<PAGE>
================================================================================

                       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 SEPTEMBER 30, 1996

 OR
_____  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES ACT 
                            OF 1934 (NO FEE REQUIRED)
             For the transition period from ________ to _________ .
                          Commission File Number 23742

                     WANDEL & GOLTERMANN TECHNOLOGIES, INC.
             (Exact name of registrant as specified in its charter)

NORTH CAROLINA                                          22-1867386
(State or other jurisdiction of                       (I.R.S. Employer
incorporation or organization)                     Identification Number)

      1030 SWABIA COURT, RESEARCH TRIANGLE PARK, NORTH CAROLINA 27709-3585
              (Address of principal executive offices and zip code)

                                 (919) 941-5730
              (Registrant's telephone number, including area code)

        Securities registered pursuant to Section 12(b) of the Act: None

          Securities registered pursuant to Section 12(g) of the Act:
                         Common Stock, $0.01 par value

         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 computed using the closing price on the Nasdaq Stock Market
for the registrant's common stock as of December 2, 1996 was $115,320,682.

         As of December 2, 1996, 5,182,952 shares of common stock were
outstanding.

         The Registrant's definitive Proxy Statement for the Annual Meeting of
Shareholders to be held February 5, 1997 is incorporated by reference in Part
III of this Form 10-K to the extent stated herein.
================================================================================

<PAGE>


<PAGE>


                     WANDEL & GOLTERMANN TECHNOLOGIES, INC.
                                    FORM 10-K
                  FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 1996
                                TABLE OF CONTENTS

<TABLE>
<CAPTION>

                                                                                                      Page
PART I
<S>               <C>                                                                                 <C>
     Item 1       Business.........................................................................      3
     Item 2       Properties.......................................................................      8
     Item 3       Legal Proceedings................................................................      8
     Item 4       Submission of Matters to a Vote of Security Holders..............................      8

PART II
     Item 5       Market for Registrant's Common Equity and Related Stockholder
                     Matters.......................................................................      8
     Item 6       Selected Financial Data..........................................................      9
     Item 7       Management's Discussion and Analysis of Financial Condition and
                     Results of Operations.........................................................     10
     Item 8       Financial Statements and Supplementary Data......................................     17
     Item 9       Changes in and Disagreements with Accountants on Accounting
                     and Financial Disclosure......................................................     29

PART III
     Item 10      Directors and Executive Officers of the Registrant...............................     29
     Item 11      Executive Compensation...........................................................     29
     Item 12      Security Ownership of Certain Beneficial Owners and Management...................     29
     Item 13      Certain Relationships and Related Transactions...................................     29

PART IV           Exhibits, Financial Statement Schedules and Reports
                     on Form 8-K...................................................................     30

SIGNATURES        .................................................................................     32
</TABLE>


                                       2


<PAGE>



                                     PART I

ITEM 1.  BUSINESS

         The Company develops, manufactures, markets and supports test,
measurement, diagnostic and monitoring products (collectively, "internetwork
analysis products") for local and wide area data and telecommunication networks.
The Company's internetwork analysis products, which primarily consist of the
DA-3x and Domino(1) families, enable customers to analyze and solve
interoperability and performance problems across all the principal
configurations of network topologies and communication protocols. The Company
introduced its first DA-3x product in the fall of 1990. As new and more advanced
networks and communication methods have been developed, the Company has expanded
its DA-3x family through releases of new or enhanced hardware and software
modules.

         In fiscal 1994, the Company began manufacturing and distributing its
Domino product family, a new generation of analyzers designed specifically for
use by field technicians who install and maintain large multi-site LANs and
WANs. DominoLAN(TM) and DominoWAN(TM) were both released for shipment to end
customers during the first quarter of fiscal 1995 followed by DominoFDDI(TM) in
the fourth quarter of fiscal 1995. In fiscal 1996, the Company continued to
develop and introduce additional products in the Domino family in fiscal 1996
including DominoWIZARD(TM), DominoREMOTE, and SNA Session Generator.

         The Company also markets specialized test, measurement and monitoring
instruments primarily for use by operators of telecommunication and data
transmission systems.

         The Company's major customers include Alcatel, AT&T, Cisco Systems,
Deutsche Telekom, GTE, MCI, Motorola, Sprint, U. S. government agencies and U.S.
West.

MARKET SEGMENTS

         The Company classifies the market for network analysis products in
three principal segments as follows:

         DEVELOPERS AND LABS. Developers of network systems consist primarily of
large companies that develop, manufacture and market data and telecommunication
networks and network interconnection products, such as routers, servers, hubs
and gateways. Users of the Company's products among these customers have
generally been highly sophisticated engineers who have an in-depth understanding
of LAN and WAN technologies.

         SERVICE PROVIDERS. Service Providers generally consist of large
companies that provide installation and maintenance services for networks
supplied by them or provided by others, as well as companies that provide
installation and maintenance services for their particular network hardware or
software products. Users of the Company's products among these customers have
generally been technicians servicing networks in the field.

         NETWORK OPERATORS. Network operators consist of users of large
multi-site LANs and WANs, such as telecommunications companies, major industrial
corporations, retail store chains, universities, insurance companies, large
financial institutions, U.S. government agencies and large government
contractors. Users of the Company's products among these customers have
typically been personnel responsible for managing local and wide area networks
to ensure the continuous flow and sharing of data and telecommunications among
the computing resources on mission critical networks.

NETWORK ANALYSIS PRODUCTS

         DA-3X PRODUCT FAMILY

         EXPANDABLE ARCHITECTURE. The Company's DA-3x product family, consisting
of the DA-30C and related interface modules, provides customers with the
analysis tools, in one instrument, to identify, analyze and resolve

(1) "Domino" is a trademark of Wandel & Goltermann Technologies, Inc. and is the
subject of an application for registration with the U.S. Patent and Trademark
Office.

                                       3

<PAGE>


interoperability and performance problems across all the principal
configurations of local and wide area network topologies and protocols. This is
achieved through a modular hardware and software platform that accommodates up
to two analyzer modules and multiple network interface modules. The Company
currently offers customers a choice of more than 20 network interface modules.
The DA-30C can accommodate up to four of these interface modules. The Company's
network interface modules permit customers to generate and capture traffic on
all the principal local and wide area network topologies, including Ethernet,
Token Ring, FDDI, 100Base-T, 100VGAnyLAN, T1, E1, ISDN, HSSI, V and X series
WAN, and ATM interfaces for DS3, E3, OC-3/STM-1 and E1.

         The DA-3x product family is expandable to accommodate new interface
modules as LAN and WAN technologies and applications change and evolve. As new
network technologies have been developed, the Company has developed new
interface modules and software applications that permit customers to analyze and
solve interoperability and performance problems associated with these new
technologies. Since the introduction of the DA-3x product family in fiscal 1990,
the Company has released new hardware and software products one to two times per
year. For example, in fiscal 1995, the Company introduced DS-3, HSSI, 100 Base-T
and OC-3/STM-1 interface modules. In fiscal 1996, the Company introduced 100
VG-AnyLAN and a new LAN module combining Ethernet and Token Ring.

         PROTOCOL INTERPRETER SUITES AND SOFTWARE APPLICATIONS. The Company
provides protocol interpreter suites in the hardware and software platform that
decode network protocols, including the most widely used protocols in local and
wide area networks at all seven layers of the OSI Model. The protocol
interpreter suites support automatic and in-depth interpretation of over 80
protocols. In addition to standard protocol interpreter suites, the Company
offers additional suites to enable users to customize DA-3x products for their
particular protocol interpretation needs.

         The DA-3x product family includes a series of the Company's proprietary
software applications for use with each of its network interface modules. These
applications enable users to perform a wide variety of network test, measurement
and diagnostic tasks, such as counting errors, filtering frames, generating
traffic and triggering alarms. They also permit network statistical data to be
displayed graphically on the DA-3x monitor or exported to personal computers for
use with popular spreadsheet programs. For highly advanced analysis of certain
network interconnection devices, the Company provides customers with a
programming language that permits them to develop DA-3x software applications
that address their specific analysis requirements.

         DUAL SIMULTANEOUS ANALYSIS. The DA-3x uses two analyzer modules that
independently communicate with any two of the four network interface modules
installed in the platform. Through the multiple processor architecture, the
analyzer modules can simultaneously test, decode and analyze network traffic.
For example, by positioning the DA-30C at a point of interconnectivity between
two networks, such as a bridge, router, gateway or hub, the DA-30C
simultaneously tests, measures and analyzes network transmissions in real time
on both sides of the interconnective point. This real time analysis capability
enables customers to more accurately test and analyze the performance of network
connection devices and network traffic among LANs and WANs, including those with
the same or different topologies.

         DOMINO NETWORK ANALYZERS

         The Domino product family is designed for analyzing certain widely-used
network topologies and protocols. These products are being designed to perform
many of the same analysis functions performed by DA-3x products, but in a
smaller, easier to operate and lower-priced instrument, specifically for use by
field technicians who install and maintain large multi-site LANs and WANs. Sales
of Domino products accounted for 23.1% of the Company's total revenues in the
year ended September 30, 1996 and have increased as the Company has continued to
expand product offerings and sales channels.

         The Domino product family is complemented in the network operators 
market by WG's Domain products, a line of Rmon probes and network management 
tools supplied under an OEM agreement by Frontier Software Development, Inc.


                                       4
<PAGE>


COMPLEMENTARY TELECOMMUNICATIONS PRODUCTS

         Under a five-year contract with its affiliate Wandel & Goltermann
Management Holding GmbH ("WGG") which expires October 1, 1998 subject to
renewal, the Company serves as the exclusive United States distributor and
servicer of products developed and produced by its European manufacturing
affiliates. These products are purchased by the Company at Deutch Mark ("DM")
prices established by the manufacturing affiliates and resold by the Company to
U.S. customers. Complementary telecommunications products consist primarily of
electronic test, measurement and monitoring instruments for telecommunications
companies. They include fiber optic test and measurement equipment, such as
optical power level meters and optical attenuators, level and distortion
measurement equipment, such as level meters, remote access switches and level
generators, and certain other network systems test instruments. The Company
markets and sells these products primarily to large network operators and
developers and manufacturers of communication equipment. Major customers for
these products include AT&T, DSC, Sprint and Motorola. Sales of complementary
telecommunication products accounted for 17% of the Company's total revenues in
fiscal 1994, 21% in fiscal 1995 and 19% in fiscal 1996.

PRODUCT DEVELOPMENT

         Management believes that the Company's future success depends upon its
ability to continue to enhance its DA-3x and Domino products and to develop new
products that are technologically competitive and enable the Company to
penetrate other markets for internetwork analysis products. The Company invests
a significant portion of its revenues in product development.

         The Company has actively sought to establish close relationships with
certain of its major customers to provide it with access to industry
developments and the requirements of these customers for network analysis
products. Through these relationships, the Company has developed specialized
products for use by a particular customer which the Company has successfully
marketed and sold to others.

         In order to access information about new developments and standards
relating to internetworking and new product developments, the Company is an
active member of several international standards bodies, such as Internet
Engineering Task Force, Institute of Electrical and Electronic Engineers, Frame
Relay Forum, Asynchronous Transfer Mode Forum, and Switched Multi-Megabit Data
Service Interest Group.

         As of September 30, 1996, the Company had 65 employees devoted to
product development activities, many of whom have advanced degrees in electrical
engineering, computer engineering or computer science. In fiscal 1994, 1995 and
1996, product development expenses totaled approximately $9.1 million, $10.5
million and $9.8 million, respectively. To date, all of the Company's
development expenses have been charged to operations as incurred.

MARKETING AND SALES

         MARKETING

         The Company markets its products through trade publications, sales
brochures, worldwide web, appearances at industry trade shows and the
publication of a quarterly newsletter for customers highlighting the Company's
products and industry trends. Through these activities, management believes that
the Company and its products have developed high visibility, including favorable
recognition in several significant trade publications.

         Many of the Company's affiliates have had long-standing customer
relationships with telephone operating companies, particularly those in Europe,
many of which are users of the Company's products. The Company believes it has
gained significant brand recognition for its products among these companies and
that these relationships have provided it with a competitive advantage in
marketing its products to the European telecommunications market.


                                       5

<PAGE>


         UNITED STATES SALES

         The Company has expanded its direct U.S. sales force which sells
products developed and manufactured by the Company and those produced by its
European manufacturing affiliates. No one customer accounted for more than 10%
of the Company's revenues in fiscal 1994, 1995 or 1996. At September 30, 1996,
the Company employed 22 sales people operating out of 14 sales locations in the
United States. The Company believes that, for certain key customers, direct
sales personnel (rather than manufacturers' representatives) are best suited to
differentiate the Company's products from those of its competitors, to work
closely with customers to provide testing and diagnostic solutions for complex
networks, and to obtain insights into customers' needs for future testing and
diagnostic requirements. However, the Company is expanding its utilization of
manufacturer's representatives for sales of certain products to a larger market.
The Company's sales to nonaffiliated U.S. customers, as a percentage of total
revenues, were approximately 54% in fiscal 1994, 52% in fiscal 1995, and 56% in
fiscal 1996.

         INTERNATIONAL SALES

         WGG's sales affiliates serve as the international marketers and
distributors of the Company's products. These distributors purchase the
Company's products at prices established by the Company and market and resell
them worldwide from offices in Canada, Mexico and over 60 countries in Europe,
the Middle East, Central and South America and the Pacific Rim. The Company's
export sales to affiliated distributors, as a percentage of total revenues, were
approximately 46% in fiscal 1994, 45% in fiscal 1995 and 43% in fiscal 1996.
Although these distributors have no contracts with the Company and are under no
obligation to market and sell the Company's products, they have historically
focused their marketing and sales activities primarily on products manufactured
by the Company and its manufacturing affiliates.

WARRANTY SERVICE; CUSTOMER SUPPORT

         The Company services and supports its products and those of its
affiliates which it sells in the United States. These products are sold with a
one-year warranty included in the product price. The Company's overseas
affiliates service and support the Company's products sold to international
customers under the Company's one-year warranty. The warranty covers all
necessary services for product repair and all software fixes during the warranty
period. For U.S. customers, product repair services are available at the
Company's headquarters in Research Triangle Park, North Carolina. The Company
also offers an extended warranty on its products for an annual fee. Under the
extended warranty, customers receive continued repair services, all major
software fixes and new software releases during the extended warranty period. To
date, the cost of providing warranty service has not been significant.

         The Company maintains a customer support department at its headquarters
that is accessible to customers through a toll free telephone number. When an
inquiry is received, technical assistance engineers assess the problem and
provide necessary corrective action advice. The customer support department also
responds to customer requests for additional hardware or software modules and
coordinates these requests with the Company's operations department in order to
ensure prompt delivery of the requested module.

         To complement its support services, the Company has sponsored a number
of educational programs in various cities to assist its customers in the use of
its products. These programs not only provide product training but also serve as
a forum for user suggestions for product development and enhancements.

MANUFACTURING AND SUPPLIERS

         The Company's manufacturing operations consist of hardware and software
configuration, printed circuit board layout, and assembly and testing of its
products. Most mechanical components, software and documentation duplication,
and some printed circuit board assembly, are outsourced. The Company expects to
increase outsourcing to contain costs.


                                       6

<PAGE>


         The Company generally uses standard parts and components available from
a number of suppliers. However, some components are only available from a single
source, which may be either from manufacturers in the U.S. or from foreign
manufacturers. The Company has not experienced any significant problems in
obtaining sole-sourced components and typically carries extra inventory of
critical sole-sourced components. The Company is not presently aware of any
facts which would result in a reduction, interruption or termination in the
supply of its sole-sourced components except for certain parts used in certain
Domino and DA-3x family products which have been discontinued by the
manufacturer. The Company has purchased these parts in quantities that
management believes will be sufficient to meet the Company's future demands for
these parts through the lives of the related Domino and DA-3x products. The
inability to develop alternative sources, if required, or a reduction or
interruption in supply or a significant increase in the price of one or more
sole-sourced components would adversely affect the Company's business and
operating results.

QUALITY STANDARDS

         In 1987, as part of the development of the European Community, member
countries initiated a series of standards to assure quality and consistency of
business practices. These standards, promulgated by the International
Organization for Standardization and known as the ISO 9000 standards, are
already in use in most major European countries and require businesses to
establish documented quality standards throughout their organizations, relating
to contract review, design, document, purchasing and processing controls,
inspection and testing, handling, storage, packaging, delivery, training and
customer service. Businesses which successfully and continuously pass
certification review are allowed to apply the ISO 9000 designation to shipping
packages and marketing literature. ISO 9000 certification is very important for
any business intending to compete in Europe.

         In January 1994, the Company received certification under ISO 9001, the
highest available certification for a development and manufacturing company. The
Company continues to maintain its certification under ISO 9001. ISO 9001
certifies the Company's product development, manufacturing, installation and
maintenance practices as meeting certain predetermined standards.

COMPETITION

         A substantial number of companies market products which compete with
the Company's products. The Company's principal competitors to date have been
Hewlett-Packard, Network General, Tekelec and Telecommunications Techniques, a
division of Dynatech. Some of the Company's competitors have greater name
recognition, more extensive engineering, manufacturing and marketing
capabilities, and substantially greater financial, technological and personnel
resources than those of the Company. The Company competes primarily on the basis
of product features that are important in its markets, including product
modularity and life cycle, hardware quality, the breadth of network topologies
and protocols its products support, and the Company's technology that allows its
DA-3x products to "bridge" two different interfaces to provide dual simultaneous
analysis in real time.

         To date, price has not been a significant competitive factor in the
marketing and sale of the Company's DA-3x products. While the Company believes
the primary competitive factors for the Domino products will be the technologies
they employ, their performance capabilities and the technical service and
support provided by the Company, price is also expected to be a factor since
these products are offered in market segments that are anticipated to be more
price sensitive than the market for the Company's DA-3x products.

         In addition to the Company's current competitors, competition is
expected from companies not presently providing network analysis products.
Advances in technology, new product introductions, changes in industry
standards, regulatory activities, an increasing number of competitors, and the
marketing activities of other market participants may all adversely affect the
Company's performance. There can be no assurance that the Company will be able
to compete successfully in the future with existing or new competitors. The
Company's ability to compete successfully will depend in large measure on its
ability to identify and anticipate the requirements of its existing and
potential customers, while continuing to develop and manufacture products that
are superior in both technology and quality.


                                       7


<PAGE>


EMPLOYEES

         As of September 30, 1996, the Company employed 239 people, of which 65
were engaged in product development activities, 63 in manufacturing operations
and quality control, 21 in marketing, 59 in sales and service, and the remainder
in management and administrative capacities. None of the Company's employees are
covered under a collective bargaining agreement. The Company believes that its
employee relations are good.

ITEM 2.   PROPERTIES

         The Company's corporate offices and manufacturing operations are
located in approximately 96,750 square feet of leased facilities located in
Research Triangle Park, North Carolina. The Company's leases extend through
September 2005 and 2010, with options to renew. The Company has a right of first
refusal to purchase the property in the event the lessor proposes to sell it
during the initial or any renewal term. In addition, the Company has short-term
leases for office space in South Barrington, Illinois, San Jose, California and
Richardson, Texas. Management believes its equipment and facilities are in good
condition and suitable for their present use.

ITEM 3.  LEGAL PROCEEDINGS

         The Company is subject to claims and legal actions that arise in the
ordinary course of its business. The Company believes that all such claims and
legal actions will not have a material adverse effect on the financial position
or results of operations of the Company.

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

         No matters were submitted to a vote of security holders during the
fourth quarter of the fiscal year ended September 30, 1996.

                                     PART II

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

         The Company's common stock first began trading in April 1994 on the
NASDAQ National Market System under the symbol "WGTI". The following table sets
forth the high and low sales prices as reported on the Nasdaq National Market
during the last two years. As of December 2, 1996, the Company had approximately
46 shareholders of record. WGTI has not paid cash dividends on its common stock.


                                    Market Price Per Share
                               1996                       1995
                         High         Low          High           Low
                       ---------    ---------    ----------    ----------
     First Quarter       $13.25         9.00        $16.13         11.63
     Second Quarter       16.88         9.00         17.38         12.00
     Third Quarter        19.75        14.13         20.75         10.25
     Fourth Quarter       19.75        13.25         13.50          9.75


                                       8

<PAGE>


ITEM 6.  SELECTED FINANCIAL DATA

                             SELECTED FINANCIAL DATA

<TABLE>
<CAPTION>



                                                                       FISCAL YEAR ENDED SEPTEMBER 30,
                                                    ----------------------------------------------------------------------
                                                        1996           1995          1994          1993          1992
                                                    -------------   -----------   ------------  ------------  ------------
                                                                   (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S>                                                   <C>           <C>            <C>            <C>           <C>    
STATEMENT OF INCOME DATA:
Revenues:
   Nonaffiliates                                      $33,186       $23,658        $21,785        $18,005       $14,438
   Affiliates                                          25,900        21,604         18,387         15,080        12,768
                                                    ------------   -----------   -----------   ------------  ------------
      Total revenues                                   59,086        45,262         40,172         33,085        27,206
Cost of revenues                                       23,234        16,576         12,731         12,176        10,569
                                                    ------------   -----------   -----------   ------------  ------------
      Gross profit                                     35,852        28,686         27,441         20,909        16,637
Selling, general and administrative expenses           18,934        15,872         12,984         10,603         8,506
Product development expenses                            9,804        10,469          9,059          6,545         5,033
Restructuring charges                                      --         1,279             --             --            --
                                                    ------------   -----------   -----------   ------------  ------------
      Operating income                                  7,114         1,066          5,398          3,761         3,098
Interest expense                                           --            --           (460  )        (779  )       (688  )
Interest income                                           350           313            295            274            --
Foreign currency gains (losses)                          (104   )      (245   )        213            498            34
                                                    ------------   -----------   -----------   ------------  ------------
     Income from continuing operations
         before income taxes                            7,360         1,134          5,446          3,754         2,444
Benefit from (provision for) income taxes              (2,208   )       (98   )     (2,124  )         867         1,103
                                                    ------------   -----------   -----------   ------------  ------------
      Income from continuing operations                 5,152         1,036          3,322          4,621         3,547
Income (loss) from discontinued operations                 --            --            204            135        (1,795  )
      Net income                                     $  5,152      $  1,036       $  3,526       $  4,756       $ 1,752
                                                    ============   ===========   ===========   ============  ============

PER SHARE DATA:
      Income from continuing operations              $   0.98      $   0.20       $   0.76       $   1.23      $   0.95
      Income (loss) from discontinued operations           --            --           0.04           0.04         (0.48  )
                                                    ------------   -----------   -----------   
      Net income                                     $   0.98      $   0.20       $   0.80       $   1.27      $   0.47
                                                     ============   ===========   ===========  ============  ============
                                                   
Weighted average number of common shares
     outstanding                                        5,231        5,245           4,398          3,750         3,750


                                                                            AS OF SEPTEMBER 30,
                                                    ---------------------------------------------------------------------
                                                       1996           1995          1994          1993          1992
                                                    ------------   -----------   -----------   ------------  ------------
                                                                               (IN THOUSANDS)
FINANCIAL CONDITION:
Working capital                                       $24,869       $20,117        $20,041      $  6,569     $  3,585
Total assets                                           34,298        29,344         28,272        20,381       19,678
Short-term debt, including current maturities of
   long-term debt                                          --            --             --         5,978        9,849
Long-term debt                                             --            --             --         4,370        4,370
Shareholders' equity                                   28,822        24,354         23,113         5,303          827

</TABLE>


                                       9

<PAGE>


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

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS

RESULTS OF OPERATIONS

         The following table sets forth, for the periods indicated, the
components of the Consolidated Statements of Income expressed as a percentage of
total revenues:

<TABLE>
<CAPTION>


                                                                      YEAR ENDED SEPTEMBER 30,
                                                            ---------------------------------------------
                                                               1996            1995            1994
                                                            -------------   -------------   -------------
<S>                                                                <C>             <C>             <C>    
           Revenues:
             Nonaffiliates                                         56.2  %         52.3  %         54.2  %
             Affiliates                                            43.8            47.7            45.8
                                                            -------------   -------------   -------------
               Total revenues                                     100.0           100.0           100.0
           Cost of revenues                                        39.3            36.6            31.7
                                                            -------------   -------------   -------------
           Gross profit                                            60.7            63.4            68.3
           Selling, general and administrative expenses            32.0            35.1            32.3
           Product development expense                             16.6            23.1            22.6
           Restructuring charges                                     --             2.8              --
                                                            -------------   -------------   -------------
           Operating income                                        12.1             2.4            13.4
           Interest expense                                          --              --            (1.1  )
           Interest income                                          0.6             0.7             0.8
           Foreign currency gains (losses)                         (0.2  )         (0.6  )          0.5
                                                                     --              --
                                                            -------------   -------------   -------------
           Income from continuing operations
                before income taxes                                12.5             2.5            13.6
           Provision for income taxes                              (3.8  )         (0.2  )         (5.3  )
                                                                     --              --
                                                            -------------   -------------   -------------
           Income from continuing operations                        8.7             2.3             8.3
           Income from discontinued operations                       --              --             0.5
                                                            ------------    -------------   -------------
           Net income                                               8.7  %          2.3  %          8.8  %
                                                            =============   =============   =============

</TABLE>


         The following table presents, for the periods indicated, the Company's
revenues from the sale of internetwork analysis products and complementary
telecommunication products and such revenues as a percentage of total revenues:


<TABLE>
<CAPTION>

                                                           YEAR ENDED SEPTEMBER 30,
                                  ----------------------------------------------------------------------------
                                          1996                      1995                       1994
                                  -----------------------   -----------------------    -----------------------
<S>                                <C>            <C>        <C>            <C>         <C>            <C>   
 Internetwork analysis products:
          DA-3x                     $31,716        53.7 %     $26,570        58.7 %      $31,200        77.7 %
          Domino                     13,665        23.1         6,638        14.7            321         0.8
          Other                       2,687         4.6         2,602         5.7          1,762         4.4
                                  ----------- -----------   ----------- -----------    ----------- -----------
             Total internetwork
                analysis products    48,068        81.4        35,810        79.1         33,283        82.9
 Complementary telecom-
    munication products              11,018        18.6         9,452        20.9          6,889        17.1
                                  ----------- ----------    ----------  -----------    ----------  -----------
             Total revenues         $59,086       100.0 %     $45,262       100.0 %      $40,172       100.0 %
                                  =========== ===========   =========== ===========    =========== ===========
</TABLE>

                                       10

<PAGE>


         The following table presents the Company's total revenues from domestic
and international sales for each of the last three fiscal years and such
revenues as a percentage of total revenues:

<TABLE>
<CAPTION>


                                                             YEAR ENDED SEPTEMBER 30,
                                    ----------------------------------------------------------------------------
                                             1996                       1995                     1994
                                    ------------------------   -----------------------  ------------------------
<S>                                    <C>             <C>       <C>             <C>        <C>            <C>   
  United States                        $33,752         57.1 %    $24,919         55.1 %     $21,785        54.2 %
  Europe                                14,960         25.3       13,029         28.8        13,246        33.0
  Pacific Rim                            7,010         11.9        4,582         10.1         3,151         7.8
  Canada                                 1,995          3.4        1,560          3.4         1,160         2.9
  Central and South America              1,049          1.8          959          2.1           791         2.0
  Other                                    320          0.5          213          0.5            39         0.1
                                    -----------   ---------    ---------    ----------  ------------  ----------
  Total revenues                       $59,086        100.0 %    $45,262        100.0 %     $40,172       100.0 %
                                    ===========   ==========   ==========   ==========  ============  ==========
</TABLE>


FISCAL 1996 COMPARED TO FISCAL 1995

         TOTAL REVENUES. Revenues for the fiscal year ended September 30, 1996
were $59.1 million, an increase of 30.5% over revenues of $45.3 million reported
for fiscal year 1995, due to increased sales volume of both the Company's
internetwork analysis products and complementary telecommunication products.
Revenues have increased in each geographical territory due to increased demand
for the Company's products. Domestic revenues increased 35.4% to $33.8 million
in fiscal 1996 compared to $24.9 million in fiscal 1995. International revenues
increased 24.5% to $25.3 million in fiscal 1996 compared to $20.4 million in
fiscal 1995 primarily due to sales growth in the Pacific Rim, although European
revenue growth also contributed to the overall increase in international
revenues.
         Revenues from sales of the Company's internetwork analysis products
increased $12.3 million, or 34.2%, to $48.1 million in fiscal 1996 from $35.8
million in fiscal 1995. The increasing complexity of computer networks,
continued strength in the data networking market as customers migrate to new
technologies and continued expansion of the Company's product lines have caused
greater demand for the Company's internetwork analysis products.
         Revenues from sales of the Company's DA-3x product family increased
$5.1 million, or 19.4%, to $31.7 million in fiscal 1996 from $26.6 million in
fiscal 1995 primarily due to revenues associated with OC-3 and 100BaseT modules
introduced in September 1995. DA-3x product family revenues represented 53.7% of
total revenues in fiscal 1996 compared to 58.7% in fiscal 1995. DA-3x product
family revenues declined as a percentage of total revenues due to faster growth
in Domino product family revenues during fiscal 1996.
         Revenues from sales of the Company's Domino product family increased
$7.0 million, or 105.9%, to $13.7 million in fiscal 1996 compared to $6.6 
million in fiscal 1995. The Domino product family is a new 
generation of analyzers designed for the network installation and 
maintenance market. The DominoWAN(TM) and DominoLAN(TM) were both 
released for customer shipment during the first quarter of fiscal 1995 
followed by the DominoFDDI(TM) in the fourth quarter of
fiscal 1995. The Company continued to introduce new Domino products in fiscal
1996 including DominoWIZARD(TM) and DominoREMOTE. Revenues have increased as the
Company has continued to expand product offerings and sales channels for this
product family. In addition, the Company recorded Domino revenues of $2.8
million related to sales to a major U.S. manufacturer of network equipment which
utilizes the Domino product line for pre- and post-sales support.
         Revenues of complementary telecommunications products increased by $1.5
million, or 16.6%, to $11.0 million in fiscal 1996 compared to $9.5 million in
fiscal 1995 primarily due to an increase in revenues from sales of new products
purchased from international affiliates for resale in the United States
including the ANT-20, a physical layer test instrument for SDH, SONET and ATM.

         GROSS PROFIT. Gross profit increased $7.2 million, or 25.0%, to $35.9
million in fiscal 1996 from $28.7 million in fiscal 1995. Gross margin decreased
to 60.7% in fiscal 1996 from 63.4% in fiscal 1995 primarily due to higher
manufacturing costs on DA-30C units and other existing modules in order to meet
the operating requirements of the OC-3 module and new CE Mark requirements for
products sold into the European Common Market. Gross profit and gross profit
percent may vary as a result of a number of factors, including product mix and
the mix of international and domestic sales.


                                       11

<PAGE>


         SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses increased $3.0 million, or 19.3%, to $18.9 million in
fiscal 1996 from $15.9 million in fiscal 1995. Selling, general and
administrative expenses, as a percentage of revenues, decreased to 32.0% in
fiscal 1996 from 35.1% in fiscal 1995. The dollar amount of these expenses
increased primarily as a result of personnel, facility and equipment increases
to support higher revenues. Selling, general and administrative expenses as a
percentage of revenues decreased in fiscal 1996 as the Company curtailed
marketing efforts on the Network Operations product family in September 1995.

         PRODUCT DEVELOPMENT EXPENSES. Product development expenses decreased
$665,000, or 6.4%, to $9.8 million in fiscal 1996 from $10.5 million in fiscal
1995. Product development expenses, as a percentage of total revenues, decreased
to 16.6% in fiscal 1996 from 23.1% in fiscal 1995. Product development expenses
decreased in fiscal 1996 as the Company curtailed development efforts on the
Network Operations product family in September 1995. Because the Company's
product development activities are an important element of its growth strategy
and because of the increasing complexity of network technologies and
applications, the Company's expenditures for product development are expected to
be higher in fiscal 1997 than they were in fiscal 1996 but decline as a
percentage of revenues.

      RESTRUCTURING CHARGES. Revenue Restructuring charges were $1.3 million in
fiscal 1995, all of which were incurred in the fourth fiscal quarter. In
September 1995, the Company announced that it would curtail development and
marketing efforts on the Network Operations product family. As a result, the
Company recorded restructuring charges of $719,000, primarily related to the
write-down of related inventories and the expected costs of employee severances.
In addition, the Company recorded severance expenses of $560,000 associated with
changes in senior management which were effective in the quarter ended September
30, 1995. There were no restructuring charges for the fiscal year ended
September 30, 1996.

         FOREIGN CURRENCY GAINS (LOSSES). The Company incurred foreign currency
losses of $104,000 in fiscal 1996 compared to foreign currency losses of
$245,000 in fiscal 1995. The Company incurred net losses in fiscal 1996 on
foreign currency exchange collars, accounts receivable and cash denominated in
DM's as the U.S. dollar fluctuated against the DM. In fiscal 1995, the Company
incurred losses on foreign currency exchange contracts and collars, partially
offset by gains on accounts receivable and cash denominated in DM's, as the U.S.
dollar weakened significantly against the DM.

         PROVISION FOR INCOME TAXES. The provision for income taxes was 30% of
pretax income in fiscal 1996 compared to 8.6% in fiscal 1995. The increase in
the effective tax rate in fiscal 1996 compared to 1995 was primarily due to
decreased research and development tax credits generated during the fiscal year
as a percentage of income before income taxes. The Company expects the effective
tax rate for 1997 to be approximately 30%.


                                       12

<PAGE>


FISCAL 1995 COMPARED TO FISCAL 1994

         TOTAL REVENUES. Total revenues increased $5.1 million, or 12.7%, to
$45.3 million in fiscal 1995 from $40.2 million in fiscal 1994. Revenues from
sales of the Company's internetwork analysis products increased $2.5 million, or
7.6%, to $35.8 million in fiscal 1995 from $33.3 million in fiscal 1994.
         Revenues from sales of the Company's DA-3x product family decreased
$4.6 million, or 14.8%, to $26.6 million in fiscal 1995 from $31.2 million in
fiscal 1994. Revenues for the DA-3x product family were below anticipated levels
primarily as a result of a number of delays in new product introductions. These
new products and applications were introduced late in fiscal 1995 but had
minimal positive impact on revenues for the year.
         The decrease in DA-3x product family revenues was offset by $6.6
million of revenues from sales of the Domino product family in fiscal 1995
compared to $321,000 in fiscal 1994. The Domino product family is a new
generation of analyzers designed for the network installation and maintenance
market. The DominoWAN(TM) and DominoLAN(TM) were both released for customer
shipment during the first quarter of fiscal 1995 followed by the DominoFDDI(TM)
in the fourth quarter of fiscal 1995.
         Revenues of complementary telecommunications products increased by $2.6
million, or 37.2%, to $9.5 million in fiscal 1995 compared to $6.9 million in
fiscal 1994 primarily due to contract manufacturing performed by the Company for
the ATE business unit. In 1994, activity related to the ATE business unit was
accounted for in income from discontinued operations. See "Discontinued
Operations." The Company also experienced an increase in revenues from sales of
fiber optic test instruments and other new products purchased from international
affiliates for resale in the United States.

         GROSS PROFIT. Gross profit increased $1.3 million, or 4.5%, to $28.7
million in fiscal 1995 from $27.4 million in fiscal 1994. Gross margin decreased
to 63.4% in fiscal 1995 from 68.3% in fiscal 1994 due to the increased
proportion of complementary telecommunication product sales primarily due to
contract manufacturing performed by the Company for the ATE business unit. These
products have lower margins as compared to the products developed and
manufactured by the Company. In addition, the market for the Company's products
is characterized by rapidly changing technology and frequent introduction of new
products. The Company recorded write-downs in inventories in the fourth quarter
of fiscal 1995 related to inventories which were rendered obsolete as a result
of new products introduced during the quarter or planned for release in early
fiscal 1996.

         SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses increased $2.9 million, or 22.2%, to $15.9 million in
fiscal 1995 from $13.0 million in fiscal 1994. Selling, general and
administrative expenses, as a percentage of revenues, increased to 35.1% in
fiscal 1995 from 32.3% in fiscal 1994. The dollar amount of these expenses
increased primarily as a result of personnel, facility and equipment increases
to support higher revenues and to provide marketing efforts for new products,
including the Company's Network Operations and Domino product family and new
DA-3x interface modules for ATM and other broadband transmission technologies.

         PRODUCT DEVELOPMENT EXPENSES. Product development expenses increased
$1.4 million, or 15.6%, to $10.5 million in fiscal 1995 from $9.1 million in
fiscal 1994. Product development expenses, as a percentage of total revenues,
increased to 23.1% in fiscal 1995 from 22.6% in fiscal 1994. These increases
were primarily as a result of personnel, facility and equipment increases
related to (i) the development of an improved user interface for the Company's
network analysis products, (ii) the development of new DA-3x interface modules
for Asynchronous Transfer Mode ("ATM") and other broadband transmission
technologies and (iii) the development of new products, including the Domino
product family.

         RESTRUCTURING CHARGES. Restructuring charges were $1.3 million in
fiscal 1995, all of which were incurred in the fourth fiscal quarter. In
September 1995, the Company announced that it would curtail development and
marketing efforts on the Network Operations product family. As a result, the
Company recorded restructuring charges of $719,000, primarily related to the
write-down of related inventories and the expected costs of employee severances.
In addition, the Company recorded severance expenses of $560,000 associated with
changes in senior management which were effective in the quarter ended September
30, 1995. There were no restructuring charges for the fiscal year ended
September 30, 1994.


                                       13

<PAGE>


         INTEREST EXPENSE. Interest expense was $460,000 in fiscal 1994. No
interest expense was incurred in fiscal 1995 because the Company used a portion
of the proceeds from its initial public offering to repay all of its
indebtedness in April 1994.

         FOREIGN CURRENCY GAINS (LOSSES). The Company incurred foreign currency
losses of $245,000 in fiscal 1995 compared to foreign currency gains of $213,000
in fiscal 1994. The Company incurred losses in fiscal 1995 on foreign currency
exchange contracts and collars, partially offset by gains on accounts receivable
and cash denominated in DM's, as the U.S. dollar weakened significantly against
the DM. In fiscal 1994, the Company recorded gains of $90,000 related to bank
indebtedness denominated in DM's resulting from the strengthening of the U.S.
dollar relative to the DM during the first half of the fiscal year. The
indebtedness denominated in DM's was repaid in April 1994.

         PROVISION FOR INCOME TAXES. The provision for income taxes was 8.6% of
pretax income in fiscal 1995 compared to 39.0% in fiscal 1994. The decrease in
the effective tax rate in fiscal 1995 compared to 1994 was primarily due to
utilization of research and development tax credits generated during the fiscal
year. The Company expects the effective tax rate for 1996 to be approximately
32%.

         DISCONTINUED OPERATIONS. The ATE business unit was sold to an affiliate
at the end of fiscal 1992 and was accounted for as a discontinued operation in
1994. The Company continues to manufacture certain component parts and to
provide certain services on a contract basis to the ATE business unit based on
cost plus an appropriate profit. In 1995, revenues related to these activities
are included in revenues from affiliates.

                                       14

<PAGE>


QUARTERLY FINANCIAL DATA

         The following table presents selected quarterly financial information
for fiscal 1996 and 1995. This information is unaudited, but in the opinion of
the Company's management, reflects all adjustments, consisting only of normal
recurring adjustments, that the Company considered necessary for a fair
presentation of this information in accordance with generally accepted
accounting principles. Such quarterly results are not necessarily indicative of
future results of operations.

<TABLE>
<CAPTION>


                                                  FISCAL 1996                                      FISCAL 1995
                                  --------------------------------------------      ------------------------------------------
                                   FIRST      SECOND      THIRD      FOURTH         FIRST      SECOND     THIRD      FOURTH
                                  ---------  ---------   ---------  ---------      ---------  ---------  ---------  ---------
                                                           (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S>                                 <C>        <C>        <C>         <C>         <C>        <C>         <C>        <C>    
Revenues:
  Nonaffiliates                     $7,172     $8,154     $ 8,895     $ 8,965     $6,420     $ 5,735     $5,278     $ 6,225
  Affiliates                         6,291      6,342       6,528       6,739      5,396       5,881      5,106       5,221
                                  ---------  ---------   ---------  ---------    --------   ---------  ---------  ---------
Total revenues                      13,463     14,496      15,423      15,704     11,816      11,616     10,384      11,446
Cost of revenues                     5,412      5,649       6,243       5,930      3,683       3,451      3,995       5,447
                                  ---------  ---------   ---------  ---------    --------   ---------  ---------  ---------
Gross profit                         8,051      8,847       9,180       9,774      8,133       8,165      6,389       5,999
Selling, general and
  administrative expenses            4,631      4,667       4,528       5,108      3,660       3,941      3,717       4,554
Product development expenses         2,621      2,413       2,445       2,325      2,379       2,519      2,642       2,929
Restructuring charges                   --         --          --          --         --          --         --       1,279
                                  ---------  ---------   ---------  ---------    --------   ---------  ---------  ---------
Operating income (loss)                799      1,767       2,207       2,341      2,094       1,705         30      (2,763)
Interest income                         53         60          79         158         93          80         68          72
Foreign currency gains (losses)        (21 )      (93 )       (46 )        56         83        (338 )      (24 )        34
                                  ---------  ---------   ---------  ---------    --------   ---------  ---------  ---------
Income (loss) from operations          831      1,734       2,240       2,555      2,270       1,447         74      (2,657)
Benefit from (provision for)
  income taxes                        (266 )     (553 )      (719 )      (670)      (726 )      (463 )      (23 )     1,114
                                  ---------  ---------   ---------  ---------    --------   ---------  ---------  ---------
Net income (loss)                  $   565    $ 1,181     $ 1,521     $ 1,885     $1,544      $  984    $    51    $ (1,543)
                                  =========  =========   =========  =========    ========   ========   =========  =========


Net income (loss) per share         $0.11      $0.23       $0.29      $0.36         $0.30       $0.19      $0.01      $(0.29 )

Weighted average numbers of
  common shares outstanding         5,218      5,155       5,275      5,273         5,226       5,243      5,260       5,237
                                 =========  =========   =========  =========     =========   =========  =========   =========
</TABLE>


         In recent years, the Company's revenues and operating income have been
affected by the timing of new product introductions, expenditures for product
development and marketing programs and for the hiring of product development,
marketing, sales and administrative personnel. Quarterly results have also been
affected, and may continue to be affected, by realized and unrealized foreign
currency gains or losses. Further, the Company's expense levels have been based,
in part, on its expectations of future revenues. If expected revenue levels are
not achieved in the future in a particular quarter, quarterly results may be
adversely affected.

                                       15

<PAGE>


LIQUIDITY AND CAPITAL RESOURCES

                                      1996           1995                1994
                                 -----------     -------------      ------------
                                                (IN THOUSANDS)
Cash and cash equivalents            $10,286         $  5,374          $  6,624
Working Capital                      $24,869         $ 20,117          $ 20,041


         Cash and cash equivalents increased $4.9 million in 1996 and decreased
$1.3 million in 1995. The increase in 1996 resulted primarily from cash provided
by operations offset by the acquisition of equipment and the repurchase of
Common Stock. The decrease in 1995 resulted primarily from acquisitions of
equipment and intangible assets offset by cash provided by operations.
         Net cash generated from operations was $7.3 million in 1996, $1.7
million in 1995 and $546,000 in 1994. The primary source of these funds was net
income before depreciation and amortization for all periods. The net increase in
1995 also reflects an increase in income tax receivable of $1.5 million related
to overpayment of estimated income taxes for the year. Cash provided by
operations in 1994 reflects increases of $3.1 million in inventories and $2.1
million in accounts receivable.
         Net cash used in investing activities was $1.7 million in 1996, $3.3
million in 1995 and $1.5 million in 1994. All of the cash used in investing
activities was the result of acquisitions of property and equipment and
intangible assets. Acquisitions of property and equipment consist primarily of
computer hardware and test equipment. Acquisitions of intangible assets consists
primarily of financial, manufacturing, product and product development software.
Expenditures for property and equipment increased in 1995 as a result of
leasehold improvements and furnishings purchased in connection with the leasing
of additional space for conducting the Company's operations.
         Net cash used in financing activities was $684,000 in 1996. The Company
used $1.3 million to repurchase 100,000 shares of Common Stock in December 1995
which was partially offset by proceeds from the sale of Common Stock under the
Company's Employee Stock Purchase Plan and pursuant to the exercise of stock
options. Net cash provided by financing activities was $369,000 in 1995 and $7.4
million in 1994. The primary sources of funds in 1995 were the proceeds from the
sale of common stock under the Company's Employee Stock Purchase Plan and
pursuant to the exercise of employee stock options. The primary source of funds
in 1994 was the proceeds from the Company's initial public offering. In April
and May 1994, the Company completed an initial public offering, receiving net
proceeds of $14.3 million. The Company used a portion of the proceeds to repay
all outstanding indebtedness.
         In March 1995, the Company entered into a $5.0 million line of credit
facility with a U.S. bank which expires in January 1998. In September 1996,
availability under this line was reduced by $267,000 as a result of a standby
letter of credit issued by the bank to secure the Company's group medical
insurance plan. Through September 30, 1996, there have been no borrowings under
this facility.
         Management estimates that capital expenditures will be approximately
$1.8 million in fiscal 1997. These amounts will be used primarily for the
purchase of equipment related to product development, information systems and
manufacturing operations.
         The Company believes that cash generated from operations, together with
existing cash balances and borrowings available under the Company's U.S. bank
line of credit facility, will be sufficient to satisfy the Company's
requirements for working capital and capital expenditures in fiscal 1997.


                                       16

<PAGE>


ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To Wandel & Goltermann Technologies, Inc.:

         We have audited the accompanying consolidated balance sheets of Wandel
& Goltermann Technologies, Inc. (a North Carolina corporation) and subsidiaries
as of September 30, 1996 and 1995, and the related consolidated statements of
income, changes in shareholders' equity and cash flows for each of the three
years in the period ended September 30, 1996. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated 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, the financial statements referred to above present
fairly, in all material respects, the financial position of Wandel & Goltermann
Technologies, Inc. and subsidiaries as of September 30, 1996 and 1995, and the
results of their operations and their cash flows for each of the three years in
the period ended September 30, 1996, in conformity with generally accepted
accounting principles.



                                                         /s/ Arthur Andersen LLP
Raleigh, North Carolina,
November 1, 1996.


                                       17

<PAGE>


WANDEL & GOLTERMANN TECHNOLOGIES, INC.
CONSOLIDATED BALANCE SHEETS


<TABLE>
<CAPTION>

(DOLLARS IN THOUSANDS)
-----------------------------------------------------------------------------------------------------------

                                                                               SEPTEMBER 30,
                                                                 ------------------------------------------
                                                                        1996                  1995
                                                                 --------------------  --------------------
<S>                                                                         <C>                  <C>     
ASSETS
Current Assets:
   Cash and cash equivalents                                                $10,286              $  5,374
   Accounts receivable-
      Nonaffiliates                                                           8,148                 5,378
      Affiliates                                                              5,068                 3,934
   Income tax receivable                                                        720                 1,464
   Inventories                                                                4,695                 6,616
   Deferred tax assets                                                        1,079                 1,946
   Other current assets                                                         349                   395
                                                                 --------------------  --------------------
        Total current assets                                                 30,345                25,107
                                                                 --------------------  --------------------
Property and Equipment, at cost:
   Machinery and equipment                                                    4,401                 4,189
   Furniture and fixtures                                                     5,186                 5,764
                                                                 --------------------
                                                                                       --------------------
                                                                              9,587                 9,953
   Accumulated depreciation                                                  (6,323  )             (6,213  )
                                                                 --------------------  --------------------
                                                                              3,264                 3,740
                                                                 --------------------  --------------------
Other assets                                                                    689                   497
                                                                 --------------------  --------------------
                                                                            $34,298               $29,344
                                                                 ====================  ====================

LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
   Accounts payable-
      Nonaffiliates                                                         $ 1,327              $  1,579
      Affiliates                                                                950                   258
   Accrued compensation                                                       1,855                 1,683
   Other accrued liabilities                                                  1,344                 1,470
                                                                 --------------------  --------------------
         Total current liabilities                                            5,476                 4,990
                                                                 --------------------  --------------------
Shareholders' Equity:
   Preferred stock, $0.01 par value, 2,000,000 shares
authorized;
      no shares issued and outstanding                                           --                    --
   Common stock, $0.01 par value, 20,000,000 shares
      authorized; shares issued and outstanding - 5,169,052 at
      September 30, 1996 and 5,218,430 at September 30, 1995                     52                    52
   Additional paid-in capital                                                25,056                25,740
   Retained earnings (accumulated deficit)                                    3,714                (1,438  )
                                                                 --------------------  --------------------
                                                                             28,822                24,354
                                                                 --------------------  --------------------
                                                                            $34,298               $29,344
                                                                 ====================  ====================

</TABLE>

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


                                       18

<PAGE>


WANDEL & GOLTERMANN TECHNOLOGIES, INC. CONSOLIDATED STATEMENTS OF INCOME

<TABLE>
<CAPTION>


(IN THOUSANDS, EXCEPT FOR PER SHARE AMOUNTS)
  -------------------------------------------------------------------------------------------------------------
                                                                  YEAR ENDED SEPTEMBER 30,
                                               ----------------------------------------------------------------
                                                    1996                   1995                   1994
                                              ------------------     ------------------    -------------------

<S>                                                     <C>                    <C>                    <C>    
Revenues:
   Nonaffiliates                                        $33,186                $23,658                $21,785
   Affiliates                                            25,900                 21,604                 18,387
                                              ------------------                           -------------------
                                                                     ------------------
      Total revenues                                     59,086                 45,262                 40,172
Cost of revenues                                         23,234                 16,576                 12,731
                                              ------------------                           -------------------
                                                                     ------------------
      Gross profit                                       35,852                 28,686                 27,441
Selling, general and administrative expenses             18,934                 15,872                 12,984
Product development expenses                              9,804                 10,469                  9,059
Restructuring charges                                        --                  1,279                     --
                                              ------------------     ------------------    -------------------
      Operating income                                    7,114                  1,066                  5,398
Interest expense                                             --                     --                   (460 )
Interest income                                             350                    313                    295
Foreign currency gains (losses)                            (104 )                 (245 )                  213
                                              ------------------     ------------------    -------------------
      Income from continuing operations
          before income taxes                             7,360                  1,134                  5,446
Provision for income taxes                               (2,208 )                  (98 )               (2,124 )
                                              ------------------     ------------------    -------------------
      Income from continuing operations                   5,152                  1,036                  3,322
Income from discontinued operations                          --                     --                    204
                                              ------------------     ------------------    -------------------
Net income                                               $5,152               $  1,036                $ 3,526
                                              ==================     ==================    ===================


Per Share Data:
   Income from continuing operations                    $  0.98                $  0.20                $  0.76
   Income from discontinued operations                       --                     --                   0.04
                                              ------------------     ------------------    -------------------
   Net income                                           $  0.98                $  0.20                $  0.80

                                              ==================     ==================    ===================
Weighted average number of common
          shares outstanding                              5,231                  5,245                  4,398

</TABLE>


              The accompanying notes are an integral part of these
                        consolidated financial statements


                                       19

<PAGE>


WANDEL & GOLTERMANN TECHNOLOGIES, INC.
 CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY

<TABLE>
<CAPTION>


  (DOLLARS IN THOUSANDS)
------------------------------------------------------------------------------------------------------------------------
                                                    COMMON STOCK                            RETAINED 
                                               -------------------------   ADDITIONAL       EARNINGS  
                                                                            PAID-IN       (ACCUMULATED
                                                  SHARES       AMOUNT       CAPITAL         DEFICIT)         TOTAL
                                                ------------  ----------  -------------  ----------------  ----------
<S>                                             <C>              <C>           <C>            <C>              <C>  
Balance, September 30, 1993                      3,750,000        $ 38         $11,265         $  (6,000 )   $  5,303

  Issuance of common stock, net of offering
     expenses of $1,611                          1,445,000          14          14,270                --       14,284

  Net income                                            --          --              --             3,526        3,526
                                                ------------  ----------  -------------  ----------------  ----------
  Balance, September 30, 1994                    5,195,000          52          25,535            (2,474 )     23,113

  Issuance of common stock, net of
     expenses of $9                                 23,430          --             205                --          205

  Net income                                            --          --              --             1,036        1,036
                                                ------------  ----------  -------------  ----------------  ----------
Balance, September 30, 1995                      5,218,430          52          25,740            (1,438 )     24,354

  Repurchase of common stock                      (100,000  )       (1  )       (1,286 )              --       (1,287)

  Issuance of common stock                          50,622           1             602                --          603

  Net income                                            --          --              --             5,152        5,152
                                                ------------  ----------  -------------  ----------------  ----------
Balance, September 30, 1996                      5,169,052        $ 52         $25,056           $ 3,714      $28,822
                                                ============  ==========  =============  ================  ==========
</TABLE>


  The accompanying notes are an integral part of these consolidated financial
                                   statements


                                       20

<PAGE>


WANDEL & GOLTERMANN TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>

  (DOLLARS IN THOUSANDS)
    ------------------------------------------------------------------------------------------------------------------
                                                                                 YEAR ENDED SEPTEMBER 30,
                                                                      ------------------------------------------------
                                                                        1996              1995             1994
                                                                     -------------    --------------   -------------
<S>                                                                       <C>               <C>             <C>    
   Cash flows from operating activities:
      Net income                                                          $5,152            $1,036          $ 3,526
      Adjustments to reconcile net income to net cash provided
        by operating activities-
         Depreciation and amortization                                     1,957             1,933            1,276
         Deferred tax asset                                                  867              (289  )           690
         (Increase) decrease in accounts receivable -
             Nonaffiliates                                                (2,770  )           (581  )        (1,376 )
             Affiliates                                                   (1,134  )            795             (697 )
         (Increase) decrease in income tax receivable                        744            (1,464  )            --
         (Increase) decrease in inventories                                1,921               325           (3,070 )
         Increase (decrease) in accounts payable-
             Nonaffiliates                                                  (252  )           (161  )           549
             Affiliates                                                      692                10             (315 )
         Increase (decrease) in other current liabilities                     46               (18  )           195
      Other, net                                                             119                69             (232 )
                                                                     -------------    --------------   -------------
            Net cash provided by operating activities                      7,342             1,655              546
                                                                     -------------    --------------   -------------

   Cash flows from investing activities:
      Purchases of marketable securities                                 (23,560  )        (21,500  )            --
      Proceeds from the sale of marketable securities                     23,560            21,500               --
      Acquisitions of property and equipment                              (1,285  )         (2,985  )        (1,261 )
      Acquisitions of intangible assets                                     (461  )           (289  )          (259 )
                                                                     -------------    --------------   -------------
            Net cash used in investing activities                         (1,746  )         (3,274  )        (1,520 )
                                                                     -------------    --------------   -------------

   Cash flows from financing activities:
      Repurchase of Common Stock                                          (1,287  )             --               --
      Proceeds from issuance of common stock, net                            603               205           14,284
      Net payments under bank line of credit agreement                        --                --             (408 )
      Net payments of short-term notes payable to nonaffiliates               --                --           (1,071 )
      Notes receivable from affiliates                                        --                38            3,367
      Payments of debt                                                        --                --           (8,779 )
      Other, net                                                              --               126               --
                                                                                      --------------   -------------
                                                                     -------------    --------------   -------------
            Net cash provided by (used in) financing activities             (684  )            369            7,393
                                                                     -------------    --------------   -------------

   Increase (decrease) in cash and cash equivalents                        4,912            (1,250  )         6,419

   Cash and cash equivalents, beginning of year                            5,374             6,624              205
                                                                     -------------    --------------   -------------

   Cash and cash equivalents, end of year                                $10,286            $5,374           $6,624
                                                                     =============    ==============   =============

   Other cash flow information:
            Income taxes paid                                           $  1,342            $2,345           $1,037
            Interest paid                                                     --                --              650
</TABLE>


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


                                       21

<PAGE>


                     WANDEL & GOLTERMANN TECHNOLOGIES, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


1. BASIS OF PRESENTATION AND DESCRIPTION OF BUSINESS

    BASIS OF PRESENTATION

         The accompanying consolidated financial statements include the accounts
of Wandel & Goltermann Technologies, Inc. and its wholly-owned subsidiaries
which are referred to collectively herein as the "Company."

    DESCRIPTION OF BUSINESS

         The Company develops, manufactures, markets and supports test,
measurement, diagnostic and monitoring products for local and wide area data and
telecommunication networks. The Company also markets specialized test,
measurement and monitoring instruments primarily for use by operators of
telecommunication and data transmission systems.

2. SIGNIFICANT ACCOUNTING POLICIES

USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS

         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.

PRINCIPLES OF CONSOLIDATION

         The consolidated financial statements include the accounts of Wandel &
Goltermann Technologies, Inc. and its wholly-owned subsidiaries. All
intercompany balances and transactions are eliminated in consolidation.

CASH EQUIVALENTS

         The Company considers short-term investments with original maturities
of three months or less to be cash equivalents.

REVENUES

         The Company recognizes product revenues at the time of shipment to
nonaffiliated and affiliated customers. Service revenues are recognized as
services are performed. Maintenance contract revenues, including revenues
related to extended warranty contracts, are deferred and recognized over the
contract term. The Company accrues related product return reserves and warranty
expenses at the time of sale.

MAJOR CUSTOMERS, CONCENTRATION OF CREDIT RISK AND EXPORT SALES

         Sales to affiliates accounted for approximately 44% of total revenues
in 1996, 48% in 1995 and 46% in 1994. The Company had accounts receivable from
affiliates of $5,068,000 at September 30, 1996, and $3,934,000 at September 30,
1995. Management believes that all amounts due from affiliates are fully
collectible. No nonaffiliated customer accounted for 10% or more of total
revenues in 1996, 1995 or 1994. In the normal course of business, the Company
extends credit to various nonaffiliated companies, primarily developers and
manufacturers of network systems in the United States. The Company manages its
exposure to credit risk from nonaffiliated customers through credit approval and
monitoring procedures. Further, the Company believes that its portfolio of


                                       22

<PAGE>


receivables from nonaffiliated customers is well diversified and that the
allowance for doubtful accounts ($125,000 at September 30, 1996 and $90,000 at
September 30, 1995) is adequate. Accounts receivable are not collateralized.

         The Company had export sales, through affiliates, to end users in the
following geographic regions (in thousands):

<TABLE>
<CAPTION>

                                                                 YEAR ENDED SEPTEMBER 30,
                                                     ------------------------------------------------
                                                             1996             1995            1994
                                                     ---------------   --------------  --------------
<S>                                                       <C>              <C>             <C>    
                 Europe                                   $14,960          $13,029         $13,246
                 Pacific Rim                                7,010            4,582           3,151
                 Canada                                     1,995            1,560           1,160
                 Central and South America                  1,049              959             791
                 Other                                        320              213              39
                                                     ---------------   --------------  --------------
                                                          $25,334          $20,343         $18,387
                                                     ===============   ==============  ==============
</TABLE>


MARKETABLE SECURITIES

         As part of the Company's cash management program, the Company invests
in highly liquid preferred stock and municipal bonds. The interest and dividend
rates on these securities are reset on a frequent basis. Under Statement of
Accounting Standards No. 115 "Accounting for Certain Investments in Debt and
Equity Securities", these securities are classified as "available-for-sale
securities." The Company did not hold any such securities at September 30, 1996
or 1995.

PER SHARE DATA

         Income per share amounts are computed using the weighted average number
of common shares and common share equivalents outstanding and the dilutive
effects of stock options and the Employee Stock Purchase Plan, using the
treasury stock method. The primary and fully diluted income per share amounts
are the same for all annual periods presented.

INVENTORIES

         Inventories are stated at the lower of cost (first-in, first-out) or
market and include material, labor and manufacturing overhead. As of September
30, inventories consist of (in thousands):

                                             1996         1995
                                         -----------    ---------

          Raw materials                     $1,473       $1,767
          Work in process                      760        1,406
          Finished goods                     2,462        3,443
                                         -----------    ---------
                                            $4,695       $6,616
                                         ===========    =========

PROPERTY AND EQUIPMENT

         Property and equipment is stated at original cost. Depreciation is
calculated using primarily accelerated methods. Machinery and equipment are
depreciated over three to ten years. Furniture and fixtures are depreciated over
five to seven years.

OTHER ASSETS

         Other assets consist primarily of purchased software ($453,000 at
September 30, 1996 and $389,000 at September 30, 1995) used in the
administrative operations of the Company or resold or used in conjunction with
the Company's products. Such software is being amortized over three to five
years.

                                       23

<PAGE>


OTHER ACCRUED LIABILITIES

         As of September 30, other accrued liabilities consist of the following
(in thousands):

                                            1996          1995
                                        ------------  -----------

         Deferred revenues              $     485      $   256
         Warranty reserve                     300          280
         Trademark and license fees            33          336
         Other                                526          598
                                        ------------  -----------
                                           $1,344       $1,470
                                        ============  ===========

FOREIGN CURRENCIES

         Certain product sales to affiliates, inventory purchases from
affiliates, and other transactions with affiliates are denominated in German
Deutsche Marks ("DMs") and are translated into U.S. dollars at the exchange rate
in effect at the transaction date. Gains or losses resulting from changes in the
exchange rate subsequent to the transaction date are reflected in the
consolidated statements of income in the period in which they occur.

         From time to time, the Company has sought to reduce its exposure to
increases in the U.S. dollar relative to the DM by purchasing forward foreign
currency exchange contracts and collars relating to cash and accounts receivable
denominated in DMs. In addition, the Company purchases foreign currency exchange
contracts and collars relating to some of its future anticipated sales in DMs.
As of September 30, 1996, the Company has no outstanding forward currency
exchange rate contracts or collars.

         Cash and accounts receivable denominated in DM are revalued at each
balance sheet date at the then current exchange rate, and any unrealized gain or
loss is recognized in the consolidated statement of income. Any foreign currency
exchange collars or any contracts are revalued at each balance sheet date at the
then current exchange rate, and any unrealized gain or loss is recognized in the
consolidated statement of income.

PRODUCT DEVELOPMENT EXPENSES

         All product development costs, including software development costs,
have been expensed as incurred. The Company anticipates capitalizing eligible
computer software development costs upon the establishment of technological
feasibility, which the Company has defined as completion of a working model.
Through September 30, 1996, such capitalizable costs were insignificant and,
thus, the Company has charged all software development costs to product
development expenses in the accompanying consolidated statements of income.

RESTRUCTURING CHARGES

         In the fourth quarter of fiscal year 1995, the Company recorded
restructuring charges of $1,279,000. In September 1995, the Company announced
that it would curtail development and marketing efforts on the Network
Operations product family. As a result, the Company recorded restructuring
charges of $719,000, primarily related to the write-down of inventories and the
expected costs of employee severances. In addition, the Company recorded
severance expenses of $560,000 associated with changes in senior management
which were effective in the quarter ended September 30, 1995.

EFFECTS OF RECENT ACCOUNTING PRONOUNCEMENTS

         The Financial Accounting Standards Board (FASB) has issued SFAS No.
123, "Accounting for Stock-Based Compensation." The Company is required to adopt
SFAS 123 for the fiscal year beginning October 1, 1996. This statement
establishes accounting and disclosure requirements using a fair value based
method of accounting for stock-based employee compensation plans. Under SFAS
123, the Company may either adopt the new fair value based accounting method or
continue the intrinsic value based method and provide pro forma disclosures of
net 

                                       24

<PAGE>


income and earnings per share as if the accounting provisions of this statement
had been adopted. The Company plans to adopt only the disclosure requirements of
SFAS 123; therefore, such adoption will have no effect on the Company's
financial position or results of operations.

 3. TRANSACTIONS WITH AFFILIATES

         At September 30, 1996, Wandel & Goltermann Management Holding GmbH
("WGG") owns 2,961,000 shares of the Company's common stock. The Company has
engaged in various types of transactions with WGG and affiliates of WGG
(collectively "affiliates") as follows (in thousands):


<TABLE>
<CAPTION>


                                                                                     YEAR ENDED SEPTEMBER 30,
                                                                             ------------------------------------------
                                                                                1996          1995           1994
                                                                             -----------   -----------   --------------
<S>                                                                             <C>           <C>              <C>    
Revenues from affiliates                                                        $25,900       $21,604          $18,387
Product purchases from affiliates                                                 7,207         7,898            5,605
Trademark license fees to affiliates and sales, product development and
   administration support services provided to the Company by affiliates          1,570         1,167            1,053
Rent and reimbursement of employee costs to an affiliate for Swiss
   marketing office                                                                 712           750              713
Product service fees paid to affiliates for items sold in the U.S. and
   shipped to international customer locations                                      245           127               12
Commissions paid to an affiliate for services to Latin American customers           193            22               --
License fees to affiliates for products developed by affiliates and sold by
   the Company                                                                       11            36               31
Interest income to the Company                                                       11            35              165
Interest expense to the Company                                                      --            --               35
                                                                             ===========   ===========   ==============

</TABLE>


         In addition, see Note 9 for transactions with an affiliate related to
discontinued operations, and Note 6 for lease commitments to an affiliate.

         Certain of the above expenses have been allocated to the Company by
affiliates. The Company believes such allocation methods are reasonable and
would not be materially different from what the expenses would have been on a
stand-alone basis.

4.  BANK LINE OF CREDIT

         In March 1995, the Company entered into a $5,000,000 unsecured line of
credit facility with a U.S. bank. In September 1996, availability under this
line was reduced by $267,000 as a result of a standby letter of credit issued by
the bank to secure the Company's group medical insurance plan. There were no
amounts outstanding under this facility during 1996 and 1995. The line, if used,
is payable on January 30, 1998 and bears interest at the lower of the bank's
prime rate minus .50% or LIBOR plus 1.25%. Under the terms of the facility, the
Company has agreed to certain financial covenants, including the maintenance of
stipulated amounts of quick working capital and tangible net worth. As of
September 30, 1996, the Company was in compliance with these financial
covenants.


                                       25

<PAGE>


5. INCOME TAXES

         The provision for income taxes from continuing operations includes the
following components (in thousands):

<TABLE>
<CAPTION>


                                                                YEAR ENDED SEPTEMBER 30,
                                               -----------------------------------------
                                                 1996           1995           1994
                                              ------------   ------------   ------------
<S>                                                <C>             <C>           <C>   
          Current tax provision:
             Federal                               $1,100          $ 337         $1,250
             State                                    241             50            184
                                              ------------   ------------   ------------
                                                    1,341            387          1,434
                                              ------------   ------------   ------------
          Deferred tax provision:
             Federal                                  780           (233 )          602
             State                                     87            (56 )           88
                                              ------------   ------------   ------------
                                                                            
                                                      867           (289 )          690
                                              ------------   ------------   ------------
          Provision for income taxes               $2,208          $  98         $2,124
                                              ============   ============   ============
</TABLE>



         As of September 30, 1996 and 1995, the components of the Company's net
deferred tax assets are as follows (in thousands):

<TABLE>
<CAPTION>
                                                                     SEPTEMBER 30,
                                                              --------------------------
                                                                 1996           1995
                                                              ------------   -----------
<S>                                                              <C>            <C>    
        Accrued expenses                                         $   452        $   630
        Deferred revenues                                            189            100
        Inventory reserves                                           428            960
        Research and development tax credit carryforwards             --            189
        Other                                                         10             67
                                                              -----------    -----------
                          Total deferred tax assets               $1,079         $1,946
                                                              ===========    ===========

</TABLE>


         The reconciliation of income tax computed at the U.S. federal statutory
income tax rate to income tax expense is:


<TABLE>
<CAPTION>

                                                                        YEAR ENDED SEPTEMBER 30,
                                                                -----------------------------------------
                                                                  1996           1995            1994
                                                               ------------   ------------    -----------
<S>                                                                   <C>            <C>            <C>   
         Tax at U.S. statutory rate                                   34.0 %         34.0 %         34.0 %
         State income taxes, net of federal benefit                    4.5             --            5.0
         Research and development tax credits                         (2.8 )        (22.0 )           --
         Foreign sales corporation                                    (4.5 )         (2.2 )           --
         Other, net                                                   (1.2 )         (1.1 )           --
                                                               -------------  ------------    -----------

                                                                      30.0 %          8.7 %         39.0 %
                                                               ============   ============    ===========
</TABLE>


6. COMMITMENTS

         The Company leases certain facilities under operating leases. The
corporate offices and manufacturing facilities of the Company are leased from a
partnership, the majority of which is owned by a beneficial shareholder of WGG.
Under these leases, which expire on September 30, 2005 and 2010, annual rent of
$1,046,000 (effective October 1, 1996) is payable in monthly installments. The
annual rent is adjusted each October 1 for changes in the consumer price index.
The aggregate future rental obligations disclosed below assume the 1997 rental
amount will 


                                       26


<PAGE>


not change for the duration of the lease. Rent expense under all leases was
approximately $1,153,000 in 1996, $939,000 in 1995 and $723,000 in 1994.

         Aggregate rental obligations for future fiscal years under leases
having remaining terms of one year or more, including the leases for the
corporate offices and manufacturing facility, at September 30, 1996, are as
follows (in thousands):



               1997                                $  1,162
               1998                                   1,132
               1999                                   1,068
               2000                                   1,047
               2001                                   1,046
               Thereafter                             6,848
                                             --------------
                                                    $12,303
                                             ==============

7. EMPLOYEE SAVINGS PLAN

         The Company has a defined contribution 401(k) plan that covers
substantially all employees. The plan provides for the Company to match
voluntary employee contributions. In 1996, the matching rate was 75% of the
employee contribution up to 6% of annual compensation. Such matching rate can be
changed at the Company's discretion. All contributions by the Company are funded
currently and vest over five years. All employee contributions are fully vested.
Total expenses related to this plan were $445,000 in 1996, $436,000 in 1995 and
$425,000 in 1994.

8. COMMON STOCK

SHARE REPURCHASE PROGRAM

         In November 1995, the Company's Board of Directors authorized the
Company to repurchase up to 200,000 shares of its Common Stock on the open
market to satisfy commitments under its stock option and stock purchase plans.
As of September 30, 1996, the Company has repurchased 100,000 shares at an
aggregate cost of $1,287,000.

OMNIBUS STOCK PLAN

         The Company has a stock plan (the "Omnibus Stock Plan") which provides
for the grant to selected employees and directors of incentive and non-qualified
options, stock appreciation rights, restricted stock, performance awards and
other stock-based awards. The purchase price for stock subject to these options
shall be no less than the fair market value of the common stock at the date of
the grant. The options outstanding under this plan vest over periods ranging up
to five years and expire over periods ranging up to ten years. In August 1996,
the Board of Directors authorized the increase of shares reserved for issuance
under the Omnibus Stock Plan from 775,000 to 1,175,000 subject to shareholder
approval.



<PAGE>


OUTSIDE DIRECTORS' STOCK OPTION PLAN

         In January 1994, the Company adopted an Outside Directors' Stock Option
Plan and reserved 25,000 shares of the Company's common stock for issuance under
the plan. Under the plan, each outside director joining the Company's Board of
Directors will automatically be granted options to purchase 1,000 shares. In
February 1996, the Board of Directors authorized an increase in the number of
options granted to outside directors upon annual re-election from 1,000 to 2,000
shares. All options will be granted with an exercise price equal to the fair
market value of the Company's common stock at the date of the grant. The options
outstanding under this plan vest over three years and expire in 10 years.


                                       27


The following table summarizes the activity under the Omnibus Stock Plan and the
Outside Directors' Stock Option Plan:

<TABLE>
<CAPTION>

                                                            SHARES
                                                         AVAILABLE FOR         OPTIONS            EXERCISE PRICE
                                                             GRANT           OUTSTANDING              RANGE
                                                        -----------------   ----------------    ---------------------
<S>                                                             <C>                                               
Balances at September 30, 1993                                       --                 --                      --
     Authorized                                                 400,000                 --                      --
     Granted                                                   (114,000  )         114,000           $10.00-$10.69
     Forfeited                                                    5,000             (5,000  )               $10.00
                                                        -----------------   ----------------    ---------------------
Balances at September 30, 1994                                  291,000            109,000           $10.00-$10.69
     Granted                                                    (97,000  )          97,000           $12.94-$15.19
     Exercised                                                       --             (9,900  )               $10.00
     Forfeited                                                    7,500             (7,500  )        $10.00-$15.19
                                                        -----------------   ----------------    ---------------------
Balances at September 30, 1995                                  201,500            188,600           $10.00-$15.19
     Authorized                                                 400,000                 --                      --
     Granted                                                   (521,900  )         521,900            $9.25-$19.00
     Exercised                                                       --            (22,990  )        $10.00-$15.19
     Forfeited                                                   51,210            (51,210  )         $9.25-$15.19
                                                        -----------------   ----------------    ---------------------
Balances at September 30, 1996                                  130,810            636,300            $9.25-$15.19
                                                        =================   ================    =====================
</TABLE>


Of the outstanding options, 36,173 were exercisable as of September 30, 1996.

EMPLOYEE STOCK PURCHASE PLAN

         The Company has an Employee Stock Purchase Plan under which employees
may authorize payroll deductions of up to 6% of their base compensation to
purchase common stock at a price equal to 85% of the lower of the fair market
value of the common stock at the beginning or the end of each offering period.
In August 1996, the Board of Directors authorized the increase of shares
reserved for issuance under the Employee Stock Purchase Plan from 100,000 to
200,000 subject to shareholder approval. Through September 30, 1996, 41,162
shares have been issued under the plan. Under the current offering, which
expires December 31, 1996, the offering price at the beginning of the offering
period was $9.08.

9. DISCONTINUED OPERATION

         In September 1992, the Company sold the net assets and liabilities of
its ATE business unit ("ATE") to an affiliate. In 1994, the Company provided
manufacturing and engineering services to ATE (revenues of $478,000), and
manufactured products for ATE (revenues of $1,953,000), both at the Company's
cost plus an appropriate profit. The revenues and expenses related to these
services have been reflected as income from discontinued operations of $334,000
($204,000 net of taxes). Revenues of $565,000 in 1996 and $1,261,000 in 1995
related to these activities are included in revenues from affiliates. In
addition, the Company has provided various administrative and other services to
ATE at the Company's approximate cost ($91,000 in 1996, $59,000 in 1995 and
$74,000 in 1994), which has been offset against selling, general and
administrative expenses.


                                       28

<PAGE>


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

         Not applicable.

                                    PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

         The information required hereunder relating to directors and executive
officers of the Company is incorporated by reference herein to the sections
captioned "Election of Directors;" "Management;" and "Compliance With Section
16(a) of the Securities Exchange Act of 1934" in the Company's definitive proxy
statement in connection with its Annual Meeting of Shareholders to be held on
February 5, 1997, which proxy statement will be filed with the Securities and
Exchange Commission not later than 120 days after the close of the Company's
fiscal year ended September 30, 1996.

ITEM 11. EXECUTIVE COMPENSATION

         The information required by Item 11 of Form 10-K is incorporated by
reference to the sections captioned "Election of Directors;" "Compensation
Committee Interlocks and Insider Participation;" and "Certain Transactions" in
the Proxy Statement.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

         The information required by Item 12 of Form 10K is incorporated by
reference to the section captioned "Security Ownership of Certain Beneficial
Owners and Management" in the Proxy Statement.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

         The information required by Item 13 of Form 10-K is incorporated by
reference to the section captioned "Certain Transactions" in the Proxy
Statement.

                                       29

<PAGE>


                                     PART IV

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

<TABLE>
<CAPTION>


                                                                                                      PAGE NUMBER(S)
<S>                                                                                                         <C>
   (a) (1)  FINANCIAL STATEMENTS
            Report of Independent Public Accountants                                                        17
            Consolidated Balance Sheets as of September 30, 1996 and September 30, 1995                     18
            Consolidated Statements of Income for the three years ended
               September 30, 1996                                                                           19
            Consolidated Statements of Changes in Shareholders' Equity for the
               three years ended September 30, 1996                                                         20
            Consolidated Statements of Cash Flows for the three years ended
               September 30, 1996                                                                           21
            Notes to Consolidated Financial Statements                                                      22

       (2)  Financial Statement Schedules:  Information required in financial statement schedules
              has been included in the accompanying financial statements or is in amounts not
              sufficient to require submission of schedules.
       (3)  See Index to Exhibits on page 30 of this Form 10-K.

   (b)      The Registrant did not file or amend any reports on Form 8-K during the last quarter of
              the fiscal year ended September 30, 1996
</TABLE>


          INDEX TO EXHIBITS

<TABLE>
<CAPTION>
Exhibit No.          Description of Document
<S>                                                                                   <C>
  3.1                  Amended and Restated Articles of Incorporation of the Company. (1)
  3.2                  Restated Bylaws of the Company.  (1)
  4.1                  Form of Common Stock Certificate. (1)
 10.1                  Order Processing Agreement effective as of October 1, 1993, by and between Wandel &
                       Goltermann GmbH & Co. Elektronische Me(beta)technik and the Company. (1)
 10.2                  Trademark Licensing Agreement effective as of February 1, 1992, as amended, by and between
                       WGG and the Company.(1)
 10.3                  Lease Agreement dated as of October 1, 1984, as amended, by and between Wandel &
                       Goltermann Associates and the Company. (1)
 10.4                  Distributor Agreement, effective as of October 1, 1993, by and between WGG and the
                       Company. (1)
 10.5                  Wandel & Goltermann Technologies, Inc. Omnibus Stock Plan. (1)(2)
 10.6                  Wandel & Goltermann Technologies, Inc. Employee Stock Purchase Plan.  (1)(2)
 10.7                  Wandel & Goltermann Technologies, Inc. Outside Directors' Stock Option Plan.  (1)(2)
 10.8                  Employment Agreement effective as of July 22, 1991, as amended October 1, 1993, between
                       the Company and Robert B. Davidson.  (1)(2)
 10.9                  Asset Purchase Agreement dated as of September 30, 1992, by and between Wandel &
                       Goltermann GmbH & Co. Elektronische Me(beta)technik and the Company (sale of ATE business
                       unit). (1)
10.10                  Amended and Restated Promissory Note dated as of January 24, 1994, by and between Wandel &
                       Goltermann GmbH & Co. Elektronische Me(beta)technik and the Company (sale of ATE business uNIt
                       to an affiliate).  (1)
10.11                  Agreement of Sale effective as of April 1, 1993, by and between Wandel & Goltermann Inc.
                       and the Company (purchase of U.S. sales and service operations of an affiliate).  (1)
10.12                  Note payable dated as of January 14, 1994, to German bank for Deutsche Mark ("DM")
                       2,000,000, due April 30, 1994.  (1)


                                       30


<PAGE>


10.13                  Note payable dated as of January 14, 1994, to German bank for DM 2,000,000, due
                       April 30, 1994.  (1)
10.14                  Term loan  dated as of February 7, 1991, with a German bank for $675,000, due
                       February 3, 1995.  (1)
10.15                  Note payable dated as of September 24, 1991, to German bank for $1,245,000, due November
                       30, 1994.  (1)
10.16                  Term loan dated as of February 18, 1992, with a German bank for $700,000, due
                       February 17, 1995.  (1)
10.17                  Term loan dated as of April 2, 1992, with a German bank for $1,750,000, due
                       March 1, 1996.  (1)
10.18                  Plan of Reorganization for Wandel & Goltermann effective February 7, 1994, by and between
                       the Company and Wandel & Goltermann (WGT), Inc. (1)
10.19                  Lease Agreement dated as of May 18, 1994, by and between W&G Associates and the Company.
                       (3)
10.20                  Loan Agreement and promissory note dated June 9, 1994, with a U.S. bank for up to
                       $2,000,000, due January 30, 1995.  (3)
10.21                  Loan Agreement and promissory note dated March 16, 1995, with a U.S. bank for up to
                       $5,000,000, due January 30, 1998.  (4)
11.1                   Statement of computation of earnings per share of common stock.
21.1                   Subsidiaries of the Company.  (1)
23.1                   Consent of Arthur Andersen LLP.
</TABLE>
--------------

(1) Incorporated by reference herein to the exhibit designated by the same
number in the Company's Registration Statement on Form S-1 (Registration No.
33-74564).

(2) Represents a management contract or compensatory plan or arrangement
required to be filed as an exhibit pursuant to Item 14(c) of Form 10-K.

(3) Incorporated by reference herein to the exhibit designated by the same
number in the Company's quarterly report on Form 10-Q for the quarterly period
ended June 30, 1994.

(4) Incorporated by reference herein to the exhibit designated by the same
number in the Company's quarterly report on Form 10-Q for the quarterly period
ended March 31, 1995.
--------------


                                       31

<PAGE>


                                   SIGNATURES

         Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized, in the City of Durham,
State of North Carolina, on December 20, 1996.


                             WANDEL & GOLTERMANN TECHNOLOGIES, INC.
                                  By:/s/         Gerry Chastelet
                                                 Gerry Chastelet
                                      President and Chief Executive Officer

December 20, 1996

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


<TABLE>
<CAPTION>
<S>                                      <C>                                                 <C>
     /s/         Gerry Chastelet         President and Chief Executive                       December 20, 1996
     ----- -----------------------------
                 Gerry Chastelet           Officer and Director (principal
                                         executive officer)


     /s/          Adelbert Kuthe         Vice President - Finance and Secretary              December 20, 1996
     ----- -----------------------------
                  Adelbert Kuthe           (principal financial and accounting
                                         officer)


     /s/          Herbert Bayer          Chairman                                            December 20, 1996
     ----- -----------------------------
                  Herbert Bayer


     /s/         Richard Pospisil        Vice Chairman                                       December 20, 1996
     ----- -----------------------------
                 Richard Pospisil


     /s/         Albrecht Wandel         Director                                            December 20, 1996
     ----- -----------------------------
                 Albrecht Wandel


     /s/           Rolf Schmid           Director                                            December 20, 1996
     ----- -----------------------------
                   Rolf Schmid


     /s/           Sidney Topol          Director                                            December 20, 1996
     ----- -----------------------------
                   Sidney Topol


     /s/           Peter Wagner          Director                                            December 20, 1996
     ----- -----------------------------
                   Peter Wagner

</TABLE>

                                       32