options to acquire  common  stock,  of SSE,
which was  acquired by the Company in a  stock-for-stock  merger in August 1995.
Mr. Voit alleges in the  complaint  that the Company and certain of its officers
who have also been named as  defendants  in the action made or caused to be made
materially false and misleading statements and concealed material information in
connection  with the  acquisition of SSE by the Company.  In the complaint,  Mr.
Voit claims  that these  alleged  misrepresentations  and  omissions  constitute
violations  of the  Securities  Exchange  Act of 1934,  as  amended,  Rule 10b-5
thereunder  and  various  state  securities  laws,  common law fraud,  negligent
misrepresentation, fraudulent inducement to enter into a contract and inducement
to enter into a contract by material misrepresentation and request relief in the
form of  compensatory  and  punitive  damages as well as the costs  incurred  in
pursuing his claims.  In January 1997, the Company filed a motion to dismiss the
complaint on several  grounds.  No hearing date has been set on the motion.  The
case is in a preliminary  stage and no discovery has been conducted to date. The
Company  believes  the  allegations  in the  complaint  to be without  merit and
intends to vigorously defend itself and the other  defendants,  each of whom has
been previously  indemnified by the Company in connection with his employment as
an officer of the Company, against the claims stated in the complaint. It is too
early to determine the impact,  if any, of this  proceeding on the Company,  its
financial condition or the results of the Company's operations.

10. Lines of Credit

The Company has an unsecured  line of credit  arrangement  with a domestic  bank
that  provides  for  borrowings  of up to  $5  million  expiring  in  May  1997.
Outstanding  loans  under the line of credit bear  interest at the bank's  prime
rate.  As of December 31, 1996 and 1995, no amounts were  outstanding  under the
line of credit.

The  line  of  credit  agreement  contains  restrictive   covenants,   the  most
significant of which relate to  profitability,  minimum tangible net worth, debt
to tangible net worth, and current asset to current liability  requirements.  At
December 31, 1996 and 1995, the Company was in compliance  with such  covenants.
The line of credit  agreement  also  prohibits  the  Company  from  paying  cash
dividends without the bank's prior approval.

The Company's German  subsidiary has a secured,  revolving line of credit with a
German bank that provides for borrowings of up to DM900,000 expiring in October,
1997.  Outstanding  loans under this line of credit bear  interest 

                                       41
<PAGE>

at the bank's  prime rate.  As of December 31,  1996,  $289,446 was  outstanding
under this line of credit.  The Company has  provided a guarantee  of payment to
the bank in the event of default by the subsidiary.

11.  Employee Benefit Plans

Incentive  Compensation  Program  -  Beginning  in  January  1996,  the  Company
instituted a discretionary,  performance-based  incentive  compensation  program
that provides additional compensation in the form of an annual bonus for certain
eligible employees.  Bonus payments are based, in part, on the overall financial
performance  of the Company and individual  performance  of the employee.  Total
incentive  compensation  expense  recognized  during 1996 under this program was
$783,985.

Prior to 1996, the Company had a discretionary  incentive  compensation  program
that  provided  additional  compensation  in the form of a  quarterly  bonus for
certain eligible  employees and a semi-annual  profit bonus for all employees as
determined  by formulas in the program.  Total  incentive  compensation  expense
recognized  under this program  amounted to $1,618,118  and  $1,322,149  for the
years ended December 31, 1995 and 1994.

Employee  Savings  Plan - The  Company  has a  defined  contribution  retirement
savings plan (the 401(k) plan) covering  substantially all full-time  employees.
Annually,  the Company may make a discretionary  contribution to the 401(k) plan
as determined by the Board of Directors. No such discretionary  contribution was
made for the years ended December 31, 1996, 1995 or 1994.

12. Acquisitions

On December 12, 1996, a wholly owned  subsidiary  of the Company  purchased  all
outstanding  shares of  ICT-Wonderware  GmbH not already  owned by the  Company.
ICT-Wonderware  GmbH is the  distributor  of the Company's  products in Germany.
Under the terms of the acquisition agreement,  the Company paid $4.85 million in
cash for all of the outstanding  voting stock of ICT-Wonderware  GmbH other than
shares  held by the  Company.  The  total  value of the  transaction  was  $5.87
million,  which includes the Company's 1994 investment in ICT-Wonderware GmbH of
$800,000,  and was  accounted  for under  the  purchase  method  of  accounting.
Accordingly, the Company's total investment in ICT-Wonderware GmbH was allocated
to the assets  acquired,  including  in-process  research and  development,  and
liabilities  assumed  based  on the  estimated  fair  value of such  assets  and
liabilities. The purchase price allocated to in-process research and development
was charged to the Company's operations,  resulting in a non-recurring charge of
$1.3 million.  Approximately  $4.85 million of the total purchase price has been
allocated to goodwill and is being  amortized over 10 years from the acquisition
date on a straightline basis.

On July 28, 1995,  the Company  merged with EnaTec by issuing  398,570 shares of
its common stock in exchange for all of the  outstanding  voting stock of EnaTec
other than shares held by the  Company.  In  addition,  the Company  assumed all
outstanding  options to purchase  EnaTec  common  stock,  which  resulted in the
reservation  of 72,882  shares of common stock for issuance upon exercise of the
assumed options.  The transaction was valued at approximately  $16.9 million and
was accounted for as a purchase.  The purchase price was allocated to the assets
acquired, including in-process research and development, and liabilities assumed
based on the estimated fair value.  The purchase  price  allocated to in-process
research and development was charged to the Company's operations, resulting in a
non-recurring charge of $16.9 million (net of a $7.0 million tax benefit).

On August 31, 1995, the Company merged with SSE by issuing 172,598 shares of its
common  stock in exchange  for all of the  outstanding  common stock of SSE. The
transaction was valued at approximately  $7.1 million and was accounted for as a
purchase.   The  purchase  price  was  allocated  to  the  assets  acquired  and
liabilities  assumed  based on the  estimated  fair value.  The  purchase  price
allocation  included  a  $572,000  allocation  to  developed  technology  and an
allocation  to  in-process  research  and  development  that was  charged to the
Company's  operations,  resulting in a non-recurring charge of $6.5 million (net
of a $2.7 million tax benefit).

                                       42
<PAGE>

The accompanying  consolidated  statements of operations  include the results of
operations  of  ICT-Wonderware  GmbH,  EnaTec  and  SSE  from  their  respective
acquisition  dates.  The  following  unaudited  pro forma  information  presents
results of operations  of the Company for the years ended  December 31, 1996 and
1995 as if the  ICT-Wonderware  GmbH  acquisition had been consummated as of the
beginning of 1995 and as if the EnaTec and SSE acquisitions had been consummated
as of the  beginning  of  1994.  The pro  forma  information  is  presented  for
information  purposes only. It is based on historical  information  and does not
necessarily  reflect  the actual  results  that would  have  occurred  nor is it
necessarily   indicative  of  future  results  of  operations  of  the  combined
enterprise.
                                                    Year Ended December 31,
                                             -----------------------------------
                                                     1996             1995
                                                     ----             ----

Total revenues                                 $  72,601,818     $   57,902,090

Net income  (loss)                             $  (3,433,769)    $    4,734,112

Earnings (loss) per common and common 
equivalent share                               $       (0.25)    $         0.35
                                                                            

On December 1, 1995, the Company acquired certain assets of PTM for $500,000. In
addition,  the Company hired six of the former  shareholders  of PTM,  executing
employment and non-competition agreements with each. Pursuant to such employment
agreements,  the former PTM  shareholders  received  options to purchase  45,349
shares of common stock at an exercise price of $3.00 per share. The options vest
over a period  of three  years,  contingent  on  continued  employment  with the
Company,  and resulted in compensation  expense equal to the difference  between
the option exercise price and the market price of the Company's  common stock on
the date of grant.  Non-competition payments in the aggregate amount of $330,000
were paid to the former PTM shareholders on February 29, 1996.

13. Restructuring and Severance Costs

During the fourth quarter of 1996, the Company recorded a charge of $2.4 million
for   restructuring   costs  associated  with  the  closure  of  its  Cupertino,
California,  development  center  and  the  consolidation  of its  Manufacturing
Business  Systems  group  into the  Company's  York,  Pennsylvania,  development
center.  The  charge  includes  accruals  for  severance,  real  property  lease
termination,  retention bonuses and the costs of transferring development of the
Wonderware InTrack product line from Cupertino to York. As of December 31, 1996,
approximately  $2.0  million  of  the  accrual  has  not  been  utilized.  It is
anticipated that the remaining  balance will be expended by the end of the first
quarter of 1997.

During  the  fourth  quarter  of 1995,  the  Company  accrued  severance  costs,
including  compensation and benefits  expense,  incurred in conjunction with the
resignation of seven former executives of the Company.

                                       43
<PAGE>





Item 9.  Changes in and Disagreements with Accountants on Accounting and 
Financial Disclosures

         Not applicable


                                    PART III

Item 10.  Directors and Executive Officers of the Registrant

         The  information  required by this item with  respect to  directors  is
contained  in  the  Proxy   Statement  for  the  Company's   annual  meeting  of
stockholders  to be held  May 12,  1997  and,  except  as  modified  herein,  is
incorporated herein by reference. Information required with respect to executive
officers is contained in Part I, Item 1 of this Annual Report.

         Section 16(a) of the Exchange Act requires the Company's  directors and
executive  officers,  and persons who own more than ten percent of a  registered
class of the Company's equity  securities,  to file with the SEC initial reports
of  ownership  and  reports of changes in  ownership  of Common  Stock and other
equity  securities  of the  Company.  Officers,  directors  and greater than ten
percent  stockholders are required by SEC regulation to furnish the Company with
copies of all Section 16(a) forms they file.

         To the Company's  knowledge,  based solely on a review of the copies of
such reports furnished to the Company and written  representations that no other
reports were  required,  during the fiscal year ended  December  31,  1996,  all
Section 16(a) filing  requirements  applicable  to its  officers,  directors and
greater than ten percent  beneficial  owners were complied with, except that Ron
C. Mehaffey,  a former executive officer of the Company,  filed a late Form 4 to
report his  acquisition of shares through the Company's  Employee Stock Purchase
Program.


Item 11.  Executive Compensation

         Information  with  respect  to this  item  is  contained  in the  Proxy
Statement for the Company's  annual meeting of  stockholders  to be held May 12,
1997 and is incorporated herein by reference.


Item 12.  Security Ownership of Certain Beneficial Owners and Management

         Information  with  respect  to this  item  is  contained  in the  Proxy
Statement for the Company's  annual meeting of  stockholders  to be held May 12,
1997 and is incorporated herein by reference.


Item 13.  Certain Relationships and Related Transactions

         Information  with  respect  to this  item  is  contained  in the  Proxy
Statement for the Company's  annual meeting of  stockholders  to be held May 12,
1997 and is incorporated herein by reference.


                                       44
<PAGE>



                                     PART IV

Item 14.  Exhibits, Financial Statement Schedules and Reports on Form 8-K

(a) The following documents are filed as part of this Annual Report.

1. Financial Statements

The financial  statements listed in Part II, Item 8 on page 25 are filed as part
of this Annual Report.

2. Financial Statement Schedules
                                                                           Page
Independent Auditors' Report                                                26
Schedule II - Valuation and Qualifying Accounts                             48

Schedules not listed above have been omitted because the required information is
not present or is not present in amounts sufficient to require submission of the
schedule,  or because  information  required  is  included  in the  consolidated
financial statements or the notes thereto.

3. Exhibits

See Exhibit Index on page 49.

The following management  compensatory plans and arrangements are required to be
filed as exhibits to this Annual Report pursuant to Item 14(c):

Exhibit
Number                                 Description

 10.2     Registrant's 1989 Stock Option Plan, as amended (the "Stock Option 
          Plan")(1)

 10.3     Form of Incentive Stock Option grant under the Stock Option Plan(2)

 10.4     Form of Supplemental Stock Option grant under the Stock Option Plan(2)

 10.5     Registrant's Employee Stock Purchase Plan, as amended(3)

 10.12    Registrant's 1994 Non-Employee Directors' Stock Option Plan, as 
          amended (4)

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

 (1)      Filed as an  exhibit to the  Registrant's  Registration  Statement  on
          Form S-8 (No. 33-94030) and incorporated herein by reference.

 (2)      Filed as an exhibit to the  Registrant's  Registration  Statement  on
          Form S-1 (No. 33-72380) or amendments thereto and incorporated herein
          by reference.

 (3)      Filed  as an  exhibit  to  the  Registrant's Annual  Report  on Form 
          10-K  for the  year ended  December  31,  1993 and  incorporated
          herein by reference.

 (4)      Filed  as an  exhibit  to  the  Registrant's Annual  Report  on Form 
          10-K  for the  year ended  December  31,  1995 and  incorporated
          herein by reference.

                                       45
<PAGE>

(b) Reports on Form 8-K

In a report  filed on Form 8-K on December 2, 1996,  the  Company  reported  the
filing of a complaint  against the Company by Otto M. Voit,  III.  See Note 9 of
Notes to Consolidated Financial Statements included in Part II, Item 8 herein.




                                       46
<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,  on the 27th day of
March, 1997.

                                       WONDERWARE CORPORATION

                                       By:     /s/  ROY H. SLAVIN
                                           ------------------------------
                                               Roy H. Slavin
                                               Chairman of the Board, President
                                               and Chief Executive Officer

                                POWER OF ATTORNEY

         KNOW  ALL MEN BY THESE  PRESENTS,  that  each  person  whose  signature
appears below  constitutes  and appoints Roy H. Slavin and Sam M.  Auriemma,  or
either of them, his attorney-in-fact,  each with the power of substitution,  for
him in any and all  capacities,  to sign any  amendments to this Report,  and to
file  the  same,  with  exhibits  thereto  and  other  documents  in  connection
therewith,  with the Securities and Exchange  Commission,  hereby  ratifying and
confirming  all  that  each  of said  attorneys-in-fact,  or his  substitute  or
substitutes, may do or cause to be done by virtue hereof.

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

   Signature                        Title                           Date


/s/ Roy H. Slavin                                               March 27, 1997
------------------------
    Roy H. Slavin           Chairman of the Board, 
                      President and Chief Executive Officer
                          (Principal executive officer)

/s/ Sam M. Auriemma                                             March 27, 1997
------------------------
    Sam M. Auriemma       Vice President, Finance and  
                           Chief Financial Officer
                           (Principal financial and
                              accounting officer)

/s/ F. Rigdon Currie               Director                     March 27, 1997
------------------------
    F. Rigdon Currie

/s/ Harvard H. Hill, Jr.           Director                     March 27, 1997
------------------------ 
    Harvard H. Hill, Jr.

/s/ Jay L. Kear                    Director                     March 27, 1997
------------------------
    Jay L. Kear

/s/ John E. Rehfeld                Director                     March 27, 1997
------------------------    
    John E. Rehfeld

   


                                       47
<PAGE>


<TABLE>
<CAPTION>

                      WONDERWARE CORPORATION AND SUBSIDIARY

                 Schedule II--Valuation and Qualifying Accounts

                                                      Additions
                                       Balance,      Charged to       Additions                       Balance,
                                       Beginning      Costs and      Charged to                        End of
            Description                of Period      Expenses        Revenues       Deductions        Period
------------------------------------------------------------------------------------------------------------------
<S>                                   <C>             <C>            <C>            <C>              <C>
Year ended December 31, 1996:
    Allowance for doubtful accounts   $   903,839     $   241,302                   $   (13,131)     $ 1,132,010  
    Sales returns allowance               190,000                    $ 1,030,377     (1,030,377)         190,000
                                                                        
Year ended December 31, 1995:
    Allowance for doubtful accounts       402,426         558,290                       (56,877)         903,839
    Sales returns allowance               455,000                        334,043       (599,043)         190,000
Year ended December 31, 1994:
    Allowance for doubtful accounts       212,190         224,539                       (34,303)         402,426
    Sales returns allowance                50,000                        907,814       (502,814)         455,000


</TABLE>


                                       48
<PAGE>



                                  EXHIBIT INDEX

Exhibit
                               Number Description

 3.1     Registrant's Amended and Restated Certificate of Incorporation(1)

 3.2     Registrant's Amended Bylaws(1)

 4.1     Reference is made to Exhibits 3.1 and 3.2

 4.2     Specimen stock certificate(2)

 4.3     Specimen Right Certificate (3)

 4.4     Rights Agreement, dated February 15, 1996, between the Registrant and
         the First National Bank of Boston, as Rights Agent (3)

10.1     Form of Indemnity Agreement entered into between the Registrant and its
         directors and officers(2)

10.2     Registrant's 1989 Stock Option Plan, as amended (the "Stock Option 
         Plan")(4)

10.3     Form of Incentive Stock Option grant under the Stock Option Plan(1)

10.4     Form of Supplemental Stock Option grant under the Stock Option Plan(1)

10.5     Registrant's Employee Stock Purchase Plan(5)

10.6     Form of Registrant's Proprietary Information and Inventions 
         Agreement(2)

10.7     Series B  Preferred  Stock  Purchase  Agreement  among the Registrant
         and the other parties named therein, dated as of February 28, 1991, as
         amended(2)

10.8     Industrial Lease Agreement between the Registrant and The Irvine 
         Company, dated April 23, 1993(2)

10.9     Loan and Security Agreement between the  Registrant and Silicon Valley
         Bank, dated May 29, 1992, as amended(1)

10.10    License and  Consulting Agreement between the Registrant and Microsoft
         Corporation,  dated  October 3,  1991, as amended (6)

10.11    Development and License Agreement between the Registrant and Microsoft
         Corporation,  dated  December 3,  1992 (6)

10.12    Registrant's 1994 Non-Employee Directors Stock Option Plan, as 
         amended (7)

10.13    Lease Agreement between the Registrant and Aetna Life Insurance 
         Company, dated July 24, 1996

10.14    Employment Agreement between the Registrant and Roy H. Slavin, dated 
         November 28, 1995  

10.15    Separation Agreement between the Registrant and Gary J. Wilson, dated
         September 9, 1996

21.1     Subsidiaries of the Registrant

23.1     Independent Auditors' Consent

24.1     Power of Attorney.  See page 47

                                       49
<PAGE>
----------------

(1)   Filed as an exhibit to the  Registrant's  Registration  Statement on Form 
      S-1  (No.  33-72380) or  amendments thereto and incorporated herein by
      reference.

(2)   Filed as an exhibit to the  Registrant's  Registration  Statement on Form 
      S-1  (No.  33-63906) or  amendments thereto and incorporated herein by 
      reference.

(3)   Filed as an exhibit to the Registrant's Current Report on Form 8-K dated
      February 15, 1996 and incorporated herein by reference.

(4)   Filed as an exhibit to the Registrant's  Registration  Statement on Form
      S-8 (No.  33-94030) and incorporated herein by reference.

(5)   Filed as an exhibit to the Registrant's  Annual Report on Form 10-K for 
      the year ended December 31,  1993 and incorporated herein by reference.

(6)  This  exhibit  was  originally  filed  as an  exhibit  to the  Registrant's
     Registration Statement on Form S-1 (No. 33-63906) with certain confidential
     portions  redacted.  It is filed as an exhibit to this  Report to  disclose
     those portions for which confidential treatment was previously granted.

(7)   Filed as an exhibit to the  Registrant's  Annual Report on Form 10-K for 
      the year ended December 31, 1995 and incorporated herein by reference.



                                       50